It will take a while for the dust to settle on the Future of Financial Advice reform package, which passed the House of Reps last night after negotiations between the independents and Bill Shorten.
However, despite press reports to the contrary, the compromise agreed appears to preserve the critical opt-in requirement for financial advice fees.
In the final bill passed last night, the requirement for financial planners to obtain agreement to financial advice fees every two years remains. That opt-in measure is designed to end the highly damaging practice of financial planners relying on clients’ disengagement to charge continuing fees for advice clients neither seek nor want, which costs Australians thousands of dollars a year.
However, the requirement has been amended to allow ASIC to exempt anyone "bound by a code of conduct approved by ASIC” if the code "obviates the need for persons bound by the code to be bound by the opt-in requirement”.
ASIC only registers industry codes if they’re enforceable, are developed through consultation and "elaborate on, exceed or clarify the law”.
Financial planning industry bodies like the Financial Planning Association will now have to develop codes of conduct by 2015 in order to ensure their members will not become subject to the simple opt-in requirement. But importantly, ASIC’s own rules prevent it from allowing the code of conduct to go below that requirement.
The amendment is a win for bodies like the FPA, which can now manage the opt-in requirement themselves via a code of practice. The FPA has mounted a clever grassroots lobbying campaign to convince independent MPs, and particularly Rob Oakeshott, to block opt-in. Opt-in has divided planners, with more professional planners insisting the days of lazy planners relying on disengaged clients to deliver a stream of revenue must end.
But the compromise also, curiously, may lock opt-in more securely. Throughout the entire FoFA process, the Coalition has maintained its refusal to play any sort of constructive role, and simply done the bidding of the holdout and dead-ender financial planners who resent any attempt to reform the industry. Bear in mind the Coalition’s position on financial advice is driven by bitter resentment of compulsory super and loathing of the industry sector for operating funds for the interests of members, rather than generating profits for financial planners and financial institutions.
Last night it was frothing at the mouth about how it would be repealing the reforms when it got into office.
By that time, however, the Coalition may find the industry itself has moved on, overhauling its culture from within, rather than being driven by externally-imposed legislation. The amendments now establish a process by which the industry itself will evolve more quickly toward a profession, rather than being heavily regulated by government.
The final outcome – assuming successful passage of the Senate – is a win for Bill Shorten, who has shepherded the reforms through despite industry opposition and hung on to most of them. Shorten had inherited the reform package from Chris Bowen, but he gets the kudos for securing passage.
For all the compromises, it remains a solid reform in the Labor tradition – in the national interest and in the interests of working Australians, however little attention they might pay to it.
This story first appeared on www.crikey.com.au on March 23. Republished with permission.