On first reading, the Senate committee’s review of the government’s amendments to the Future of Financial Advice legislation seems a mealy-mouthed shambles that mumbles its approval of the plan to throw FoFA under the bus -- and that’s the way it has largely been received.
But actually, read it carefully. The majority report from the Coalition senators is telling the Finance Minister, Mathias Cormann, to think again. It is the first half of an opportunity for the minister to stop digging and get out of the hole he’s in.
The report is mostly taken up with summarising the opposition to Cormann’s FoFA amendments, with apparent approval.
Then there are two quite clear recommendations:
1. "The committee recommends that the government consider closely how these separate obligations work together and whether any further strengthening is required to ensure that a provider cannot circumvent these best interests obligations."
2. "The committee recommends that the government consider the provisions governing conflicted remuneration and redraft them to ensure that there is greater clarity around their implementation."
There’s a pointless third one that says the government should give "due consideration to recommendations 1-2" and then pass the bill.
Each of recommendations 1 and 2 get to the heart of the problems with the government’s amendments.
It is planning to exempt “general advice” from the ban on conflicted remuneration, which would re-open the door to the payment of product commissions to financial planners.
Mathias Cormann says he doesn’t want to reintroduce commissions. The Coalition members of the Senate committee are telling him, in effect, that he needs to make that clearer, both in the explanatory memorandum and the bill itself.
With the obligation to act in the best interests of clients, the government wants to remove the catch-all provision that says advisers should take "any other step that, at the time the advice is provided, would reasonably be regarded as being in the best interests of the client, given the client’s relevant circumstances".
It was designed to ensure that acting in the best interests of clients doesn’t simply involve ticking a series of boxes to set up a legal defence.
In fact, there are several different legal obligations on advisers to act in their clients’ best interests. The committee is telling the minister and his legislation drafters to have another look at how these “separate obligations” work together to ensure that "a provider cannot circumvent" them.
I reckon that’s pretty clear. The committee is telling the minister to redraft the bill, but trying not to say it too loudly.
So I’ll do it for them: REDRAFT THE BLOODY BILL, MINISTER!
But wait … he should do it after another Senate inquiry -- the one by the Senate Economics References Committee into the performance of the Australian Securities Investments Commission -- has also reported.
The inquiry into ASIC’s performance has turned into a broader look at what’s wrong with the system for providing financial advice in Australia, and all the ways in which peoples’ lives were ruined because they were persuaded to put their life savings into a product that paid the adviser a whopping commission.
In a way, the two Senate inquiries were around the wrong way. The ASIC inquiry should have concluded before the other one began.
The ASIC one has been looking at what happens when advisers are paid commissions and don’t act in their clients’ best interests, and the inquiry into FoFA amendments has been looking at what to do about it.
So the Minister should wait for the second half of this opportunity (the Senate's report on ASIC's performance and the dreadful consequences of conflicted financial advice that it will contain) to think again before reacting to the suggestion from the FoFA committee’s report that he redraft the amendments.
Maybe if he does that -- and he also thinks about why he went into public life in the first place -- Australia’s hapless users of financial advice will end up with a good result.