Finance Minister Mathias Cormann managed to tie himself into a reef knot yesterday and meet himself coming back.
He committed to the reforms to the Future of Financial Advice legislation, paused them, promised to consult in good faith, committed to them again, and then summarily dumped the main bits. Where are the financial planners and their clients left this morning? Tied up in knots.
The day began with a Cormann op-ed column in the Australian Financial Review, in which the Minister recommitted to the proposed FoFA repeals and undermined them at the same time.
“We have always been committed to the best interest duty and remain committed to it now,” he wrote to the readers of the AFR.
Huh? The proposed amendment clearly removes the general requirement to act in the best interests of clients. It’s the last catch-all item on a checklist of seven things in S.961B(2) that constitute “best interest” -- known as “little g”. The proposed Coalition amendment removes S.961B(2)(g).
But -- aha! -- Cormann is talking about another part of the Act: “…the existing section 961J states: ‘the provider must give priority to the client’s interests when giving the advice’. This is a clear and explicit legal requirement that the Coalition is neither removing nor amending.”
Oh right, so “little g” is going, but the general requirement to act in the best interests of clients is still there -- just lurking somewhere else. Fiendishly clever, Minister.
And then he wrote this gobsmacker: “Finally, we are not reintroducing sales commissions or conflicted remuneration for personal advice. We are not reintroducing adviser sales commissions for general advice either for that matter.”
Yes, Minister, you are reintroducing sales commissions for general advice. The proposed amendment, and Coalition policy, is perfectly clear on that score.
There followed a rant about industry funds and how they got a special deal from Bill Shorten, which I can’t even begin to understand, but the bottom line seems to be that the Coalition is allowing sales commissions for general advice because “non-industry fund financial product providers are effectively barred from incentivising their employees to provide general product advice about their own products. That is ridiculous.” He is, of course, referring to banks.
Then during the afternoon Cormann apparently briefed AFR journalist Christopher Joye that the amendments were to be “paused”. Joye promptly reported that the reforms were “frozen”, and the Canberra press gallery, bored with the hunt for MH370, went into an energetic flurry.
The ABC’s news desk rang and asked me to include this in last night’s finance report on the 7pm news. (It’s not all that interesting, undeserving of a separate package.)
I rang Cormann’s office to confirm the story, and was told it wasn't true. The Minister did not, in fact, say what he was reported to have said. “We’re going to put out a statement recommitting to the reforms to FoFA”, a spokesperson said. I rang the news desk to tell them, sadly, that there’s no story after all.
Then the following two-paragraph comment, attributable to the Finance Minister, appeared in my inbox.
“I have decided to pause the process on the FoFA regulation for the time being to enable me to consult in good faith with all relevant stakeholders before pressing the go button on our changes.
“We remain committed to implement the improvements to FoFA, which we took to the last election, as soon as possible.”
So it’s true after all. The AFR had two opposing scoops in one day: commitment and then pause.
Five minutes later, another email appeared in my inbox, with the sentences around the other way: “We remain committed to implement the improvements to FoFA, which we took to the last election as soon as possible.
“I have decided to pause the process on the FoFA regulation for the time being to enable me to consult in good faith with all relevant stakeholders before pressing the go button on our changes.”
Perception is reality, after all, and order is everything.
Some time later, a more fulsome six-paragraph press release was issued. It started with the old “we’re committed” line and went on to repeat that the process has been paused “to enable the Government to consult in good faith”, and then again committed to the reforms, presumably once the good faith consultation has been completed and completely ignored.
And then, astoundingly, the Minister finished his day’s work with these words, referring back to how the day began (his AFR oped):
“Furthermore I again confirmed (in the article) that the government is committed to the retention of the Best Interest Duty and that we do not intend to reintroduce conflicted remuneration or sales commissions for financial advisers.”
Right, then. He is committed to the commitment of not committing the previous commitment of removing the general best interests duty and sales commissions on general advice. He should be committed.
It is perfectly obvious now that the gutting of FoFA is itself about to be gutted. It’s a bit like when a Prime Minister reaffirms his undying commitment to a minister who has transgressed. Minister is clearly buggered.
With their FoFA reforms, Mathias Cormann and the temporarily buggered Arthur Sinodinos made the mistake of paying too much attention to banks and not enough to financial planners -- and in particular, good ones.
They don’t want commissions, full stop. They don’t particularly mind two-year opt-in, and the good ones couldn’t care less about the best interest duty -- they obey it, in full, every day of their lives.
Most financial planners want to be respected, professional providers of advice. Banks want them to be salespeople, flogging investment products on commission (low base pay).
The banks need to lose this one and the government – at last! – now understands this.