The Government’s highly anticipated amendments to the Future of Financial Advice legislation have finally been implemented, taking the form of regulations introduced by Senator Mathias Cormann in late June. But no sooner had the regulations been registered, they were targeted by Labor Senators, determined to protect their party’s original reforms package. Emily Saint-Smith provides this update on the latest events in the ongoing FoFA saga...
They say a week is a long time in politics, so two weeks must be an eternity, and that is no doubt how the Senators involved in the latest FoFA stoush must have felt. Just before the Senate was due to meet for its Winter sitting in July, Finance Minister and Acting Assistant Treasurer, Senator Mathias Cormann, delivered the Corporations Amendment (Streamlining Future of Financial Advice) Regulation 2014 to the Attorney General for registration.
According to Parliamentary procedure, once regulations are registered, the member responsible for their introduction must table the regulations before their House. Members have up to six sitting days to do this, but it is generally expected that they be tabled on the first available sitting day. The House then has 15 days in which it can lodge a ‘motion to disallow’, which, if agreed to, means the regulations cease to have effect.
Here’s a brief summary of how the introduction of the FoFA regulations played out in the Senate last month…
FoFA regulation disallowance timeline
- 26 June – FoFA regulations ‘made’
- 30 June – FoFA regulations registered
- 1 July – FoFA regulations become effective, removing the opt-in requirement, retrospective fee disclosure statements, and the catch-all clause in the best interests duty
- 7 July – First sitting day of Winter session. Labor Senator Sam Dastyari questions Senator Cormann about why he has not tabled the FoFA regulations in the Senate
- 8 July – Senator Dastyari attempts to table the regulations himself. His attempt is denied by the Government.
- 9 July – Senator Dastyari tries again to table the regulations. He is successful. The Opposition now has 15 days in which to lodge a ‘motion to disallow’.
- 15 July – Senator Dastyari and Greens Senator, David Whish-Wilson, lodge a motion to disallow the regulations. Senator Cormann announces he has reached an agreement with the Palmer United Party (PUP) and Australian Motoring Enthusiast Party (AMEP) Senators, securing their vote in the motion. Labor’s motion is voted down.
- 16 July – Senator Dastyari announces a second motion to disallow, this time calling on the Senate to reject all of the reforms contained within the regulations except for the grandfathering amendments. It is placed on the Senate notice paper for discussion the following sitting day.
- 17 July – Senator Dastyari’s motion is postponed, due to debate on the Government’s budget Bills. The motion is rescheduled for debate in August.
The ‘Palmer deal’
In order to secure enough votes to overrule the Opposition’s motion to disallow, Senator Cormann sought the support of Clive Palmer, asking him to instruct his three PUP Senators and the AMEP Senator to vote with the Government.
Mr Palmer agreed to the arrangement, on the condition that the Government take further steps to protect consumers.
In a letter to Mr Palmer, reiterating the terms of the agreement, Senator Cormann confirmed that the Government would alter the FoFA legislation so that:
- The following requirements, as set out in the Corporations Act, are explicitly listed in the Statement of Advice (SoA), which is to be signed-off by both the adviser and the client:
- That the adviser is required to act in the best interests of their client and prioritise their client’s interests ahead of their own
- That any fees be disclosed and that the adviser provide a fee disclosure statement annually if the client enters into an ongoing fee arrangement after 1 July 2013
- That a client has the right to return financial products under a 14-day cooling-off period
- That the client has the right to change his or her instructions to their adviser, if, for example, they experience a change in their circumstances
- That any requests to alter or review instructions must be in writing, signed by the client and acknowledged by the adviser
- The financial adviser is required to provide an explicit statement in the SoA that he or she genuinely believes the advice provided is in the client’s best interests, given the client’s relevant circumstances
In addition, Senator Cormann agreed that the Government would work in consultation with all relevant stakeholders to establish an enhanced public register of financial advisers, including employee-advisers, which would contain a record of each adviser’s credentials and status in the industry.
As part of the arrangement, Senator Cormann committed to introducing the additional requirements via regulations within ‘the next 90 days’. He has already taken steps to establish an industry working group to discuss the enhanced adviser register.
What happens now?
Parliament is scheduled to meet again on 26 August. Senator Dastyari’s motion to disallow the FoFA regulations, with the exception of the grandfathering elements, is likely to be debated in the Senate sometime during this week. While many expect that the deal with the PUP Senators will hold for this second vote, history tells us that Mr Palmer is unpredictable.
Meanwhile, in order to satisfy the 90-day commitment to Mr Palmer, Senator Cormann is likely to take steps to introduce, via further regulations, additional changes to FoFA. These regulations, once registered and tabled, will also be subject to a potential disallowance motion.
The existing FoFA amendment legislation, drafted by former-Assistant Treasurer, Senator Arthur Sinodinos, is still to be passed by both Houses of Parliament. Industry commentators believe that Senator Cormann will update this legislation to include the Palmer requirements, and then table the amendment Bill in the House of Representatives during the August sitting. Shadow Treasurer, Chris Bowen, has already flagged that the Labor party will vote against the legislation.
Work has begun on the creation of a new adviser register. Senator Cormann has convened a working group, including representatives from the Association of Financial Advisers, Financial Planning Association and consumer organisations, to develop the register.
Finally, submissions are currently being sought by the Parliamentary Joint Committee for Corporations and Financial Services on its inquiry into education and professional standards for financial advisers. Submissions close on 5 September. There is currently no reporting date listed for this inquiry.
Like it or not, there is still some way to go before the FoFA narrative comes to its conclusion. Stay tuned to riskinfo news for the next instalment…
Emily Saint-Smith is riskinfo’s Senior Journalist.