It’s been an exciting week full of drama, tension, and mystery for financial services, and it’s set to end on a cliff-hanger.
What will become of Australia’s Assistant Treasurer Senator Arthur Sinodinos, who just stepped down after a media frenzy followed his involvement in a major corruption case?
And what does this mean for the FoFA amendments that he headed, some of which are currently in front of Parliament?
Last week Sinodinos gave an indication
that selected FoFA amendments would be seen in Parliament very soon…and then suddenly he was gone, and the amendments were introduced as part of the launch of the red tape repeal.
The Sydney Morning Herald
reported the reforms were to be “snuck through” ahead of the launch of this twice yearly “red tape day”, which is designed to cut $1 billion of red tape annually.
Given the heated debate the proposed amendments have spurred, it’s hard to understand why the amendments won’t be delayed and considered in David Murray’s looming Financial System enquiry, the report said.
Sinodinos’ swift exit could indeed mean more delays according to business analyst Max Franchitto, who gives best practice advice to planners.
He told Wealth Professional
that the Assistant Treasurer’s decision to stand down could see more lobbying and consultation about the FoFA amendments.
“People will see this as an opportunity to try and convince the new minister to do differently," he said.
Sinodinos’ temporary (or perhaps permanent) sojourn came after revelations about his role in a case that has seen Australian Water Holdings in front of the NSW Independent Commission against Corruption (ICAC) due to its links with crooked former powerbroker Eddie Obeid.
The commission heard that Sinodinos, the then NSW Treasurer of the Liberal Party, was paid $200,000 a year for not “more than 100 hours” of work after his 2008 installation on the board of AWH. He stood down from the board in November 2011 to take his position in the senate.
The case will investigate whether or not Obeid lobbied Labor colleagues on behalf of the company.
Until it is resolved, Sinodinos has been replaced by finance minister Mathias Cormann.
The minister, of German-speaking Belgium decent, migrated to Australia in 1994. He swiftly joined the Liberal Party in Western Australia and has since held roles including ministerial chief-of-staff, the senior adviser to then minister for justice and customs, and the state senior vice-president of the WA Liberal Party.
After all this kerfuffle, advisers will surely be keeping a keen eye on what will happen to the FoFA amendments that were once Sinodinos’ babies.
Introduced to Parliament on Wednesday, they will likely be tabled as regulations over the next few weeks, the Sydney Morning Herald
But the changes may not clear the senate before the end of June because of the opposition by Labor and the Greens.
Industry reactions to the introduced amendments, which included an eleventh hour change to the general advice exemption, have generally been positive.
The Financial Planning Association of Australia (FPA) was particularly pleased with the last-minute general advice change.
The new amended form will essentially restrict the receipt of conflicted remuneration to employees only of a financial services licensee.
“Today’s change of tack by the Government is a welcome approach. It shows our repeated efforts on behalf of Australian consumers and professional financial planners have not gone unheard,” said CEO Mark Rantall.
Similarly, the SMSF
Professionals’ Association of Australia (SPAA) gave the thumbs up to the best interests duty (BID) amendment, which will see the removal of the seventh step or “catch all” provision of the duty. This amendment in particular has caused fiery debate across lobby groups.
“SPAA does not agree with the criticism that the changes to the BID have inherently weakened how it works,” said CEO Andrea Slattery. “In our opinion, the general requirement to act in the best interests of the client in relation to the advice still remains.”
Industry Super Australia on the other hand, vehemently oppose the Abbott Government amendment to BID. They say it will reduce the quality of advice clients receive and put advisers at risk of litigation.
“[It] was the only part of the test which referred to acting in a client’s best interests. It would be preferable to remove the other steps and leave in place the catch all,” deputy CEO Robbie Campo told Wealth Professional
But Brad Fox, the CEO of the Association of Financial Advisers (AFA), said "rubbish": not
removing the seventh step in BID will lead to litigation.
“It’s an open-ended clause and there hasn’t been anyone who has been able to categorically say what it means. The only way to put your finger on it would be in court,” he told Wealth Professional
. “As long as it is there it will certainly end up in court. It needs to be amended.”
Other proposed changes will mean that clients won’t have to renew their ongoing fee arrangements with their advisers every two years, while advisers won’t need to provide a fee disclosure statement in arrangements after July 1, 2013, reported 9 News National
Another of the drawn-back requirements is on scaled advice, where advisers will be able to limit the scope of advice to a particular area in consultation with the client.
But until the introduced amendments have time to be broken down and digested – again – the world of financial services will be sitting pretty in anticipation of more of the debates and lobbying sure to unravel.
It’s nothing new, said business analyst Franchitto.
“Every decade we’ve had legislative change – we’re used to it. The financial services industry needs to get on with it, and advisers need to get on with what they do best.”