Financial planners have finally been given the details of the Government's FOFA reforms. In an editorial written prior to the release of the reform package Mike Taylor warned the Government of the implications of pursuing dubious policies at the expense of planners.
If everything goes to the plan broadly indicated by the Assistant Treasurer, Bill Shorten, Australian financial planners ought to be able to see the first draft of the Future of Financial Advice legislation within the next few weeks.
Given that to meet that deadline the Government’s legislative draftsmen will have begun working on the bills some weeks ago, planners should not expect the document will contain any radical concessions or changes. Rather, what they will see is a direct expression of government policy as conveyed by the Department of Treasury.
Draft legislation gives legal form to government policy and is usually subject to a period of consultation before it is ultimately introduced to the Parliament. As such, the financial planning industry and other key stakeholders will have the opportunity to make further comments and representations.
However if, as expected, Shorten opts to take the legislation into the Parliament in two tranches, then the industry will have to decide what it is prepared to accept in the first tranche knowing that it will need to leave room to continue haggling with the Government over the contents of the second tranche.
It is now apparent that the only concession on offer from Shorten is a change to the Government’s approach to the banning of all commissions on risk products within superannuation, as indicated at the Financial Services Council (FSC) conference earlier this month.
Shorten indicated to the FSC that the Government would be prepared to revisit the risk commission issue and to consider allowing the maintenance of commission-based remuneration with respect to individually advised risk products. However, it is understood that his delivery of that undertaking will be subject to the planning industry ceding at least some ground on other issues.
The minister is playing a dangerous game because the move for a blanket ban on risk commissions inside super always represented dubious policy, carrying with it a myriad of unintended consequences – many of which, were last week laid bare by modelling undertaken by specialist risk research house DEXX&R.
That modelling not only confirmed the expected significant diminution in income for those advising on risk products, it also pointed to a significant magnification of Australia’s already significant under-insurance problem.
In other words, by trying to pursue the elimination of commissions as argued by industry superannuation fund lobbyists, the Government risks exposing itself to a set of potentially politically embarrassing, unintended consequences.
Ambitious politicians looking to amass a record of viable legislative reform can ill-afford to have embarrassing unintended consequences tarnish their legacy. Reversing the Government’s approach on risk commissions in super is therefore not so much a bargaining chip as a political necessity.
