Will FOFA hold up to parliamentary scrutiny?
Mike Taylor writes that the dissenting reports produced within the Parliamentary Joint Committee reviewing the Future of Financial Advice bills will ensure the key points are thoroughly debated and possibly successfully amended in the Parliament.
No one should be surprised that the parliamentarians who make up the Parliamentary Joint Committee (PJC) reviewing the Government's Future of Financial Advice (FOFA) bills could not find the same consensus that existed in 2010.
Opt-in and annual fee disclosure were always going to be the stumbling blocks to bipartisanship.
While the Minister for Financial Services, Bill Shorten, is expected to endorse some of the suggested amendments flowing from the PJC reports, he has made clear both publicly and in private negotiations that his position remains fixed on the issues of opt-in and fee disclosure.
Given the tensions which arose within February's battle for the Federal Parliamentary Labor leadership between Prime Minister Julia Gillard and the man she ousted, Kevin Rudd, the ALP members of the PJC were always regarded as highly unlikely to disagree with Shorten's approach.
Thus, the final shape of the FOFA legislation will be largely determined by the success or failure of amendments moved by the Federal Opposition during debate in the House of Representatives in coming weeks.
This reality underscores the continuing presence of representatives from the Financial Planning Association (FPA), the Association of Financial Advisers (AFA) and the Financial Services Council (FSC) in Canberra over recent days.
Realising that a number of the key issues would be fought out on the floor of the Parliament, the key lobby groups devoted significant time to gaining the ear of the key independents – an exercise that has met with varying levels of success.
What the financial planning organisations know is that they can rely on Port Macquarie-based independent Rob Oakeshott supporting an opposition amendment with respect to opt-in and the probable similar support of Tasmanian independent Andrew Wilkie along with Far North Queensland's Bob Katter.
Less certain is the view of Tamworth-based independent Tony Windsor, while the Australian Greens appear to have fallen in step with the Government on the FOFA bills.
At least a part of the problem for Shorten in gaining sufficient House of Representatives support for all of the FOFA bills is the growing body of evidence that suggests that it has failed to appropriately gather the necessary evidence concerning regulatory and financial impacts.
This much was made clear in evidence given during Senate Estimates hearings in early February, where representatives from the Department of Finance confirmed that much of the FOFA legislation had failed to meet the requirements concerning Regulatory Impact Statements (RIS).
What might be of greater concern to the independents in the House of Representatives is the fact that once the Government signaled it had made up its mind on where it was headed with the policy, the appropriateness or otherwise of the RIS became academic.
The proceedings during Senate Estimates relating to the FOFA bills and representatives of the Office of Best Practice Regulation are informative, with the exchange with the Opposition spokesman on financial services Senator Mathias Cormann going like this:
Senator Cormann: When you say you did not get it to an adequate standard, normally it is a negotiation is it? It goes backwards and forwards, where a department puts up a draft Regulatory Impact Statement to you and you say, “That's not enough”, then they go back and do some more work and then it comes back.
Mr McNamara: That is right, Senator.
Senator Cormann: But on this occasion they decided not to do that because they had run out of time.
Mr McNamara: They had run out of time. There was an interaction. They were preparing it. They had responded to some comments we made. In our view they had not responded enough. Had there been more time, I would have thought they would have been able to get those RISs across the line. They would have been able to get them to an adequate standard, but there was not enough time.
Senator Cormann: It is good process, though, with significant regulatory changes like that which increase costs for business which increase costs for consumers? It is good process to have adequate information about cost benefit before you make a decision, right?
Mr McNamara: That is why we have a RIS process.
Hardly surprisingly, the Coalition members of the PJC pointed to the absence of RIS sign-off as being one of the reasons for their dissenting report on the FOFA bills.
Their dissenting report made clear the key points of difference were opt-in, annual fee disclosure and best interests duty.
As well, they have argued that the FOFA legislation should be delayed to coordinate its implementation with the Government's MySuper initiative.
While the Government is not expected to accede to the dissenting points made by the Opposition, the financial planning industry can at least be satisfied that the legislation will be subject to a thorough debate in the House of Representatives and the hope that enough independents will support the amendments they want.
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