The government has grabbed an unlikely victory to preserve its changes to Labor’s Future of Financial Advice legislation, after a last-minute deal with Clive Palmer.
Just over a week after Palmer insisted his party would not be swayed by government lobbying and “they can stick it up their arse”, PUP senators and their ally, Motoring Enthusiast Ricky Muir, voted against disallowance of the regulations.
Finance Minister Mathias Cormann, desperate to save his changes – which consumer and seniors’ groups have widely condemned as watering down FoFA – secured PUP’s support by agreeing to make further regulations spelling out protections.
For Cormann, regarded as one of the most ideological ministers in the government, it was a significant personal victory.
Palmer’s U-turn will give the government greater hope of cutting deals with PUP on other issues. Hours before the Senate vote, Deputy Prime Minister Warren Truss told the Coalition parties the government was still “learning to deal with the crossbenchers” to achieve its agenda.
The government now knows that even the most unequivocal statements by Palmer are not necessarily immutable – that, whatever he’s said, he may be willing to play. This presumably increases the incentive for the government to humour him when it can – provided he doesn’t set the price too high. It will be a game of wits.
On FoFA, Palmer has ended up centre stage, rather than just being part of a political consortium (with Labor and Greens) saying no. He was able to claim ownership of the outcome. “I was negotiating as hard as I could for the people of Australia,” he told reporters.
He negotiated into the early hours of Tuesday. Cormann read the terms of the deal into the Hansard (presumably Palmer thought one couldn’t be too careful).
Publicly, the issue was surrounded by confusion. At one stage on Tuesday morning Labor seemed confident it had the PUP senators in its camp.
The government will be delighted to have got its way, but it risks alienating older voters, an important Liberal constituency. Its actions continue to carry significant dangers for the Coalition; Labor can campaign on bringing back stronger consumer protections.
National Seniors Australia chief executive Michael O'Neill, who previously had exchanges of text messages in which Palmer indicated he was on side with their concerns, accused the PUP leader of stringing him along.
“Then he changed direction. Older Australians have been treated with contempt,” O'Neill said.
Palmer indicated it wasn’t just the consumer groups who’d not been consulted – he said he hadn’t spoken with the financial advice industry either in developing his proposals. “I thought it out. I drew on my own experience,” he said, but then quickly mentioned the “team” of senators.
In his letter to Palmer, Cormann pledged the government would make further regulations within 90 days to ensure certain requirements “are explicitly listed in the Statement of Advice provided by financial advisers to their client and signed off by both”. (In fact they’re already in law or in practice covered by professional standards.)
The requirements are that the adviser has to act in the best interests of the client and prioritise the client’s interests ahead of their own; fees are to be disclosed and the adviser will provide an annual fee disclosure statement for post-July 1 2013 arrangements; a client can return financial products under a 14-day cooling off period; and the client has the right to change instructions to the adviser, if for example they experience a change in their circumstances.
The government also agreed to work in consultation with stakeholders to “establish an enhanced public register of financial advisers”, including advisers who were employees. The register would have on it their credentials and status in the industry. The initiative for this, a proposal supported by various inquiries and submissions, came from Muir.
The disallowance vote was lost 31-34, with the minority comprising Labor, the Greens and independent Nick Xenophon. The DLP’s John Madigan abstained.
Critics condemn the Palmer deal as adding red tape without significantly increasing protections.
Cormann won over Palmer on the day when the interim report of the inquiry into Australia’s financial system, chaired by former Commonwealth Bank CEO David Murray, said it “considers the principle of consumers being able to access advice that helps them meet their financial needs is undermined by the existence of conflicted remuneration structures in financial advice”.
While the government insists it has retained the ban on commissions and conflicted remuneration, its changes allow incentive payments for general advice in certain situations.
The government’s regulations have survived despite the background of the Commonwealth Bank of Australia scandal in which many people lost their savings due to bad or fraudulent advice. In the Coalition parties room on Tuesday, National Party minister Luke Hartsuyker revealed that his parents had been victims of the CBA affair and said there should be a new Senate inquiry. Treasurer Joe Hockey, whose mother-in-law also lost money (although was later compensated), lashed out at the regulator, the Australian Securities and Investments Commission, saying it “failed miserably and I am very, very unhappy with this”.
In the Senate, Labor’s Sam Dastyari used the line that’s becoming the opposition’s mantra: the PUP was “wagging the tail wagging the dog”. To the Palmerites, he said: “You have been sold a pup.”
There’s another way of looking at it. At the end of the day, Palmer wanted the PUP to have the last bark.