As of today, we no longer have the consumer protections we need when we seek financial advice. But the fight isn’t over yet. Now it is up to the Senate to protect consumer rights.
On Monday 30 June the Acting Assistant Treasurer, Senator Mathias Cormann, publicly released regulation to take effect just ten hours later, on Tuesday, 1 July. This regulation repeals key components of the Future of Financial Advice, or FoFA, protections.
These changes will leave consumers worse off, with retirees or people saving for retirement the most at risk. Even though the changes to consumer protections have already been made, there is a window of time when the Senate can repeal these harsh new rules.
Nothing is certain, but if we keep the pressure on, there is a good chance our consumer protections will be restored before the end of the year.
CHOICE will continue to campaign to save FoFA and you can help us. If you haven’t signed our petition, and you can help us, just register here to become a campaigns supporter.
What will the regulations mean for you?
The regulations introduced are complex and remove several different protections. As of today:
- The obligation that an adviser must act in the client’s best interest is watered down.
- An adviser is able to bypass the obligation to act in their client’s best interest when scoping what topics will be included in advice.
- An adviser will be able to place their own or their employer’s interests ahead of their clients when recommending certain products, like general insurance.
- Conflicted remuneration, such as bonuses linked to sales targets, are now allowed in certain cases – including in retail banking environments. This will reinvigorate a sales-driven culture and encourage mis-selling, particularly at your local bank branch.
- Advisers no longer have to send an annual statement of fees to clients who entered into a product before 1 July 2013.
- Advisers are no longer required to check if clients want to opt in to ongoing advice every two years – a requirement which stops people paying for advice they no longer need.
- Advisers who collect commissions on superannuation products sold before 1 July 2014 will be able to continue to collect these commissions when their client retires, allowing a lifelong commission for the sale of a product.
- There are even more situations where advisers can buy and sell ongoing commissions that were entered into before 1 July 2013.
How can the Senate repeal these regulations?
Parliament is still able to repeal the regulation by voting on a disallowance motion. Any Member of Parliament or Senator can give notice of a disallowance motion but, as the Coalition government controls the House of Representatives, the regulation will probably be disallowed by the Senate.
The Greens and the Labor Party have said they will introduce a disallowance motion to repeal the regulation. For this to be successful, three additional votes from cross bench Senators are needed.
Incoming Senators Bob Day (Family First) and David Leyonhjelm (Liberal Democratic Party) have not indicated how they will vote on this issue.
Independent Senator Nick Xenophon and John Madigan of the Democratic Labor Party have not confirmed how they will vote but have spoken against changes to consumer protections under FoFA.
The Palmer United Party and the Motoring Enthusiasts Party, who have four Senate votes between them, have also not indicated how they would approach a disallowance motion. However, Clive Palmer has been a vocal critic of the removal of consumer protections under FoFA. Just last week, the PUP leader and MP was quoted as saying
“What sort of an idiot tries to take away from Australians their normal right to a fair go? … The men and women of Australia – the pensioners and working classes – should be allowed to rely on the advice they’re given.”
The timeline and procedure for regulation to be disallowed is set out in the Legislative Instruments Act (2003) and is dependent on the parliamentary sitting calendar.
First, the government must present the regulation to the Senate within six parliamentary sitting days of registration. Any Senator then has 15 sitting days to give notice of a motion to disallow the regulation. Another 15 sitting days is then given for the Senate to vote on the motion. If successful, the disallowance motion would repeal the regulation.
Based on the current parliamentary sitting calendar, a disallowance motion could be passed any time from 7 July to early 2015.