Labor Senator Sam Dastyari slams the wind back of financial advice laws in the Senate. Photo: Alex Ellinghausen Palmer United Party leader Clive Palmer has struck a deal with the Abbott government to wind back reforms to financial advice laws. Photo: Alex Ellinghausen
Super system could face revolutionary changesComment: Cormann can’t escape conflictsThe Pulse Live with Judith Ireland
The Abbott government has rescued its financial advice laws through an 11th hour deal with the Palmer United Party but the changes have drawn harsh criticism for increasing red tape and diminishing the rights of investors.
The regulations will allow financial planners associated with banks to continue to receive payments for directing customers towards the banks’ own products.
Finance Minister Mathias Cormann revealed in the Senate that the government had agreed with the balance-of-power senators to introduce further protections as a condition of their support for the unravelling of changes made under the previous Labor government.
It capped a tumultuous few days during which Labor tabled the government’s reforms against its wishes and Clive Palmer said negotiations with the Coalition were not taking place when they obviously were.
The deal, first reported by Fairfax Media on Tuesday, caught Labor and the Greens by surprise and saw them attempt to block the changes with a motion of disallowance in the Senate.
The final Senate vote of 31-34 for disallowance meant the attempt to strike down the changes failed.
Labor has argued its Future of Financial Advice reforms were aimed at stopping the kind of fraud that ruined the retirement plans of investors who sought the advice of the Commonwealth Bank’s financial services arm and lost their life savings.
In a letter from Mr Cormann to Mr Palmer, the government agreed to require financial advisers to act in the best interests of their client and prioritise their client’s interests ahead of their own.
It also requires advisers to disclose to clients any payments they receive from product providers, give clients the right to return financial products under a 14-day cooling-off period, and change instructions to their adviser if they experience a change in their circumstances.
The regulations also specify that any instructions to alter or review instructions must be in writing, signed by the client, and acknowledged by the client.
The government has also agreed to establish an “enhanced public register” of financial advisers, including employee advisers, which includes a record of each adviser’s credentials and status in the industry.
The head of the government’s financial system inquiry, David Murray, expressed dismay on Tuesday that there wasn’t already a public register of approved financial advisers.
His inquiry recommends a register and higher trading standards.
The chief executive of National Seniors, Michael O’Neill, said the deal would do nothing to help investors or fix problems in the industry.
“On the surface it adds nothing to the issue at all, except potentially another layer of red tape, which was the reason why the government made its changes to start with. This was a grubby deal and Clive Palmer has treated older Australians with contempt the way he’s dealt with this today,’’ he said.
Mr O’Neill on Wednesday expanded on his comments casting doubt over Mr Palmer’s claim that he was a friend to pensioners.
”I think they’ll be looking long and hard and wondering whether Mr Palmer is all that he claims to be,” he told ABC radio.
But Mr Palmer rejected suggestions he should have consulted with groups such as National Seniors.
”I’ve been dealing with banks for 40 years, and lobbyists and advisers,” Mr Palmer told ABC radio.
”I didn’t become a billionaire by listening to advisers tell me how to do it who don’t earn half as much.”
Treasurer Joe Hockey on Wednesday defended the changes, saying Labor’s protections were a red tape ”mess”.
The government’s changes reduced red tape by $200 million a year, he said.
”I see that as a good saving for consumers and at the same time they’re getting better regulation,” Mr Hockey told ABC radio.
Shadow treasurer Chris Bowen said Tuesday’s developments had ”humiliated” the government and let down consumers.
”We saw the chaos of Mathias Cormann being humiliated, forced to read a letter out into the parliament with Clive Palmer sitting in the Senate watching the deal that he’d done be implemented by insisting that Mathias Cormann read his letter out into the Hansard of the Senate,” Mr Bowen told ABC radio on Wednesday .
”I mean, for a government that said there would be no deals with minor parties under any political movement I lead, this just shows there’s no election promise he won’t break.”
Mr Bowen said the government’s changes to the FoFA regulations had scored a ”daily double” by reducing consumer protections from unscrupulous financial planners and increasing red tape.
”They’ve emasculated the requirement to work in the best interests of the client,” he said.
“They have wrecked it. They watered it down so far that it is, in our view, no where near as effective as it was under our administration and needs to be going forward.”
Opposition Leader Bill Shorten said Prime Minister Tony Abbott had put the interests of the Palmer United Party leader ahead of Australian investors.
Mr Abbott had promised not to deal with minor parties, he said. ”This is the mother of all backroom deals and it’s Australian investors and families who’ll pay for it,” Mr Shorten said.
The head of the Financial Services Council, John Brogden, said the amended regulations would make financial advice more accessible and affordable.
David Whiteley, of the Industry Super Association, said the changes would not prevent bonuses and other forms of conflicted remuneration being paid to financial advisers.
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