Financial services industry rallies to fight FoFA

In a huge demonstration of support for the work being done by the Federal Opposition to oppose elements of the Future of Financial Advice (FOFA) reform that threaten the financial advice industry, a hundred financial services representatives – including advisers from every state in Australia, industry leaders and the heads of all six adviser associations – attended a Liberal Party Fundraising lunch in Sydney last week. Special guest speaker at the lunch was Senator Mathias Cormann, Shadow Assistant Treasurer and Shadow Minister for Financial Services and Superannuation.

The event was organised by veteran financial adviser, Dr Tony Virtue of Virtue & Partners, who said that the profound impact of the proposed FOFA reforms on the millions of people around the country that the industry currently serves, spurred him into political action.

“We can’t be a protected species as an industry but some of FOFA has been beyond the pale,”  Dr Virtue said. “Two or three years ago, I would not have attended a function like this. This is what FOFA does. It forces you to get up and do something.”

The event united the heads of all adviser associations – including the AFA, the AIOFP, the BFPPG, the FPA and SPAA – at the one table. Dr Virtue, who is a member of all six, said the presence of the association heads reveals that although each association has a different view of the world, they have more in common than they have differences.

“I’m very proud of the contribution each and every association has made,” he said. “It’s a bit like going to a party. You have a different perspective, based on where you are in the industry. If you have a big risk insurance business, you see the world very differently from if you’re advising on self-managed funds. If you are running a large corporate super block of business, again you see things differently. But we have much more in common than what makes us different.”

Dr Virtue said one of his concerns in relation to FOFA is that, if made law, advisers will not be able to provide services to members of corporate super funds. He cited a case in which the family of one of his clients, a young woman who had chosen to keep her group life insurance policy in force despite leaving the company, received a $420,000 death benefit following her accidental death on holiday in Thailand.

“She had kept the policy in force for $3 a week. That’s what a group plan can do. Had she been in an industry fund, and had left that place of employment, after six months her insurance would have been cancelled out and there would have been nothing. For those of you who are interested, I think I made 20 to 30 cents a week on that policy.”

Advisers raised the question of FOFA’s ban on risk commissions within super with Senator Cormann who said that while the Minister for Financial Services and Superannuation, Bill Shorten had backed away from a blanket ban on risk commissions, some questions remain around group insurance.

“The principle should be that if you access advice, whether you structure your insurance inside or outside super should not make any difference in terms of how you pay for that advice,” he said.

Advisers also asked Senator Cormann whether the Coalition, if it were in power, would reverse the severe tax penalties recently imposed on people who have inadvertently exceeded their concessional caps.

Although Senator Cormann said that “people who make inadvertent errors in relation to excess contributions should be able to rectify those errors” and “there might be fees with processing it, but not the sorts of penalties they are currently exposed to”,  he also said the Coalition was currently looking at the issue and could not make any comment about what they might do retrospectively.

In a response to a call from advisers to have adviser fees made tax deductible, Senator Cormann said that it was a Budget issue.

“Right now the Budget is in a very bad state… I understand that financial advisers around Australia have the aspiration of having their fees made tax deductible. It’s something that will be in the mix of the whole issue, once the Budget is in surplus.”

Senator Cormann echoed adviser concerns around trusteeships, reporting standards and corporate governance of industry funds.

“The Cooper Review made some very sensible recommendations on how corporate governance and transparency could be improved,” he said.

“The Government has been very unenthusiastic about this. We think there are some pretty basic things that should happen very quickly… We do have to have better arrangements around broader competition, around management of perceived conflicts of interest in terms of directors who want to sit on multiple boards…  There should be better management of conflicts in relation to Labor Party transactions and there should be increased transparency around investment performance; there should be a more level playing field around a couple of requirements for all superannuation funds operating in Australia.

“These are some issues we are likely to pursue in the context of MySuper legislation that is coming out. We are going to be moving amendments along those lines to all these sorts of issues.”

In response to a question on what the advice community could do, if it were to combine its resources, in order to have its views loudly heard by the Australian public, Senator Cormann advocated continued strong lobbying of Members of Parliament in marginal seats.

“Make sure they understand that there’s a groundswell of opposition to the bad parts of FOFA,” he said.

“… continue to focus on the Independents because that is your best bet… if you want to make it more difficult for the government to pursue bad policy, which is going to hurt your business as well as your clients, to the extent that you can, generalise the groundswell of opposition to what the Government’s doing, in particular within marginal seats…”

However, Senator Cormann warned that recent events mean the dynamic of Parliament has changed, making it more difficult to oppose FOFA.

“… we should continue to focus between now and whenever the legislation is tabled in the House of Representatives …. on all the Independents [however] We need two now rather than one to stop bad legislation from getting up and we need three rather than two in order to get amendments passed.”

Senator Cormann also used the lunch to formally call on the Minister for Financial Services and Superannuation to delay the implementation of FOFA legislation.