Mathias Cormann

The Financial Services Council (FSC) is leading a delegation of senior Australian funds management executives to South Korea and Japan this week to promote trade opportunities ahead of the commencement of the Asia Region Funds Passport regime at the start of next year.

Senator the Hon Mathias Cormann, Finance Minister and Deputy Leader of the Government in the Senate, will lead the delegation, which has been arranged with the support of Austrade.

The delegation will meet with funds management leaders in Tokyo and Seoul, as well as with senior officials from local financial services bodies, business councils and sovereign wealth funds to promote Australia as an important financial services trading partner in the region ahead of the commencement of the Asia Region Funds Passport on 1 January 2018.

FSC CEO Sally Loane said: “With the fourth largest pool of managed funds globally and deep expertise derived from managing one of the highest regarded pension systems anywhere in the world, Australian fund managers have much to offer our trading partners in Asia.

“With the right policy settings and the full support of our neighbouring economic partners, financial services, which is already the biggest contributor to the Australian economy, can flourish as the growth engine of the nation.”

The delegation includes representatives from the FSC, Austrade, AMP Capital, Challenger, La Trobe Financial Asset Management, NAB Asset Management, Nikko Asset Management, Regal Funds Management, Aberdeen Asset Management and Yarra Capital Management as well as PwC, KPMG, King & Wood Mallesons and Hall & Wilcox.

It will also be joined by representatives of the Australia-Japan Business Cooperation Committee and Japan-Australia Business Cooperation Committee.

The trade mission to Japan and Korea this week follows a meeting of the Passport Joint Committee in Thailand last week where regulators from participating jurisdictions discussed progress on the Passport.

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Sally Loane

Last week’s announcement that Japan, Korea, New Zealand, the Philippines, Thailand and Australia intend to participate in the Asia Region Funds Passport (ARFP) will significantly boost the trade of managed funds within economies in Asia.

Sally Loane, CEO of the Financial Services Council said: “The Asia Region Funds Passport will provide the regulatory framework and architecture for mutual recognition of fund operators and investment funds between participating countries.”

“The inclusion of Japan is welcomed by the Australian financial services industry. It is a game changer for the passport and the Asian region.”

“With $4 trillion of funds under management Japan is one of Asia’s largest funds sectors. Its participation will provide the passport with scale, efficiency, competition and choice.”

“The passport will offer investment managers across the region a viable alternative to the European Union’s regime which has a strong foothold in Asia.”

“It will mean the economic benefits of cross-border financial services will remain within the Asian region, instead of Asian savings benefiting Europe.”

“With 60 per cent of the world’s population but only 12 per cent of the worldwide funds under management, Asia has an enormous potential to increase its funds management capabilities.”

“Consumers across the Asian region will be able to benefit from a more diverse set of investment products offered by a range of managers, whilst still receiving high levels of regulatory protection and oversight,” Ms Loane said

A study by AT Kearney and the Financial Services Council shows it is conceivable that the ARFP could exceed $600 billion of funds under administration, around 11 per cent of the market, by 2030.

Ms Loane also said: “The Statement of Understanding signed today in the Philippines shows a strong commitment from participating economies to continue the excellent work which has been achieved to date.”

“The FSC commends the work that has been undertaken by the APEC Ministers, government departments and regulators in progressing this essential regional architecture.”

The vision of an Asian passport has been supported by many Australians – particularly Mark Johnson, Chris Bowen, Mathias Cormann and Josh Frydenberg who have championed this project.

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Mark Rantall

The Financial Planning Association of Australia (FPA) yesterday acknowledged the findings of the Senate Committee inquiry into a streamlined Future of Financial Advice (FoFA) Bill and welcomes recommendations clarifying that there is no intention to reintroduce product commissions under The General Advice exemption.

Four years after the FoFA process began under Labor, the FPA is eagerly anticipating the next phase of the FoFA which rests now with the Coalition Government and Minister for Finance Mathias Cormann.

“We now anticipate that Minister Cormann will respond to the Senate Report and execute a Bill in the true best interest of consumers, remove red tape and costly duplication and provide certainty to our profession and the wider financial services industry,” said Mark Rantall, FPA CEO.

Mr Rantall said today’s Senate Committee findings acknowledge the FPA’s concerns with the possible reintroduction on commissions and the government now has the opportunity to effect meaningful laws that protect the financial wellbeing of all Australians and banish forever the threat of commission-driven sales on their investments and superannuation.

“We look forward to the formal response by the Australian Government to the detail of the Senate Committee’s findings,” Mr Rantall said.

“We are pleased to see that the FPA submissions made to this Inquiry, particularly the FPA’s 10 point plan, found a receptive ear with the Senate Committee members as reflected in the main report as well as the dissenting report.

“We look forward to the next step in the process and working with Minister Cormann and the Government to help take these recommendations into law.”

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Mathias Cormann

The Financial Services Council has commended the formal establishment of the Commission of Audit announced today by the Treasurer, Joe Hockey and Finance Minister, Mathias Cormann.

“The Commission of Audit will be the first comprehensive review of Federal expenditure since 1996 and will be an opportunity for the government to get the budget right and to position Australia for future growth”,  John Brogden, CEO of the FSC said.

“It will also provide  an opportunity for the government to start with a clean slate and to remove inefficiencies that are stunting productivity within the public sector.”

“It is a positive sign that the Government is taking a considered approach in applying an independent process with some of Australia’s leading experts to  assess the future of Australia’s economy rather than relying on quick fix budget measures.”

“There will be some hard decisions to come out of this process, but it’s good for the future of Australia’s economy and to  protect our country from international economic volatility,” said Mr Brogden.

“The FSC congratulates Tony Shepherd on his appointment as head of the Commission of Audit.”

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The Hon. Chris Bowen MP

Both the government and the opposition have provided their support for the 13^th annual Financial Planning Week running nationwide from 26^th August to 1^st September this year.

The Financial Planning Association initiative is designed to encourage, empower and educate all Australians about the positive difference that trusted financial advice can make to their lives.

The Hon. Chris Bowen MP, Treasurer said: “The year 2013 will be remembered as the year superannuation commenced its increase to 12% and the year FOFA commenced. I commend the work of the Financial Planning Association who has played an instrumental role in helping to shape the reforms and improve professionalism in financial planning.  An important priority for a re-elected Rudd Labor Government will be to ensure that legislation to enshrine the term financial planner is passed through the parliament as rapidly as possible. I support the FPA’s work through its Financial Planning Week initiative to help Australians gain a better understanding of how quality financial advice can help them to retire with comfort and dignity.”

Senator Mathias Cormann, Shadow Assistant Treasurer and Shadow Minister for Financial Services and Superannuation said: “There is no doubt that Australians who start planning early, with the benefit of high quality advice to help them make informed decisions about financial challenges and opportunities throughout their lives, will end up better off. Those organisations which step up to the plate to champion the importance of high quality professional financial advice deserve our support. That’s why I strongly support the Financial Planning Association’s commitment to the promotion of professional standards and high quality advice. With increased public trust in the high standards of Australia’s professional financial planners more Australians will seek advice and benefit from the improved financial health and wellbeing which comes with having a plan.”

The FPA welcomed support from the government and the opposition, highlighting the significance of cross party support for increasing access to advice for all Australians.

“Our research tells us that 61% of Australians do not receive financial advice and 87% are unaware of the Future of Financial Advice (FoFA) reforms*. The FPA community is committed to improving these statistics and Financial Planning Week is one way we can do this. Our qualified financial planners have volunteered their time through the Ask an Expert campaign and are providing the general public with free financial advice throughout Financial Planning Week. We encourage all Australians to use this opportunity to improve their financial futures,” said Rantall.

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The function, which will be held at the Intercontinental Hotel, Sydney on 30 November, will also feature a panel discussion on Australia’s economic future, hosted by former NSW Liberal Leader Kerry Chikarovski.

The event mirrors a similar event organised by Dr Virtue last year which attracted around a hundred financial services representatives, including finance industry leaders, the heads of financial services associations and financial advisers from every state.

“We expect this year’s event to draw an even bigger crowd, given the present economic climate and the high level of activity going on in the finance and financial services industries,” Dr Virtue said.  “We believe the industry is very keen to hear the Coalition’s vision for the Australian Economy as we move into election mode and are looking forward to hearing Senator Cormann’s view of the world.”

Senator Cormann has been very vocal in his criticism of the Labor Government’s handling of the economy and specific issues such as the mining tax, the budget deficit, elements of the Future of Financial Advice (FOFA) reforms and MySuper.

Bookings for the function, which also includes a unique food and wine experience from a group of South Australian sponsor companies, can be made by clicking here.

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Hon Bill Shorten MP, Minister for Financial Services & Superannuation said:
“The year 2012 will be remembered for the passage of historic reforms to ensure Australians can access good quality financial advice and increase the superannuation guarantee to 12%.  I commend the work of the Financial Planning Association who has played an instrumental role in helping to shape the reforms and improve professionalism in financial planning.  I equally support the FPA’s work through its Financial Planning Week initiative to help Australians gain a better understanding of how quality financial advice can help them to retire with comfort and dignity.”

Senator Mathias Cormann, Shadow Minister for Financial Services and Superannuation said:
“There is no doubt that Australians who start planning early, with the benefit of high quality advice to help them make informed decisions about financial challenges and opportunities throughout their lives, will end up better off. Those organisations which step up to the plate to champion the importance of high quality professional financial advice deserve our support.

“That’s why I strongly support the Financial Planning Association’s commitment to the promotion of professional standards and high quality advice. With increased public trust in the high standards of Australia’s professional financial planners more Australians will seek advice and benefit from the improved financial health and wellbeing which comes with having a plan.” 

Mark Rantall, CEO of the FPA welcomed the announcements:
“We welcome the acknowledgment and support from the government and shadow government for the launch of this year’s Financial Planning Week. Financial planning is integral to the financial wellbeing of all Australians. Research shows that people with a dedicated financial planner are more likely to feel financially secure and are more confident in dealing with their greatest financial concerns than those without. 

 “Financial Planning Week aims to encourage, educate and empower Australians to address their financial situation and discover the positive difference that sound financial advice can make. This is another initiative in our long-standing commitment to increase access to trusted financial advice for Australians.”

Financial Planning Week takes place from 20-26 August 2012.

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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.

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It has been a long process, this whole FOFA process. To think that it’s been two years now since the Ripoll Inquiry which made all sorts of sensible recommendations on how the financial services regulatory framework could be improved, and here we are two years down the track and we’re still having arguments about things that, quite frankly, don’t have anything to do with sensible reform of the financial services industry but were always part of a vested interests agenda, an agenda driven by a particular segment in the financial services market, which quite frankly has hijacked what should have been a very important process for this industry.

Let me start off, as I always start off, to make the point right up front. The Liberal Party and the Coalition more generally, we approach this industry from the clear understanding that you provide a very important service to the community. As financial advisers, as professionals in the financial services industry, you help people with their financial health and well-being, you help people manage their financial risks, you help people maximise their financial opportunities and quite frankly, rather than to make it harder for you to do your job, rather than make it harder for people to access high quality financial advice, there should be more financial advisers and more people taking advantage of financial advice.

Because the better you as an industry are able to educate people across Australia about how better to manage their risk, how better to maximise their financial opportunity, the better it is for all of us. And the better it is, quite frankly, for governments and the Budget bottom line. And looking at the state of the Budget bottom line right now, I think there is a need for significant additional financial advice, perhaps to the people who currently occupy the Treasury bench.

Let me make some observations upfront, and then we might take it to an informal question and answer session. This has been a long process, we are getting to the pointy end of it and of course, what is on the table now, in terms of FOFA, is very different from what the Ripoll Inquiry recommended two years ago. But it’s also very different from what Bill Shorten announced would be the Government’s intentions as recently as April and even August this year.

We do of course now have two pieces of legislation in relation to the future of financial advice changes before the Parliament. They have been sent to a Parliamentary Inquiry – the so-called Joint Statutory Committee on Corporations and Financial Services which will have hearings in January and I certainly encourage the industry as a whole and all of you to take an active interest in how that particular committee goes about its business. Please don’t assume that just because that committee’s chaired by a Labor Member of Parliament, that it’s necessarily just going to tick and flick anything that the Government puts forward.

And let me just pause here for a moment. It is actually great to be at a function where all six associations representing different perspectives in the financial advice and financial services industry are represented. Tony, next time, maybe you just have to get John Brogden along as well and then we’ll really have the team complete.

Clearly, when things go wrong, as they did three or four years ago with the collapse of Storm Financial, it is appropriate for policy makers and the industry to take a step back and reflect on how things can be improved. But of course you have to be very honest and very clear about what it is you are trying to achieve and you have to be very clear about making changes that are there to make things better. Just to increase red tape and make things more complex is obviously not the way to go.

You want to focus on changes that are going to improve consumer protection, if that is required, in a way that is sensible, that is efficient, and that’s not just going to make us the champions of red tape. And in relation to some of the changes that are on the table, you all are aware, of course, that the Government now, for the past two years, has been pursuing this push to force people to re-sign contracts with their adviser on a regular basis. Initially that was a yearly opt-in; now it is opt-in every two years.

Quite frankly, that is a completely unnecessary intrusion by Government in the contractual relationships between clients and their advisers. Ultimately, as long as there is transparency of information around the fees that are being charged; as long as there is a capacity for people to make judgements on whether they can get value out of that relationship and make decisions about whether to continue or discontinue, there’s no role for government to interfere in the middle of that and say, you shall not sign a contract for more than a two-year period and of course, then enforce all of these additional regulatory requirements in relation to all of this.

And incidentally, while I’m talking about the process: we’ve now got two parliamentary committees that will scrutinise the legislation before us. One of them is going to report in February, the other in the middle of March. The starting date is supposed to be 1 July 2012 and Mike, I’ve got something here for you – where’s Mike Taylor from Money Management, I saw him here before. Mike, something for Money Management: The Coalition calls on the Government to Delay the Implementation Date for FOFA.  That would make a good headline, I think.

Quite frankly, this whole process has been quite a mess. It’s been going for the last two years since the Ripoll Inquiry reported. It’s been chopping and changing and as recent as a couple of weeks ago, the legislation that was introduced was different from the exposure draft that was put forward in August, significant parts of it were different. There were changes. One day Bill Shorten wants to ban commissions on all risk insurance inside superannuation, then he realised that was actually bad policy and he moved away from that to a certain extent but not enough.

There’s still a whole lot of issues unresolved, there’s a lot of uncertainty still, there’s clearly – anybody in the industry that I talk to says there is no way if legislation is passed by the end of March in relation to FOFA can be seamlessly implemented by the industry come 1 July 2012.

Now I asked Treasury, doing the most recent estimates, whether the intention was still to go along with the 1 July 2012 implementation date and they say yes, it is.  But what is Treasury going to say? It has to be Bill Shorten who makes the call. But given the way he has mismanaged the process, given how long it’s taken, given that we’re getting so close to the 1 July implementation deadline  I really do call on Bill Shorten to make an announcement very soon that the implementation date for FOFA to be delayed, to facilitate a seamless transition. That would certainly provide some more certainty around how the practical implications of this are going to work out.

Just to clarify again the Coalition position – we are in favour of any measure that improves the transparency and competitiveness in the financial advice industry; we are in favour of anything that will make financial advice more available, more affordable, more accessible. We are not in favour of making change just for change sake. We are not in favour of making change just because David Whiteley from the Industry Super Network thinks it’s a good idea and because he just happens to have the ear of Minister Shorten. We will make a judgement on everything before us on the basis of: is this going to make things better or is it just going to make things more complex and less affordable? Is this something that is going to make advice more available, more accessible, more transparent, more competitive – or is this something that is part of a vested interest agenda that is being pursued by one segment of the market at the expense of others?

In relation to all of this, we will be moving amendments to the future of financial advice legislation, to remove the opt-in requirement. We are still keeping an open mind on the final makeup of the Best Interests Duty, we do support the principle of having a statutory Best Interests Duty enshrined in the Corporations Act, we think that’s sensible. That was actually one of the recommendations out of the Ripoll Inquiry – unlike opt-in, which wasn’t. But we understand there are some details still to be worked through to make sure we get the balance right and to make sure we have a workable Best Interests Duty.

There is still the issue of intra-fund advice which we think really demonstrates – dare I say – hypocrisy, inconsistency certainly within government policy. The Government is saying to advisers – you are charging all these for services you don’t provide; all these people are paying for advice they don’t get. We would question that. But on the other hand, the Government now wants to enshrine in legislation intra-fund advice, which is personal advice, [the cost of] which can be bundled into the admin fee. So we are talking about intra-fund advice; advice that funds can provide to their own members, beyond general advice, personal advice, the cost of that advice to be bundled into the admin fee – ie not being transparent – and of course, the cost of that advice being spread across the whole membership collectively, irrespective of whether or not people access advice. Now, how does that fit with the stated objectives of FOFA? Well, it doesn’t. And these are the sorts of issues we will be pursuing in the context of that legislation.

We will also be focussed on forcing the government to fulfil its election commitment to introduce competition into the default fund market. You’d be aware that at the moment, the process to identify default funds under awards is an anti-competitive closed shop arrangement. It’s going through Fair Work Australia in a way that is not open and not transparent, even the Labor Party recognises that. They promised they would ask the Productivity Commission to design a process to make the selection of the default funds under awards more open and more transparent and more competitive. Bill Shorten has now been the Minister for more than a year and surprise, surprise he has been rather unenthusiastic about fulfilling that particular election commitment. We will certainly be pushing him in relation to that for when that legislation will be available before the Parliament.

On a bit of a sombre note, on previous occasions when we’ve met in forums like this, we’ve always worked on the basis that we’ve got a minority government that can propose in the Parliament whatever they want; unless they could convince a number of independents they would not be able to get any of the legislation through the Parliament. We were always hopeful that we would be able to find one independent who could see the error, to see that opt-in is bad policy.

Now since that time, since we’ve been having these conversations, there’s obviously been a change in the make-up of the Parliament. A member from Queensland must have had some advice from his local financial planner about his retirement arrangements and decided to take up an offer from the Government for a better paying job. And that has changed the dynamic of the Parliament a bit. But we should continue to focus between now and whenever the legislation is tabled in the House of Representatives, we should continue to focus on all the independents and make sure that we explain the policy case against bad bits of FOFA, and explain it to them very clearly.

Maybe I’m being naïve to think that there is any chance that we can achieve any change there, but small business financial advisers in their respective electorates, whether its Andrew Wilkie, Tony Windsor or Rob Oakeshott, clearly have an opportunity to make a real difference there. 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.

We will try to move amendments to the FOFA legislation to make it better. If we don’t get the amendments up, we will be opposing the legislation. But our preference would be to get amendments passed by the parliament that would make what is currently a bad piece of legislation better and better to the extent that all of us would see that it is better to have it remain in play.

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