Monday, April 23, 2018

Today by Paddy Manning

Royal commission omission
Fingers are pointing everywhere but at the policy error


The prime minister has admitted that the government made a mistake in resisting the appointment of a royal commission into the financial services industry for as long as it did. But there is no sign yet of a more important admission: that the Coalition got it badly wrong in 2014 when it wound back Labor’s Future of Financial Advice reforms, which sought to ban “conflicted remuneration” for financial planners. Finance minister Mathias Cormann bears most of the responsibility for the wind back, and until that fundamental policy mistake is rectified, the scandals will keep coming back to haunt the government.

Since former Nationals leader Barnaby Joyce tweeted last Wednesday that he had been wrong to argue against a banking royal commission, much media focus has been on extracting similar admissions from other government members. Financial services minister Kelly O’Dwyer’s desperate wriggling to avoid an admission on the ABC’s Insiders program yesterday was painful to watch; the prime minister’s very limited admission in Germany overnight has regained a modicum of credibility for the government. By admitting a “political” mistake, the PM is dodging the fact that the government has got its policy wrong. Likewise, Tony Abbott today sought to blame the corporate regulator, the Australian Securities and Investments Commission, without acknowledging any errors when he was PM.

On the flipside, there’s been all kinds of attempts to take the political credit for the commission: perhaps the most detailed came from the Greens’ treasury spokesperson, Peter Whish-Wilson, who tweeted an eight-part chronology that underlined the importance of the Greens’ novel proposal for a parliamentary commission of inquiry, which, once it was backed by the Nationals, forced the government’s hand.

Debating who deserves credit for the appointment of the royal commission (or blame for its delay) does not get us any closer to a solution to the underlying problem. The simple truth is that although the revelations so far have been sensational, and have shocked us all, we didn’t actually need this royal commission to tell us that conflicted remuneration is a problem, and we should not need to wait for its final report before acting to reinstate an effective ban on conflicted remuneration now. So far, Cormann is refusing, as when he gave this interview to Sky on Friday:

KIERAN GILBERT: And in relation to the developments out of the royal commission, for example the AMP controversy, will this prompt any change to your approach? Will you support, for example, Labor’s Future of Financial Advice approach, which previously the government sought to overturn?

MATHIAS CORMANN: That is just inaccurate Labor rhetoric. We never sought to overturn the Future of Financial Advice reforms. We pursued some sensible adjustments to it, which made it more efficient and more effective …

Cormann’s position simply will not stand up to scrutiny and will become more untenable as the royal commission proceeds. Cormann argued that Labor’s FoFA reforms had gone too far and that the government had kept the most important of them by retaining provisions requiring financial advisers to act in the best interests of their clients. The government was wrong, and they were warned at the time. Take one “adjustment” that Cormann made to the FoFA reforms in 2014, ostensibly on the grounds that it would lower the regulatory burden and therefore the cost of advice for retirees: “we did not think it was appropriate to force people across Australia saving for their retirement to re-sign contracts with their advisers on a regular basis,” Cormann said at the time. But that is precisely the kind of provision that would prevent the kind of fee-for-no-service scandals which shocked the public last week. You can’t charge ongoing hidden fees to a former client, or a dead person, if you need to get their signature every year.

Just as treasurer Scott Morrison moved last week to toughen up penalties for corporate crime, there are some obvious reforms that can happen right now. No journalist has done more to shine the spotlight on dodgy practices in the financial advice sector than Adele Ferguson, in a series of investigations for Fairfax Media and the ABC’s Four Corners program that first sparked calls for a royal commission. In her regular AFR column today [$] she backs a call made during the FoFA debate four years ago by the then chairman of the Financial Planning Association, Matthew Rowe, for a complete separation of product and advice, so that financial planners can give truly independent advice.

As Crikey’s Bernard Keane wrote in this masterful account [$] of the FoFA debate, and again today, much of the Coalition’s policy in this area has been motivated by an ideological war against union-linked, non-profit, low-fee industry super funds who do not pay sales commissions to financial advisers. But here’s a prediction: you won’t find industry funds on the stand in the royal commission.

It may be time for the finance minister to eat some humble pie and admit that it was his dilution of FoFA that went too far.

since this morning

The banking royal commission heard the number of cases of shoddy advice given by financial planners at ANZ exploded [$] by more than 40 times over eight years, even as the number of advisers working for the group fell.

Wealthy property developer Ron Medich is likely to die in jail after a jury found him guilty of the 2009 murder of his nemesis Michael McGurk and the later intimidation of McGurk’s widow, Kimberley.

Government-owned shipbuilder the Australian Submarine Corporation is axing [$] almost 200 jobs, mostly in Adelaide.

in case you missed it

Renewable energy body the Smart Energy Council is preparing [$] to campaign against the National Energy Guarantee and has pledged to target state and territories who sign up, while seeking commitments from the federal Opposition for significant changes.

The Australian’s Simon Benson writes [$] that today’s 31st losing Newspoll, in which the Coalition is slightly behind the Opposition at 49–51, was “possibly worse news for Bill Shorten than it is good news for Malcolm Turnbull … with the gap tightening even further in the latest results, the prospect of Shorten losing the unlosable election also becomes increasingly possible.” The paper also reports [$] that Bill Shorten’s closeness to the construction union is fanning discontent among members of his frontbench.

The SMH reports on how Rachel Murphy enrolled in a fitness coaching diploma at Sage Institute – the private training college heavily promoted by Biggest Loser star Steve “Commando” Willis – and became another footnote in what was arguably the biggest public policy scandal in Australian history: the systematic rorting of the vocational education and training system.

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Paddy Manning

Paddy Manning is contributing editor (politics) at The Monthly and has worked for the ABC, Fairfax, Crikey and The Australian. He is also the author of three books, including a recently updated unauthorised biography of Malcolm Turnbull, Born To Rule?

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