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Future Fit Advice

The kid stays in the picture

Alex-Burke's avatar
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12 days ago

Just so we’re clear: the Mad Max films are, and always have been, set in Australia. 

They were all shot in Australia, too – aside from Fury Road, of course, which had to be relocated to Namibia due to a surprise wildflower bloom near Broken Hill. I had assumed all of this was common knowledge, but given the appearance of articles like this during Furiosa’s release, I realised someone had to correct the record. 

Goose’s wicker-ute? Mundi Mundi in The Road Warrior? Bruce Spence gyrocopting past a bifurcated Sydney Harbour Bridge in Beyond Thunderdome? The fact that the Ford Falcon XB GT is a more consistent marker of the Max Rockatansky character than the actor playing him? Insufficient evidence, according to a certain subsector of the moviegoing public. 

Obviously, we need more: maybe Max (or Furiosa) could uncover the buried secrets of the Contiki pilgrimage. Perhaps a newfound settlement has to broker an uneasy alliance with the fearsome Eagle Boys – while elected officials investigate rumours of a terrifying cult operating out of the rusted carcass of the Big Prawn.  

Following yesterday’s passage of the Delivering Better Financial Outcomes and Other Measures (DBFO) Bill in the Senate, I’m hopeful that the substantial increase in the location tax offset (to 30%) will incentivise further Mad Max productions – and, by extension, opportunities to clarify the uniquely antipodean flavour of the Max mythos. 

For a while, it appeared as if the Bill was dead in the water. It endured multiple amendments, revised explanatory memoranda, a Senate committee hearing and a decent amount of invective in the press. Surprisingly, though, very little of this had to do with the location tax offset – instead, the focus was primarily on financial advice.

So: what’s that all about? 

Minutes before the guillotine

As we recently discussed, the main point of contention in the DBFO Bill – or the parts of it that weren’t about film production or petroleum exploration, anyway – concerned paragraphs (1)(a) and (1)(b) of the proposed replacement for section 99FA of the SIS Act. 

Per the (1)(a) wording, super funds would be prohibited from charging members for advice unless the advice was “wholly or partly about the member’s interest in the fund.” Moreover, trustees would need to ensure, in line with (1)(b), that the amount charged did not “exceed the cost of providing financial product advice about the member’s interest in the fund.”

Speaking at a Senate committee hearing, representatives from the FAAA, the Joint Licensees Group and the Law Council of Australia (LCA) argued that the new 99FA would effectively require super fund trustees to audit every advice fee deduction in order to comply with the proposed legislation. And as part of this audit process, FAAA CEO Sarah Abood said advice businesses would need to redact any “sensitive, personal information" in client documentation so as to avoid breaching the Privacy Act.

“Completing this redaction task is time-consuming,” Abood explained, “as it is for super funds who must read these documents and form a view on whether that advice meets the sole purpose test. Thus we are concerned this new wording could significantly increase the costs of both providing financial advice and administering super funds.”

While the Government attempted to allay these fears in a revised explanatory memorandum – which proposed "random or risk-based sampling of advice" as an alternative to per-member audits of every advice fee deduction – it was observed by both the FAAA and the LCA that the text of the Bill would prevail over explanatory material should the matter ever be tested in court. 

Despite these concerns (and a dissenting report from Coalition Senators Andrew Bragg and Dean Smith), the Senate committee ultimately concluded that trustees’ “existing audit and review mechanisms” would be sufficient to comply with the DBFO requirements. As a result, it was assumed the Bill would be debated in the Senate without any further revisions. 

Well, you know what they say about assumptions. Three days ago – “minutes before the guillotine,” as Bragg put it – the Government put forward one final amendment to the beleaguered first tranche of its post-QAR reform agenda. 

Instead of needing to verify the extent to which advice related to a member’s interest in the fund, trustees would only need to be satisfied that it was personal advice. And paragraph (1)(b), which mandated that the amount charged to the member doesn’t exceed the cost of providing advice about the member’s interest in the fund? Removed entirely. 

This is a pretty stunning volte-face – after all, it’s been less than two months since the post-Budget briefing where Assistant Treasurer Stephen Jones said the Government had “got it right” on fee deduction, and just three weeks since the Senate committee signed off on the Bill.

What happened here?

Under the cover of chaos

According to Senator Jane Hume, who spoke in support of the Bill yesterday, the Government was “shamed” into making these changes. 

“While the Coalition will now support this Bill because of the amendments,” she explained, “we condemn the Government and [Stephen Jones] for making it so hard to simply get the right outcome for Australian financial advisers.”

Hume noted the significant delay between the final QAR report and the first tranche of legislation – “a staggering 17 months,” she said, attributing the hold-up to “a disengaged, distracted and disingenuous Assistant Treasurer.” 

Stephen Jones, she concluded, had proven himself to be “out of touch, out of his depth [and] unable to deliver meaningful reforms that benefit the financial advice sector and by extension benefit all Australians.” 

Andrew Bragg was similarly exultant in his Senate comments, thanking Jones for his “capitulation”. 

“It was only a few weeks ago that we had a hearing into this particular bill,” Bragg said, “and it was at that hearing that the Government appeared to defend the drafting that was pointed out to be problematic by parts of industry and also by the opposition.”

He continued: “I’ll give credit to the Government for agreeing to amend the legislation in the way that we [suggested], but I put on record that this is a very small reform in the financial advice space.”

The harshest criticism of the last-minute DBFO amendments, however, came from Greens Senator Sarah Hanson-Young, who suggested the changes would allow advisers to “price-gouge” their clients. 

Hanson-Young said the Senate hadn’t been given sufficient time to consider whether removing (1)(b) from the proposed legislation would “lead to a situation where financial advisers can spruik to a potential client something like, ‘Hey, I can give you a range of financial advice relating to negative gearing or a new investment property or superannuation … but the best part is you don't have to pay; we can charge the fees to your super account.’” 

She added: “This is the type of insidious, dishonest, tricky behaviour that the banking Royal Commission called out and said needed to be cleaned up.”

As to why the Government would rubber-stamp this kind of “tricky behaviour,” Hanson-Young said the amendments were a “deal done with the Dutton Coalition under the cover of the chaos the Government is currently in.” 

“You are a Labor government and you're just undermining your own superannuation system,” she said. “Get a spine. I mean, honestly.”

One hopes trustees’ “existing audit and review mechanisms” will play a role in averting this potential doomsday scenario. 

On the road again

Still: despite the crucible in the Senate, passage of the DBFO Bill represents the Government’s first meaningful legislative progress on advice since the Quality of Advice Review. Critically, it also means an imminent relaxation of fee renewal and disclosure requirements – which currently occupy an outsized position in the workload of many advice businesses. 

The big question, though, is what happens next. The Bill will need to make another quick stop in the lower house due to the Government’s final amendments, but this isn’t expected to encumber the process to any significant degree. 

However, to Andrew Bragg’s point, the Bill is ultimately a “very small reform in the financial advice space” – at least relative to the more comprehensive policy renovations recommended by Michelle Levy in her final QAR report. It took us well over a year to get to where we are now; how much longer will it be before the remainder of the Government’s QAR roadmap sees the light of day?  

It’s worth noting, too, that Levy specifically drafted her recommendations to address the original sin of Australian financial services regulation: the tendency of successive governments to reform the system through a patchwork of Corporations Act amendments, legislative instruments and regulatory guides. 

In her final report, she wrote that financial services reform is typically “overlaid on what was already there, resulting in a complex regulatory regime with sometimes overlapping and inconsistent requirements.” I don’t think I need to point out that this is, more or less, exactly what her recommendations have amounted to thus far.

Then again, I also didn’t think I needed to explain that Mad Max is Australian.

Published 12 days ago
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