The country's biggest financial institutions and bucket shops with financial services licences will be doing high-fives after a report tabled in Parliament by Coalition senator David Bushby recommends gutting financial advice reforms.
But this could be short-lived as the spotlight turns to the Minister for Finance, Senator Mathias Cormann, who has the power to accept or reject these recommendations.
Illustration: Rocco Fazzari.
The speculation on Tuesday night was that Cormann could come out as early as Wednesday morning outlining the new-look FOFA before the release of another report into the performance of ASIC and the inherent dangers of vertical integration as illustrated in the Commonwealth Bank financial planning scandal.
The talk is that he will reject a recommendation that would have given banks the green light to use their army of tellers to sell bank products and get up front fees and trailing commissions.
There is talk he might go further and introduce regulations that have the power to stamp out inappropriate behaviour.
But he is likely to accept the other recommendations, which include a dilution of the best-interests duty and the removal of the opt-in requirement, which means financial advisers won't have to seek client approval every two years to charge ongoing fees.
There has been a lot of lobbying to reject the general advice proposal not just by industry funds but also by the Financial Planning Association, which said: ''We are extremely wary of general advice business models which encourage a complementary sales model of financial product issuance and distribution.''
Put simply, it wouldn't be just the banks taking advantage, but it will open the floodgates to firms with an Australian Financial Services Licence (AFSL) restructuring their business to offer general advice so they can pay general advice commissions to their staff. As one independent planner said: ''What's to stop a firm with an AFSL flogging a product on daytime TV or on the side of buses and then using the general advice commission exemption to hire call centre staff to flog products based on commissions?''
Collapsed agricultural managed investment scheme Great Southern illustrates the problems associated with general advice and commissions. In its financial services guide it said: ''If general advice only is authorised, your adviser will not take into account your objectives, financial situation and/or needs and it will be up to you to determine whether the products recommended are suitable to your personal circumstances.''
The original intent of the future of financial advice (FOFA) reforms was to break the nexus between product/product advice and conflicted remuneration. If Cormann rejects this recommendation entirely, rather than tinkering with the definition, he will at least be honouring that part of the reform. But adopting the other recommendations will dilute the financial reforms that were introduced by the Labor government and never went far enough.
An independent financial adviser summed it up well when he said Fee Disclosure Statements issued to all clients last year continue to exclude commissions on life insurance and old trail commissions on superannuation and investments. In addition, they only apply to new clients post July 1, 2013. For clients before 2013 they will continue to pay trailing commissions and many will continue to be in the dark about how much they are paying their planner.
It is issues such as these that continue to hold back the profession from moving to a position of trust.
Trust was certainly an issue in the case of Noel Stevens, a scaffolder, who had a long-term life insurance policy with Westpac, which was always guaranteed to pay him out if he ever got sick. He also had a bank account with CBA and he was convinced to switch to the CBA life insurance after being called up by a teller and advised by a CBA financial planner that he would be better off.
Stevens didn't he know that the teller and the planner earned a kickback if he switched his policy to the CBA.
A year later, he was diagnosed with terminal cancer and the bank refused to pay him. Stevens spent the final months of his life battling CBA in court. He won the case three days before he died. CBA appealed it. Stevens' daughter took on the fight and eventually won the appeal in December 2013.
The banks own or control more than 80 per cent of the financial planning industry, which, together with their army of bank tellers, flog bank products to customers. The banks earn billions of dollars a year from the sale of wealth management products through fees, bonuses and commissions.
The committee's Labor senators, including Mark Bishop, wrote a dissenting report slamming the bill in its current form as ''beyond repair'' and should be opposed. Greens senator Peter Whish-Wilson also wrote a dissenting report.
With $1.8 trillion of retirement savings, let's hope Cormann does the right thing.