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Coalition plan to unwind financial advice reforms could backfire Coalition plan to unwind financial advice reforms could backfire
(7 months later)
The Abbott government’s strategy to avoid parliamentary scrutiny of its plan to unwind new protections for consumers receiving financial advice by implementing it through regulation could backfire because the regulations may be found to be invalid, leaving financial advisers open to legal class actions.The Abbott government’s strategy to avoid parliamentary scrutiny of its plan to unwind new protections for consumers receiving financial advice by implementing it through regulation could backfire because the regulations may be found to be invalid, leaving financial advisers open to legal class actions.
The former Labor government introduced the new protections, which took effect last July, and included stricter requirements on financial advisers to provide information on so-called “trailing commissions” – regular small and often unnoticed payments which can cost even an average-earning superannuant almost $50,000 by the end of their working life.The former Labor government introduced the new protections, which took effect last July, and included stricter requirements on financial advisers to provide information on so-called “trailing commissions” – regular small and often unnoticed payments which can cost even an average-earning superannuant almost $50,000 by the end of their working life.
The Abbott government has released draft regulations to reverse many of the reforms and is trying to do as much as possible via regulation rather than legislation, a mechanism which can still be struck down by the parliament but which avoids full parliamentary debate.The Abbott government has released draft regulations to reverse many of the reforms and is trying to do as much as possible via regulation rather than legislation, a mechanism which can still be struck down by the parliament but which avoids full parliamentary debate.
But new legal advice provided to the Industry Super Network by Arnold Bloch Leibler suggests the tactic could have serious consequences because the regulations would be legally invalid and the financial advisers relying on them open to future class action challenges from their clients.But new legal advice provided to the Industry Super Network by Arnold Bloch Leibler suggests the tactic could have serious consequences because the regulations would be legally invalid and the financial advisers relying on them open to future class action challenges from their clients.
“We consider that such regulations would be invalid and susceptible to challenge in the courts,” the law firm says in the February 11 advice. “A court declaration of invalidity would operate retrospectively. This means, for example, financial advisers who relied on the reguíations would be found to have acted unlawfully. The regulations would therefore create significant uncertainty and could well become the subject of protracted litigation between financial advisers and their clients, for example, in an investor class action.”“We consider that such regulations would be invalid and susceptible to challenge in the courts,” the law firm says in the February 11 advice. “A court declaration of invalidity would operate retrospectively. This means, for example, financial advisers who relied on the reguíations would be found to have acted unlawfully. The regulations would therefore create significant uncertainty and could well become the subject of protracted litigation between financial advisers and their clients, for example, in an investor class action.”
The assistant treasurer, Senator Arthur Sinodinos, has said he is using regulations for as many of the changes as possible in order to implement them quickly and provide “certainty” to the financial planning industry, which reaps more than $1.3bn a year in annual fees from people who have sought advice about superannuation and retirement investments, some of it for the controversial “trailing commissions”.The assistant treasurer, Senator Arthur Sinodinos, has said he is using regulations for as many of the changes as possible in order to implement them quickly and provide “certainty” to the financial planning industry, which reaps more than $1.3bn a year in annual fees from people who have sought advice about superannuation and retirement investments, some of it for the controversial “trailing commissions”.
But the legal advice suggests the tactic could have exactly the opposite effect.But the legal advice suggests the tactic could have exactly the opposite effect.
The changes were Coalition election policy and are backed by the Financial Planning Association and the Association of Financial Advisers.The changes were Coalition election policy and are backed by the Financial Planning Association and the Association of Financial Advisers.
But Labor has vowed to try to disallow them in the Senate with the support of the Greens and they are opposed by Choice and Seniors Australia, as well as the industry super funds.But Labor has vowed to try to disallow them in the Senate with the support of the Greens and they are opposed by Choice and Seniors Australia, as well as the industry super funds.
Labor’s crackdown was prompted by a series of financial advice scandals – including the collapse of Storm Financial, which cost 3,000 to 4,000 investors in Queensland, New South Wales and Victoria about $3 billion.Labor’s crackdown was prompted by a series of financial advice scandals – including the collapse of Storm Financial, which cost 3,000 to 4,000 investors in Queensland, New South Wales and Victoria about $3 billion.
Among the changes the new government is now seeking to reverse or water down are:Among the changes the new government is now seeking to reverse or water down are:
Industry Super Australia chief executive David Whiteley said the advice showed the government’s changes “could lead to greater uncertainty and a greater chance of litigation” and proved the government should give the new laws some time to take effect before reviewing or changing them.Industry Super Australia chief executive David Whiteley said the advice showed the government’s changes “could lead to greater uncertainty and a greater chance of litigation” and proved the government should give the new laws some time to take effect before reviewing or changing them.
A spokeswoman for Sinodinos said all the regulations would be backed by A spokeswoman for Sinodinos said all the regulations would be backed by legislation, and that treasury had received legal advice on these matters.
legislation, and that treasury had received legal advice on these
matters.
The government wants to make the regulations by the end of March 2014 and then introduce further legislation later in the year.The government wants to make the regulations by the end of March 2014 and then introduce further legislation later in the year.