- What scrapping the FoFA changes means for you
- Consumers are forgotten in the rush to wind back Future of Financial Advice legislation
- Cormann can't escape conflicts
The Abbott government has been dealt a major body blow. Its plans to wind back financial advice laws are in tatters after controversial senators Jacqui Lambie and Ricky Muir decided to band together and support a move against them.
The debate to remove regulations that were introduced by the government to water down the former Labor government's Future of Financial Advice (FOFA) reforms will begin this morning.
Announcing the plan, Senator Nick Xenophon said there would be no time limit on the debate.
"There will be no gag on this," he said.
He called on the Minister for Finance, Senator Mathias Cormann, to sit down and come up with a compromise.
At a press conference this morning agri business Timbercorp victim Naomi Halpern was rolled out to symbolise what can go wrong with shoddy financial planning and why Australians need to be protected.
Halpern was a victim of her adviser, Peter Holt, who was banned for three years. She was given bad advice and was unable to sue him because he filed for bankruptcy.
Holt earned more than $7 million in commissions from Timbercorp and many victims ended up with loans they didn't know they had signed.
If the disallowance motion is passed, it will have significant repercussions on the big banks, which have lobbied hard to have amendments made to the FOFA reforms.
The original FOFA reforms were introduced by the former Labor government in July 2013 in response to a series of scandals including Storm Financial and Trio, which highlighted the problems with conflicted remuneration structures, influencing the behaviour of financial advisers.
When the Coalition won office, it said it would amend some of the reforms to reduce red tape, a move it argued would save the industry $190 million a year in compliance costs.
Almost a year later, the proposals have been savagely criticised by consumer groups as a series of financial planning scandals - involving the Commonwealth Bank, Macquarie Private Wealth, Timbercorp and the life insurance industry - caused a crisis in confidence in the financial planning sector.
The decision by Lambie and Muir means the original FoFA reforms will remain intact, including the requirements that financial planners act in their clients' best interests and that advisers have to sign a new contract with clients every two years and disclose the fees they charge each year.
It also removes a number of loopholes that would allow the payment of commissions, bonuses, incentives and other benefits based on the amount of products sold.
Most of all it removes sales bonuses on general advice when complex products are sold.