Rent-seekers trump the consumer

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By Leith van Onselen

It’s been a stiff fortnight for the Australian consumer. Consider the following actions over the past two weeks (in no particular order) launched by the Abbott Government.

First, Assistant Treasurer and former NAB executive, Arthur Sinodinos, has moved to gut sweeping Future of Financial Advice Reforms (FoFA), which were born out of the collapse of Storm Financial following a landmark parliamentary inquiry and three years of negotiations. Under the new requirements, financial planners are required to act in the ”best interests” of their clients, and commissions and other forms of conflicted remuneration were banned in order to stop advisers from steering their clients towards specific products in return for kick-backs. Advisers were also be required to let their clients know if they were being charged trailing commissions, and if they failed to “opt-in”, commissions would stop.

The FoFA are common sense reforms aimed at protecting consumers. And yet, Sinodinis has declared that the law had gone ”too far”, and is seeking to remove the requirement for an adviser to act in their clients’ ”best interests”. Conflicted payments would be allowed once again, as would hidden trailing commissions.

It’s an almighty free kick to the financial industry, which has lobbied hard against the changes, and risks undermining the notion of an unconflicted financial advice profession. According to Chris Joye, it could even lead to the return of “boiler-rooms” and Australia’s very own Wolf of Wall St:

The Coalition’s FoFA clawbacks, which are being unilaterally implemented by way of regulation to avoid parliamentary oversight, allow any person qualified to sell financial products to receive unlimited bonuses or commissions from an employer or third-party product manufacturer in exchange for sales.

And none of these “general advice” payments have to be disclosed to clients…

Even the most sacrosanct and sensitive “personal advice” services, where an adviser tailors a plan full of product recommendations to meet a client’s retirement needs, will be opened up to conflicts of interest under the government’s amendments…

Second, the Assistant Health Minister, Fiona Nash, has pulled down a new food health labelling website, which was created after two years of careful study and consultation by a committee of health, industry and consumer groups. The website, which was due to go live earlier this month, was designed to enable industry to calculate their own star ratings and begin voluntarily displaying them on packaging.

It has since been reported that Nash’s chief of staff Alastair Furniva’s wife, Tracey Cain, heads a public relations company which has lobbied for food companies. And making food information more transparent would not be in the interests of food companies, even if it would be beneficial for consumers.

Third, Attorney-General, George Brandis, has promised to take a hard line on copyright infringement announcing widespread plans to censor the internet and introduce secondary liability, while opposing  a “fair-use defence” – effectively bowing to the US pro-copyright lobby. This catchall potentially prevents all sorts of cultural undertaking such as satire. While I don’t condone illegal downloads it must be said that the regime of geo-blocking and protection that surrounds much international content distributed through Australian cable television drives consumers to seek alternative sources. Freeing the market for content would be a far better approach.

Finally, climate change skeptic, Dick Warburton, has been tasked with heading a review of the Renewable Energy Target (RET) and its impact on power prices, and former head of the Commonwealth Bank David Murray has been tasked with heading the once in generation banking inquiry, calling into question the objectivity of both for consumers.

The above actions have occurred in just the last month, and come on top of the Business Council of Australia effectively running the Audit Commission’s review of government spending.

At this point some consumer advocacy might be in order.

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Leith van Onselen

Leith van Onselen is Chief Economist at the MB Fund and MB Super. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.

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Comments

  1. What’s the difference between financial planners peddling products for commission and mortgage brokers peddling loans for commission?

    One gets regulated, and the other doesn’t.

  2. It’s government of ‘mates’ looking out for their ‘mates’.

    Sinodinos’s reasoning as to why he wanted no change to the financial industry was specious nonsense.

    They exhibit every aspect of crony capitalism.

  3. And here I thought that the Labor movement were supposed to be the kings of nepotism.

    Seems like its becoming a competition to see which party can sell us out the fastest.

    • oh no – Labor is still clearly the party of the nepotists – the Liberals are a touch more into cronyism…

      Together the Laberal party has probably equal amounts of nepotism and cronyism.

  4. I have had conversations at various times with people in my office about these subjects. I have had been rendered speechless at the sheer level of ignorance of any of these issues taking place and when i explain them i get blank look and shrug with a “so what ?”

    I cannot believe the sheer apathy and ignorance of people today. They are like a flock of brainwashed sheep being led to the abattoir and seem happy to go along,

    I can only hope this has some result.

    http://www.news.com.au/national/breaking-news/court-to-rule-on-wa-senate-recount/story-e6frfku9-1226830008528

    “WEST Australians appear set to go back to the polls after the High Court found it can’t determine the outcome of the Senate election. ”

    If this does go ahead and results in a significant alteration in the senate maybe we can stymie some of this rent seeker legislation from being passed.

    I cant think of anything else to do.

    I tell you this virtually every ignorant d***khead ive spoken to in this office does not deserve the right to vote.

  5. self-pronounced climate change denier, Dick Warburton”

    IMO, MB really lets itself down with this sort of demonstrably false (thus, dishonest) propagandising. It shrieks of a loss of objectivity, in favour of histrionics and ad hominem.

    Dick Warburton has stated that he is not a “denier of climate change”, rather, that he is a sceptic of the assertion that “man-made carbon dioxide is creating global warming” (which he apparently has clarified further to say “a major cause of…”) –

    http://www.theaustralian.com.au/national-affairs/policy/ret-reviewer-dick-warburton-im-not-a-climate-sceptic/story-e6frg6xf-1226829905020

    There is a big difference between “denying” that climate change is happening at all (as inferred by MB’s false allegation), and, being “sceptical” of the specific (and central) claim that man-made CO2 emissions are the/a primary cause of climate change.

    EDIT: And that’s before we get to the question of whether said climate change, whatever the cause/s, really is “extreme” / “dangerous” / “catastrophic”, as claimed.

    • Fair point. I know little about Dick Warburton, but saw on a few news sites that he was apparently a “self-proclaimed climate denier”, so used this description. Following your link, I have changed the text to climate change skeptic, which seems more accurate. Doesn’t change the fact that the Government seems to have stacked the review of the RET.

      • Well done UE.

        BTW, most impressed by your humility the other day, viz diesel “subsidy”. Respect.

        EDIT: and yes, you’re right; clearly stacked. No surprises there 🙁

      • Chief economist ACCI, Burchell Wilson

        ‘Look, the Renewable Energy Target is – it’s corporate welfare on a massive scale directed towards the renewable sector. I don’t know why anyone would have any level of sympathy for businesses that – they don’t employ many people, that they don’t export anything and they’ve surreptitiously imposed these massive costs on energy consumers for the sake of lining their own profits.’

        http://www.abc.net.au/7.30/content/2013/s3946695.htm

        (Via Catallax)

      • +++ for the humility for what is essentially a free service.

        Humility means more accuracy which means winning more arguments.

        Ultimately, who ever is winning the arguments has to gain market share..

      • @Dibit

        An enthusiastic +1

        BTW, I’d urge you (and all readers) to SUBSCRIBE to MB, if you have not already:

        “A MacroBusiness Membership will cost you $99 per annum – basically a couple of cappuccinos – and will do far more for your’s and the country’s economic and financial future than anything else for the price.”

        Hear hear!

        $99 a year to support by far and away the best financial / economics site in the country is nothing. An absolute pittance, to help ensure the continuation of at least one voice of reason, insight, and honesty, available free to all.

        Plus, the special reports alone are worth it.

    • I heard Warburton on RN this morning clarify his position and taken at face value he is not a denier.

      However there is something of casuistry to his argument and his appointment to this administration was taken on as a ‘fellow traveler’ basis in any case.

      • “taken on as a ‘fellow traveler’ basis in any case”

        Yep, pretty obviously. My objection to UE above only in the interests of accuracy and fairness. The substance of the complaint perfectly legitimate.

        Actually, bringing myself back on central topic (apologies UE) … serious kudos to MB for raising this issue of the FoFA. Others — including UE — have already said it better. An utter disgrace. Just one more proof, if any were needed, that our Laberal Party duopoly is essentially owned by the financial tumour sector.

      • @Opinion8Red

        Make that $104 per year…

        there is a little something I am whipping up in the kitchen that may make the essential spend on the cause to rid our castle of these cronies bathing in our toil $5 more than $99…

        or at least these rent seekers living in our homes..

    • Yes … except that this isn’t true scepticism and is actually an affront to the concept of true scepticism, which requires an open mind. It’s motivated reasoning.

      http://www.theguardian.com/science/2014/feb/05/denying-climate-change-scepticism-motivated-reasoning

      It’s all part of the “sowing of doubt” play book that’s becoming a depressingly regular presence in our national debate. Does anybody seriously think that one of Tony’s cronies is going to find that the scientific consensus is actually correct?

      Give me a break.

  6. You can add to this list the dismantling by Kevin Andrews of oversight by the ACNC of the charities and not for profit sector, then we have APRA and ASIC backing off from proposed regulations for the Churches’ development funds (quasi banks), reversals of policy which the Catholic Church in particular has been pushing for heavily (most heavily out of public view), ultimately so they and other churches can avoid transparency of their financial arrangements and maintain their special privilege. The government’s selective opprobrium at cronyism (read: where it involves unions) doesn’t offer much comfort that they are going to be any more ‘adult’ than Labor.

  7. I just checked the Storm Financial page on Wikipedia…..according to it, anyone and everyone except the owners were responsible for its demise! I suspect The Cassimatises may have had a hand in editing the page….

    That said – where the hell was ASIC when Storm was setting up a quarter of its ‘mum-and-dad’ investors with margin loans secured against their PPOR? Madness.

  8. “It has since been reported that Nash’s chief of staff Alastair Furniva’s wife, Tracey Cain, heads a public relations company which has lobbied for food companies.”

    It’s worse than that.

    “As Senator Nash later confirmed, Mr Furnival was chairman of APA immediately before joining her office after the September election. He continued to have a close connection with the lobby group through marriage (his wife is a co-owner and director), and as a shareholder in APA’s parent company, Strategic Issues Management. APA’s clients include the snack foods and soft drinks group Mondelez, which owns Cadbury, and the Australian Beverages Council. He has also been a chief economist at Cadbury.”

    http://www.theage.com.au/comment/the-age-editorial/fall-on-your-sword-senator-nash-20140217-32wa5.html

    And how quickly we forget that funding for the Alcohol and other Drugs Council was scrapped. I bet it’s a coincidence that Furnival’s company used to lobby for alcohol companies and that he ran the meeting where the council was told about the cuts.

    “A lobbyist working in Assistant Health Minister Fiona Nash’s office had links to the alcohol industry and played a key role in stripping Australia’s peak drug and alcohol body of its funding.

    Alastair Furnival told staff at the Alcohol and other Drugs Council of Australia in a meeting in December that their organisation, established 46 years ago, would no longer be funded.

    The Public Health Association of Australia and the Australian Medical Association say the decision is not in the best interests of Australians and must be urgently reversed.

    Fairfax Media can reveal that Mr Furnival ran the meeting where the council was informed of the funding cut with no input from the Assistant Health Minister despite a respected former Liberal politician being a key player on the council’s board.”

    http://www.smh.com.au/federal-politics/political-news/staffer-alastair-furnival-had-links-to-alcohol-industry-helped-strip-funding-from-group-minimising-alcohol-harm-20140217-32w0q.html

  9. Yep. The behaviour of the two ministers you cite is disgraceful. Contempt for people as both consumers and citizens.

  10. I hope she is wrapped in a blanket of sht for life over this scandal.
    If she’s not, god help us all.

  11. Minor point; I don’t think Brandis is opposing a fair-use defense, he just doesn’t think it’s feasible legislatively.

    • Brandis is clearly 100% behind the kind of corporatist copyright extremism that US lobbyists have wet dreams about.

      He not only opposes the idea of fair use, he wants to legislate against it as well.

      • +1 The politicians have always just swallowed whole the corporate copyright tripe.

        copyright infringement is much more akin to a trespass than a theft.

        The alignment with notions of ‘theft’ is just the highly emotive language of the the greed machines.