Senate hearing, but are they listening?

The hearing felt like a perfunctory exercise, with chair Jess Walsh largely dismissing opposition to elements of the DBFO bill.

My assessment is that the bill, despite strong opposition voiced during Thursday’s debate, is poised to smoothly pass through the Senate in its current form.

Ironically, the committee was convened exactly 12 months to the day since Financial Services Minister Stephen Jones first unveiled the government’s response to the Quality of Advice Review, and while many at the time were hopeful that this would deliver red tape reduction, it now seems that there may be a possibility of further increases instead.

The Senate debate on Thursday can be succinctly summarised: the government prioritises its own opinion above all others. This was evident as Treasury members confessed to not tuning in to the Senate committee until they were called to speak alongside the Australian Securities and Investments Commission (ASIC) at 1:20pm.

ASIC’s opinion, too, holds quite a bit of weight among Treasury, as it was revealed the DBFO bill was handed to the regulator before industry stakeholders and yet they did not spot the drafting errors until the media made them public.

Indeed, a distinct division has emerged between the Financial Advice Association Australia (FAAA), Financial Services Council (FSC), the Joint Licensee Group, the Law Council of Australia, and the accounting bodies on one side, and Treasury, ASIC, and the Super Members Council (SMC) on the other.

While the former cautioned that the current draft law, especially concerning Section 99FA of the Superannuation Industry (Supervision) Act 1993 (SIS Act), could significantly escalate red tape and, consequently, the cost of advice, the latter insisted there are no issues with the current wording and that it does not impose any additional duties on trustees, despite the law stating otherwise.

One of the most striking points was made by Nathan Hodge, head of submissions at the Law Council of Australia, who emphasised that by amending the explanatory memorandum (EM), the government essentially hasn’t taken any steps to prevent trustees from being held responsible if they fail to adhere to the literal interpretation of the law.

“We would say that the courts would likely place limited weight on the explanatory memorandum in this situation. The courts have come across this type of issue before and the following statement which has been adopted by the High Court states that where extrinsic material appears to cast doubt on the construction of words favoured by a plain meaning of those words, then the explanatory memorandum cannot override a clear purpose of the act as deduced from its own language,” said Hodge.

“So, in effect the words in explanatory memorandum, cannot be substituted for the text of the law.”

Asked to comment on this by Senator Andrew Bragg, Dr Andre Moore, assistant secretary, Treasury’s Advice and Investment Branch, said he could not because he did not tune in to Hodge’s session.

Moore went on to explain that the law establishes an “objective standard”, and that it could not be so prescriptive that it dictates how a trustee might go about complying with the law.

“That really is a matter for the trustee to determine based on the commercial arrangements that they have in place, the risk profile of the fund, and the counterparties that they’re dealing with.

“And so the law doesn’t prescribe any of that. That’s largely left to the discretion of trustees.”

While admitting that different funds have different risk tolerances, Moore surprisingly did not see a need to change the current wording of the draft law.

But it is precisely these differing risk tolerances that people like the Association of Superannuation Funds of Australia’s (ASFA) Mary Delahunty said stand to create complications.

Namely, while Delahunty insisted that interpretations of the draft law vary among different funds and could change over time, ASIC, Treasury, and the SMC insisted that the law does not require trustees to check every single statement of advice and that it’s basically business as usual.

Walsh very much toed the party line, even going so far as to misinterpret the messaging clearly made by Delahunty – that not all funds are on board with changes to s99FA and that while some funds may be comfortable enough to continue their current practices, which include risk-based sampling, others may interpret the law as requiring more thorough checks.

So, where does that leave the profession?

Well, according to Keith Cullen, managing director at WT Financial Group, “it’s a ticking time bomb”.

“The proposed changes to 99FA add nothing but confusion,” Cullen said.

“We estimate the additional cost burden if trustees are forced to scrutinise each advice document would be in the order of $400 per member request, and this will syphon away literally hundreds of millions of dollars of consumers’ retirement savings, and that doesn’t just fail to make advice more affordable, it’s a sabotage of consumers’ financial security.”

While Blake Briggs from the FSC remains hopeful that the government will heed industry feedback and address concerns, I’m inclined to believe otherwise, especially considering Minister Jones’ recent social media activity, which suggests the government has disengaged from the advice sector. Whether this disengagement stems from oversaturation or inadequate preparation for the complexities of the DBFO task is uncertain. However, what is clear is that we are now facing a significant “hot mess” that demands attention alongside other pressing issues like scams.