If you are one of the 2.5 million Australians who saw a financial planner in the past year, the Senate may have good news for you.

The Abbott government’s “watered down” financial advice protections have been the law for four months, thanks to a deal cut with the Palmer United Party.

That deal spectacularly unravelled on Wednesday as Jacqui Lambie split from the PUP, foreshadowing a return to Labor’s stricter set of protections unless the government can negotiate a compromise with a “coalition of common sense” that has formed in the upper house.

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The potential wind back has been welcomed by consumer groups and industry superannuation funds, but denounced as “catastrophic” by the financial services industry – now Australia’s largest, bigger even than mining and manufacturing.

CHOICE campaign manager Erin Turner told The New Daily the regulations as they stand benefit big banks and financial planners at the expense of consumers.

“These are basic protections that should not have been removed, and it is great to see the Senate standing up for them,” Ms Turner said.

Financial Planning Association CEO Mark Rantall was less receptive, telling The New Daily: “It’s bureaucracy gone mad.”

So what will the changes really mean?

What we have now

The key issue in this long-running debate is the impartiality of financial planners, an estimated 90 per cent of whom are on the payroll of banks and insurance companies.

This cosiness brings their neutrality into question, consumer advocates say, which has only been shaken further by major scandals involving rogue planners.

The most controversial part of Abbott’s regulation was the so-called “scaled advice” loophole. A financial planner could theoretically still be paid to promote products when offering very general advice, but not when giving advice based on a client’s personal circumstances.

The regulations also allowed up to 10 per cent of the annual income of advisers’ income to be linked to sales targets.

What happens if the current regulations get the flick?

If the Labor and independent “coalition of common sense” gets its way, the regulations will revert to the protections put in place by the previous government, some of which are:

• A more robust duty to act in clients’ best interests and tighter restrictions on the kind of payments banks and other financial institutions can make to advisors.
• An “opt-in” clause requiring advisors to ask clients every two years if they want to keep paying ongoing fees.
• Annual fee disclosure statements for those charged ongoing fees.
• No ‘scaled advice’ loophole.

Industry Super Australia CEO David Whiteley told The New Daily that going back to the way things were would give consumers peace of mind.

“Consumers can have confidence that when they see a financial planner, that adviser will unequivocally act in their best interests. They know there will be an ironclad best interests test, ironclad ban on sales incentives and other kickbacks paid to financial advisors,” Mr Whiteley said.

But at what cost?

Reverting to Labor’s regulations could mean more expensive financial advice, the government and financial planners argue.

The industry would be saved an estimated $270 million a year if Abbott’s regulations remained in place, the Financial Planning Association estimated. Reintroducing Labor’s regulations could cost up to $540 million a year, which would be passed on to consumers in the form of higher fees.

But industry superannuation groups contest these figures.

Industry Super Australia (ISA) said the cost of implementing Labor’s regulations was in fact estimated to be $130 million, with a yearly saving to consumers of $533 million because of the removal of sales incentives and unwanted ongoing fees.