He has also claimed Jacqui Lambie is planning to set up "an alternate political party".

The unprecedented attack will ensure the outspoken Tasmanian will formally sever ties with the party, severely weakening PUP's balance-of-power advantage and slashing  public confidence in the party's capacity to deliver.

The full frontal attack via press release at 6.30pm on Wednesday came after Senator Lambie had been stripped of her deputy leadership and party whip roles for allegedly failing to attend party meetings and for disloyalty.

'Mr Palmer's statement claimed Senator Lambie had "lied to the Senate during a rant about him" and had "done so to cover up her own misgivings".

"Jacqui Lambie has not brought forward one proposal to the party about Tasmanians, the people who elected her, or about veterans," he said.

"She just wants to have a fight about nothing which is not a rational way to behave as a respectable senator."

In Parliament, Senator Lambie claimed Mr Palmer had slandered her by questioning her state of mind. She also said the leader was under stress because of legal battles he was involved in.

Weeks of infighting and public slights between the pair culminated in Senator Lambie breaking ranks to vote against a surprise deal that PUP had struck with the Abbott government on financial advice laws back in July.

In a body blow to the government, Senator Lambie joined Labor and the Greens in a new alliance of independents to scuttle the government's controversial financial advice changes.

The non-PUP member of the original four-vote bloc, the Motoring Enthusiast Party's Ricky Muir, also broke away on the crucial vote.

It gave Labor the numbers to scuttle all of the regulations put in place since June by Finance Minister Mathias Cormann. The changed had watered down the former Labor government's Future of Financial Advice laws.

The new voting bloc, wrangled by independent Senator Nick Xenophon in conjunction with Labor Senator Sam Dastyari, said they were moving to restore protections to consumers that had been diluted by the Coalition.

It was only possible with the support of Senator Lambie and Senator Muir. A jubilant Senator Dastyari kissed Senator Lambie on the cheek after the late-night vote.

Speaking earlier on Wednesday, Senator Lambie explained why she had decided to break ranks and overturn her original support for the changes.

"The first couple of weeks of being up in the Senate were very difficult, we were all trying to find our way. Well I've found my way now," she said.

"Sometimes when you make a wrong [decision] you have to go back in there and make it right, and that's exactly what I'm doing now."

Senator Muir made a similar argument, explaining he would err on the side of consumers and he did not like the way it was rushed through the Senate before rookie senators such as himself had time to understand what was going on.

Financial Services Council chief executive John Brogden warned against the move.

"The market impacts of an immediate disallowance would create a legal quagmire, millions of dollars in business disruption costs and reduce affordability and accessibility of financial advice to Australians," he said.

But Labor Senator Dastyari described the push as "a coalition of common sense".

"We've put together a group of senators who've said 'Enough's enough, there have been too many victims of financial crime and the last thing we should be doing is watering down protections for consumers'.

"These regulations by Mathias Cormann were returning us to the bad old days of financial planning where a handful of crooks, criminals and conmen dominated the industry."

Senator Palmer was scathing of Senator Lambie's decision, saying "we're just having one member who's having a few problems".

"She knows in her heart that she fully believes in everything that we stand for – that's why she hasn't resigned – and we hope that she can reconcile all those things in the coming days," he said.

"When people are going through difficult times in a workplace, you should stand by them. We don't want to make her life more difficult than it already is."

Senator Cormann told the Senate Labor's disallowance motion had nothing to do with protecting consumers against unscrupulous financial planners.

"This is about the commercial interest of the Labor Party's main shareholder, the union movement. This is what this is about," Mr Cormann said.

"[The union movement] have never liked small business financial advisers and they have used their preferential and privileged access to the previous government to make life for small business financial advisers and their clients as hard as possible."

WHAT THE LAWS MEAN TO CONSUMERS

If crossbench and opposition senators disallow the Coalition's roll-back of Labor's financial advice laws, as they plan to, laws put in place by the Gillard government will apply. Here's what that would mean for consumers.

Consumers would have to "opt-in"

Planners who receive ongoing fees from their clients would be required to obtain written consent from their customers every two years. This "opt-in" rule was scrapped by the Coalition, amid backing from banks and the advice industry, who argued it was unnecessary red tape. But the change had support from groups representing consumers and not-for-profit super funds, who argued it was needed to make sure advisers were providing a worthwhile service to the client.

The "best interest" duty

Advisers would have to satisfy a tougher legal duty to act in the best interests of their clients. Labor's rules included a "catch-all" provision, which said a planner must take "any other step ... in the best interests of the client" that would be reasonable. Industry critics and the Coalition argued this was too broad and could leave advisers unnecessarily exposed to lawsuits. The "catch-all" provision was scrapped in the Coalition's FOFA roll-back, but the Senate could bring it back into force.

Conflicted payments

There would be tighter restrictions on the types of payments that banks and wealth management companies can make to financial advisers. The clearest type of conflicted payment (a commission or kick-back to a planner) is already banned and this will remain the case. But Labor's FOFA rules also threatened other types of remuneration that critics say are "conflicted". For instance, the previous FOFA rules threatened what are known as "volume rebates" – wholesale bonuses to financial planning dealer groups based on their sales.

Bonuses for bank tellers

Banks may also have to change the bonus structures they use to pay their branch staff, known as the "balanced scorecard". Under this model, which is used by all the major banks, staff are assigned revenue targets as a "key performance indicator" when they are being assessed for bonuses. Sales are not their only KPI – they must also meet goals relating to customer satisfaction goals and risk. But critics say bonuses such as these can encourage a sales culture. The Finance Sector Union says the "balanced scorecard" may have fallen foul of the previous government's FOFA rules.

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