Steve Irons (Swan, Liberal Party) Share this | Hansard source

I welcome this opportunity to speak on the Corporations Amendment (Future of Financial Advice) Bill 2011 and the Corporations Amendment (Further Future of Financial Advice Measures) Bill 2011. I welcome in particular the opportunity to represent the financial advisers in my electorate of Swan, many of whom have serious concerns about this bill and the process that the government has undertaken to this point. There are a lot of people employed as financial advisers across the electorate of Swan, and I quite often get approached by people from this sector at events I attend. I have held a meeting with a representative group in my office, and it is important that the House realises how concerned these organisations are with the direction the government is taking with this legislation. It is unbelievable how many groups this government has managed to put offside simply through its management and processes.

In this chamber on 23 June 2011 I raised concerns with the way the government was proceeding with this legislation and spoke about some of the concerns that have been raised by financial advisers in my electorate of Swan. They were extremely unhappy with the way the government was proceeding with legislation. Unfortunately, nine months later the government has failed to take on-board points raised by the industry and coalition, and that has led to the situation where we cannot support these bills in their current form.

This behaviour of ignoring advice is typical of this government, which has taken to ignoring good advice from the coalition and from industry on not only this legislation but also multiple pieces of legislation that have gone through this place since 2007.

After a consultation with industry, and careful consideration, the coalition will be moving a series of amendments to these bills, and we ask that Minister Shorten and crossbench members consider them seriously and support them. The amendments can be summarised as follows: the government be required by parliament to table a regulatory impact statement on FoFA assessed as compliant by the government Office of Best Practice Regulation; opt-in be removed from FoFA; the retrospective application of the additional annual fee disclosure requirement also be removed; the drafting of the best interest duty be improved; the ban on commissions on risk insurance inside super be further refined; and implementation of FoFA be delayed to 1 July 2013 to align it with MySuper.

I will talk in more detail on these amendments later, but it is first worth considering the background to this legislation and the background to the industry. The financial sector industry is a vital industry not only to the wellbeing of the Australian economy but also to many small- to medium-sized investors in Australia. The role the industry plays is to give the best possible advice to investors and of course up-to-date advice that will enable the investor to improve their financial positions. Areas that advisers might assist with include life insurance, superannuation, mortgages, pension planning and so on. These are important areas and in the Liberal Party we see it as a real positive when people choose to organise their financial affairs—their pensions, the superannuation and their mortgages—because this takes pressure off the government and the public service. This is why this legislation is so important today. The last thing we want to be doing as a parliament is making it more difficult for people to access local financial advisers in the community. However, this is what this bill is going to do.

It is worth going back to understand the history of the legislation and the implementation of it. As the shadow minister said, in the wake of the global financial crisis, there were a number of high-profile collapses of financial service providers across Australia in particular the collapses of Storm Financial, Trio and Westpoint. The federal government felt that it had to do something and commissioned an inquiry into financial services, which became known as the Ripoll inquiry named after the chair of that committee, the member for Oxley. As I have said before, I have some sympathy for the member for Oxley because he put some effort into his inquiry only for the government to completely ignore his recommendations. It is a shame because the Ripoll inquiry provided a blueprint that the government could have adopted with bipartisan support.

One of the key observations of the Ripoll inquiry was that:

… the committee is of the general view that the situations where investors lose their entire savings because of poor financial advice are more often a problem of enforcing existing regulations, rather than being due to regulatory inadequacy. Where financial advisers are operating outside regulatory parameters, the consequences of those actions should not necessarily be attributed to the content of the regulations.

The reforms referred to were the 2001 legislative changes which provided a strong regulatory foundation for the financial services industry. It would have been ideal to move in a bipartisan manner based on the Ripoll inquiry not just between the parties in the parliament but also between those in the financial services industry. The inquiry reported back in November 2009. Think of the progress that could have been made since that time. However, instead the government embarked on a different path that has led to this legislation today, 22 March 2012, in which it managed to put offside just about every financial adviser in the country. Even at this point though there was an opportunity for the government to see sense, start listening, and produce some good legislation through an inquiry by the Parliamentary Joint Committee on Corporations and Financial Services into the bills. However, they did not listen, which was disappointing for many who have made submissions to the inquiry. I received an email from one of my constituents, who is an authorised representative of a financial group, who wanted to bring the response from the industry to my attention as soon as possible. The press statement he sent to us said:

Industry bodies have expressed their disappointment at the findings of the Parliamentary Joint Committee's (PJC) review into the Future of Financial Advice (FoFA) Bills.

A report outlining findings of the review was tabled in Parliament today. However, the PJC was unable to reach a consensus in relation to the proposed legislation, with the Coalition Committee members issuing a dissenting report.

…   …   …

The Financial Planning Association (FPA) said the PJC had missed an opportunity to deliver the benefits that FoFA was originally intended to bring.

I will also read out some comments that my constituent brought to my attention. These are comments that were posted on a financial blog after the news of the committee report came through. One comment said:

It has been quite clear from the beginning that this government pretends to consult and then does what it wants to do pandering to vested interests. Labor MPs have no say in the matter. Nothing will happen unless the government is changed.

In another comment from that particular website Alistair said:

The PJC fails in delivery is not really a surprise given this governments approach in ALL it has so called achieved to date. This government whose ministers are nothing short of self interest incompetants who cannot run a canteen let alone a country have once again demonstrated that they are only willing to support the cause of self interest for themselves and their union mates. Enough is enough. As members of this industry, we should rally to a call not only to save this industry but also the nations by asking clients to petition the coalition to block supply and call an election. Its time for this bunch of arrogant morons to go. They do not deserve to be in office.

That is an indication of how much passion there is around this particular bill, particularly from the industry. Another comment posted by Steve said:

One of the most glaring examples of the government pandering to the unions is the acknowledgement by Swan and Shorten that while they will stop volume rebates payments from platforms to independant advisers, they will not stop union super funds’ secretly subsidising their advisers because it’s too hard!

I want to use the time that I have left to make a couple of specific points on the legislation as it stands and in particular the amendments that the coalition are putting up.

Over the past two years there have been constant and completely unexpected changes to the proposed regulatory arrangements under FoFA right up until the introduction of the current legislation. Invariably, this was done without proper appreciation or assessment of the costs involved of any unintended consequences or other implications flowing from the proposed changes. Important financial advice reforms have been delayed by more than two years so that the government can press ahead with a number of contentious issues.

In my speech of 23 June 2011 I raised, on behalf of my constituent, an issue related to the opt-in proposal, which is now a component of this legislation. Opt-in imposes a mandatory requirement on consumers to keep re-signing contracts with their financial advisers on a regular basis. This imposes an additional level of red tape on the industry. Last week I spoke about red tape in business and the 12,835 new regulations the government has introduced in comparison to the 58 it has repealed, despite the Kevin 07 one-in one-out promise. This legislation would surely add to this tally. As the shadow minister said, it would make Australia world champions in financial services red tape.

During the Senate estimates process it was revealed that the average small business financial advisory firm would face additional costs of $50,000 per annum. It is interesting—this week particularly—to see how the government has portrayed itself as a friend of small business. I, for one, who have run a small business for 25 years and employed 16 people, understand what it means to run a small business. I have experienced the cost of compliance and red tape implemented by government. Unfortunately, yesterday on the doors we saw a poor effort by a so-called small business woman who is now in parliament. The member for Canberra was trying to explain the new superannuation situation and who would pay. We all know—all business knows—that businesses will pay. It will not be as a result of the MRRT; small business will pay the new three per cent levy. This cost will easily wipe out the so-called benefit to small business of the one per cent tax cut.

It is surprising that the government is pursuing the opt-in proposal, not least because there was only one submission to the Ripoll inquiry arguing in favour of opt-in. The measures in place—which already include best interest duty, appropriate transparency of fees charged and an ongoing capacity for financial advisers to opt out of any advice relationship at any stage—provide for consumer protection without the need to impose additional costs and red tape on both businesses and consumers. The coalition has a clear position on this—that is, opt-in should be removed altogether.

On a logistical and operational point, I make a few comments on the time frame for implementation of this legislation. The current implementation date of 1 July 2012 is completely unrealistic given that it is only four months away. Considering the red tape concerns I have just spoken about, four months is not sufficient time to prepare for these changes. The fact that the government thinks that this is possible shows, again, the government's lack of understanding of business realities. I repeat: it is disappointing that there is virtually no-one on the Labor side with any real experience of running small business. As such, the coalition will move an amendment for the opt-in to be removed from FoFA. I hope that this attracts the support of the Independents.

In my speech of 23 June last year I mentioned that the proposed ban on commissions on risk insurance was perhaps the most controversial aspect of the legislation among industry. The government's position on this matter has been confusing and ever-changing. Banning commissions on risk insurance will increase costs for consumers, remove choice and leave many people worse off, particularly the small business people who self-manage their future. There is already a problem of underinsurance in Australia. A ban would exacerbate this. What is more, recent experience in the UK showed that a ban does not work, which is why the UK reversed its decision.

The coalition's position is clear: we agree that Australians who receive automatic risk insurance within their super fund without accessing any advice should not be required to pay commissions. However, those Australians who require and seek advice to ensure adequate risk cover, whether inside or outside their super fund, should have the same opportunity to choose the most appropriate remuneration arrangement for them.

In conclusion, as the member for Swan and someone who has had some experience dealing with small business, I cannot support this legislation in its current form. It is a result of a messy process, it has no support in the community and it puts the financial services industry at risk. The Ripoll review could have taken us forward in a bipartisan way in 2009. But now, three years on, we have been presented with this poor piece of legislation. I support the coalition amendments, which will be moved at the conclusion of this debate.

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