Matt Thistlethwaite (Kingsford Smith, Australian Labor Party, Shadow Parliamentary Secretary for Foreign Affairs) Share this | Hansard source

This bill, the Corporations Amendment (Streamlining of Future of Financial Advice) Bill 2014, really goes to the heart of the fundamental difference between the Labor Party and this Abbott government. In 2011, Labor acted to introduce the most significant reforms in financial services for a generation. That included several measures designed to protect investors and to help the financial services industry professionalise.

The measures included the introduction of a best interest duty—a requirement for financial advisers to act in their client's best interests. That is something that professional advisers should already have been doing, but they were not. In circumstances where they were not, the results were shocking. So we introduced a duty, in legislation, for a financial adviser to act in their client's best interest rather than to sell the client products which would gain the adviser the most commissions or which were related to products developed by corporations or companies for which that adviser was working. The second element was the opt-in provision, requiring advisers to get their clients to opt in to receiving ongoing advice every two years. The reason behind this was that numerous inquiries uncovered the fact that financial product advisers were selling products to clients who were often unaware of what those products were or of the commissions that were associated with them. If a particular client had a portfolio of shares, equities or investments, they just continued to roll over, and so did the associated commissions and fees, which generally went to the adviser.

So we made it a requirement for the adviser to sit down with their client every two years to explain the fees and commissions that were being paid on the products that the client was accessing and to allow the client to question those fees, ask for alternatives and, importantly, opt in to continue to receive that advice, knowing full well, with full disclosure, the products they were in and the fees and commissions they were paying. We also introduced annual fee disclosure, where a statement was to be provided to clients annually disclosing those fees and the details of the performance of services. We also put a ban on conflicted remuneration or commissions paid by financial product providers to financial advisers.

These reforms did not just come about because someone had an idea to introduce them. The reforms came about as a result of a series of financial collapses in Australia that left many mum and dad investors, Australian citizens, with nothing. Those collapses included Storm Financial, Opes Prime, Trio Capital and others. There were numerous subsequent parliamentary inquiries into these collapses and into financial advice, products and services.

I was a member of the Joint Parliamentary Committee on Corporations and Financial Services, which conducted the inquiry into the collapse of Trio Capital. I sat in those hearings listening to the evidence of hardworking Australians, many of them in the twilight of their retirement or having just retired, who put all of their money—their life savings—into Trio Capital, often on the advice of their accountant, whom they trusted for many, many years to do their tax returns and accounts, or their financial adviser, whom they trusted. On their advice, they set up self-managed superannuation funds, not knowing that they were taking all of their money out of their industry fund and setting up their own self-managed superannuation fund. They were just being told by their financial adviser, 'Here, sign this; it's the right thing to do,' and setting up their own self-managed superannuation fund, thereby taking themselves out of the protection of the industry fund and the Superannuation Industry (Supervision) Act. In some cases, people who had retired were remortgaging their houses to put more of their savings into these products as they had been advised to by their financial adviser or their accountant. So not only were they losing their own life savings but they were losing their kids' inheritance as well.

These were heart-wrenching stories and this was the cold, hard reality of what had occurred in the cases of these financial collapses—and the system allowed it to happen. The system allowed people to give this advice to innocent men and women of Australia, and most of these people, I might add, were working-class Australians. These unscrupulous advisers and product sellers and originators were targeting particular working-class areas. One of those was Wollongong, where you have a lot of miners and steelworkers with large superannuation balances. They were in unionised workplaces. Their unions had fought hard and they had fought hard to win decent entitlements and wages and conditions, including a decent superannuation fund and a decent retirement income. Then they retired and were advised by their financial planners or accountants to take all of their money out of their industry superannuation fund and put it into their own self-managed superannuation fund—'Sign up to this and you'll be right. There are these wonderful products that are doing really well. You can't lose.' Well, lose they did. Many of them lost the lot. Many of them were sitting before this inquiry in tears, telling us of their stories.

What was the government to do? What were the Gillard and Rudd governments to do? Were we to sit on our hands, do nothing and allow these people to be exploited in that manner and for those loopholes in the system to continue? Any good government worth its salt that had an obligation to the Australian people would know that something needed to be done about it. And that is what the former Labor government did, by introducing the Future of Financial Advice reforms.

The Abbott government says that this bill is about reducing costs to business. It is about reducing red tape. But the reality is—and this is borne out by the comments of commentators and those associated with the industry—that this is an attack on the Australian consumer by a government that is on the side of the big financial houses and banks when it comes to this. They are the only organisations in Australian society that are supporting what this government is doing. It is only the banks and the big financial houses who do not like this regulation, because they now have to fully disclose. They now have to sit down on a biennial basis with their clients and tell them what is actually going on with financial products. They are the only ones in our country who do not like this. Labor is not going to stand for that.

With this bill, the government seeks to drastically alter consumer protections by removing the essential catch-all provision in the best-interest duty, adding a loophole for advisers that means that the best-interest duty may become ineffective; by scrapping the opt-in provision, allowing advisers to continue to charge fees, sometimes without actively having worked on a client's file for a couple of years, and charge those fees indefinitely without receiving the consent of their client; by amending the annual disclosure so advisers only have to provide annual disclosure to clients who commenced with them after 1 July 2013; and by lifting the ban on conflicted remuneration. The ban will only apply to personal advice, not general advice. Even then, there will be an exemption for personal advice as part of the balanced scorecard approach. This will open the door for a sales push culture of products over advice. It was that sales push culture—that culture to try to sign people up to financial products because of the commissions and fees that flow to the financial adviser—that led to hardworking Australians being duped into buying these financial products that were not in their best interests and ultimately saw them losing their life savings.

I will not stand for that. I will not agree to reforms in this parliament that do that to constituents in my community. It beggars belief, given the tragedies experienced by some of Australia's most vulnerable consumers, that this government would push ahead with what are horrible reforms. By removing the opt-in and fee-disclosure requirements and reducing the need for an adviser to act in the best interests of their client, the government is exposing the consumer to potential financial destruction. It is loosening laws that were put in place to stop another disaster like the collapse of Storm Financial from occurring again.

And Labor is not alone in criticising these laws. Many industry experts, consumer advocates, senior groups—in particular senior groups, who understand the vulnerability of their members if this reform goes ahead—and, of course, previous victims of dodgy financial practices are condemning this coalition's policy. But, yet again, this government will not listen. The arrogance of this government is breathtaking when it comes to listening to the Australian public on this reform. The Prime Minister should dump all of these changes just like he has dumped their champion, the former Assistant Treasurer. The changes are not about technical reforms but are a complete unwinding of many of the important protections that were in the original FoFA legislation. This is a lowering of standards, and the delay towards professionalising is a massive step backwards for the entire sector and for consumers.

There is much talk about the expected $190 million in compliance cost savings to the sector—which may only in part be passed on to consumers—but no acknowledgement of the expected boost in revenue to come directly out of the pockets of ordinary people. In a recent Sydney Morning Herald article the Journalist Adele Ferguson put it well when she wrote:

No matter which way the government tries to play it, the changes to the Future of Financial Advice (FoFA) reforms are substantial and it is only the banks and a few other vested interest groups that support them.

She continues:

Indeed Senator Mathias Cormann's argument that the amendments to FoFA are designed to make advice more affordable by cutting red tape fails to recognise that the current structure of vertical integration is inherently conflicted. It also fails to recognise that cheap advice is good for nobody if the advice is bad or conflicted.

I could not have put it better myself. This reform ensures that the protections that were put in place by Labor to protect vulnerable consumers, to ensure that financial advisers cannot dupe hardworking Australians into financial products that do not suit them, that financial advisers are required to disclose the commissions and fees associated with products they are selling to their clients, to ensure that clients sit down with their adviser every couple of years and are fully aware and transparent about the products they are investing in and to ensure that the client recommends and authorises the adviser to continue to provide ongoing services for that client in the best interests of Australian consumers. That is why this bill has been roundly condemned within Australian society and that is why I am opposed to the passage of this bill.

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