Clare O'Neil (Hotham, Australian Labor Party) Share this | Hansard source

It is great to have the opportunity to speak on the Corporations Amendment (Streamlining of Future of Financial Advice) Bill 2014. It is a deeply Orwellian title for such a piece of legislation that takes away the fundamental measure of Labor's FoFA scheme. A better title might be something like, 'The removal of basic financial protections,' because that is the substance of the legislation before us. It is one that removes the fundamental and very basic protections that Labor put in place to ensure that ordinary Australians received financial advice free of conflict. It is uncontroversial, in my view, but the legislation today takes away some of those reforms.

I want to talk in a bit of detail about some of the issues I find most offensive about this legislation. I want to speak firstly about why it is they matter. We have a lot of debates in this House that can seem very removed from the experience of the people we represent. The debate we are having today is not one of those. More than many others we have in this House, the legislation before us will have a very profound, direct effect on the lives of millions of Australians.

We are very good savers in this country. As some of you may know, we have $1.8 trillion in savings in various financial products. We have families—like those I represent in Hotham—who have been saving for years for their children's education. We have young people right around the country saving very hard to buy their first homes. There are senior Australians all over this great country who have been saving for many years for their retirement.

All these people come to financial advisers with some very basic, legitimate expectations. The people the FoFA reforms sought to protect, the ones I described, are often people who are not working in financial services. They are experts in other areas of life—like teaching, nursing or parenting. These are people who are not as well positioned as financial advisers to make perfectly educated decisions about risk, about reward and about uncertainty. They have basic expectations that the best advice will be given to them. They have an expectation that the advice will be honest, fulsome and frank, and that they will have all of their options carefully explained to them. You would think that the fact that they are paying advisers to provide that kind of advice would make those expectations perfectly clear.

Perhaps the most important of all expectations that the ordinary person has when seeking financial advice is that the advice being given to them will be in their best interest—and their best interest alone. Unfortunately, the absence of legal protections in black-and-what law in this country to make financial advisers meet these very fundamental, basic requirements or expectations, has meant that people around Australia have not received that type of financial advice.

The FoFA reforms where never an attack on financial advisers. As a general principle, we have great respect for people in the financial industry and people who are providing financial advice. It is essential to the efficient functioning of the economy that we have people who can provide really good financial advice, and that it is accessible to ordinary Australians. But over a number of years we have seen that the standards written into law were not standards that met community expectations. The FoFA reforms were simply about bringing the law into line with community expectations about financial advisers.

The lack of laws like the FoFA legislation led some Australians who were consumers of financial advice to lose huge amounts of money. Some of them lost their entire life savings. Many of the people who were victims of organisations like Storm Financial were not people who had lots of money to lose, but lose it they did. I want to spend some time on Storm Financial because this is a pretty obvious example of where people who are not being forced to act in the best interest of their clients ended up giving some very bad financial advice. Three thousand Australians had invested in this Townsville-based company. The liquidators of that company found that the organisation had paid very little heed to the needs and requirements of the people that were investing in them. People right though that organisation were asking people to invest in products that were clearly not in their best interest, and which did not fit the risk profile for these investors. Instead, investors were being asked to make certain investments because that was in the financial interests of the company with which they were investing.

Those clients who made investments in Storm Financial made some very reasonable assumptions. One of them was that paying for financial advice meant that their advisers were acting for them—and them only. I cannot think of anything more basic that you would require when you are seeking financial advice. It is always hard for me to believe—despite sitting in this chamber and listening to all of the arcane things that we debate here—that this very fundamental and very basic protection was not provided to those people by the law.

Opes Prime was another example. There were 1,000 Australians with $2 billion under management. There were some similarities with Storm Financial services that I will not go into. Almost 1,000 people around this country have walked away with next to nothing because the law did not provide them with the basic protections that were needed. Often we find, in cases like these, that amongst a very long line of creditors to companies that go under, the ones with very deep pockets are the ones that end up getting money back. It is the mum and dad investors who end up walking away with nothing—often after having saved for their whole lives.

These incidents—perhaps not in full, but in some respects—and others very much like them, occurred because the law did not accord with the clear values and obvious expectations of the Australian community. It was incidents like these that resulted in Labor setting out on this journey to try to fix the financial advice system and to bring in some of those really important reforms that were very well received by consumers and consumer groups right around the country.

I want to talk about some of the really important pillars of those FoFA reforms which are being removed by the legislation that is before us this evening. The most fundamental of those FoFA reforms, and the one that, I think, has been under the most concerted attack from those opposite, was a very simple one. All it made into law was a requirement that, very simply, financial advisers act in the best interest of their clients. I cannot believe that we are having a debate about whether that was an appropriate law.

Part of FoFA was a requirement that financial advisers act in the best interests of their clients. And it was quite simply structured—written directly into law were those exact words. What was devised was a simple checklist that would amount to compliance, to give financial advisers some certainty about what exactly, in the grey areas, that might mean.

To catch instances where the fast-moving world of financial products may take us, there was a catch-all clause included, so that instances that were not directly covered by the checklist, and which were clearly outside the best interest of the client, were captured. I can think of no more basic provision or obligation in a search for financial advice than this one. And, yet, we come into the chamber this evening to debate the fundamental weakening of this basic principle. I just want to reiterate this: this is about financial advisers acting in the best interests of the people who are paying them a fee. Yet, from the other side of the chamber we have a weakening of this basic principle. I find it absolutely astounding.

The way that this is being weakened, of course, is indirect. It is not just being taken out of the legislation. It is being done by adding in a number of exceptions that will basically mean that people who are looking for reasons not to act in the best interest of the clients will be able to find one. I will provide an example. Bank employees, who provide extensive financial advice to Australians all over the country, are now exempt if they are providing advice on general products. So, in this most bread-and-butter incident of financial advice, which must be provided hundreds of times a day, we are now taking away this best-interest test. That provision that I talked about for banking employees is just one of a number of new exceptions that will massively weaken the best-interest test. This is one of the most fundamental elements of the FoFA reform. That alone, I believe, would probably be enough for Labor to come in today and say that we cannot support this reform. But there are actually many other examples, and I want to talk now about conflicted remuneration, which is a second and critical change and which related to the best interest test.

Labor's reforms banned financial advisers from any benefit that may influence what financial products they recommend. Again, Mr Acting Deputy Speaker, can you believe it? Just thinking about the values of the people we represent in this chamber, of course financial advisers should not be able to be compensated for providing financial advice that may not be, in some instances, in the best interests of their clients. A financial adviser can accept money from me to provide the best financial advice while at the very same time being remunerated by a seller of financial products. I am just astounded: it just seems so obvious and basic to me that that is just a critical protection. Again, in the legislation before us, this is being dismantled. Some of Labor's protections have been maintained here but, again, through the clever introduction of exemptions, the provisions are fundamentally weakened.

I will just provide one example: one of the exemptions now is payment for free overseas trips for advisers who make a particular number of sales of a particular form of product. So, if I go to a financial adviser and get financial advice, that person may also receive an overseas trip from a company that is trying to get them to sell their product to me. That is a conflict of interest if I have ever heard one.

I really want Australians to understand this: because of the Liberals, your financial adviser is now allowed to get a free overseas trip if they sell specific financial products to you. Unbelievable!

A final fundamental weakening of those FoFA reforms that I want to mention is the changes to the opt-in requirement. It is quite a surprising figure to really understand, but two-thirds of financial planning clients around this country—these are Australians who are paying fees to financial advisers—who are actually not getting any services currently from their financial advisers. In the initial FoFA policy discussion they called it the 'fee for no service' model. So, two-thirds of all clients, all over the country, are paying fees right now and getting absolutely nothing in return.

Labor's solution to this one was a pretty straightforward one. It was a requirement that financial advisers, every two years, have to contact the client by whom they are still being paid a fee for services and the clients have to tick off those current arrangements. Pretty basic; pretty simple. Someone who is providing me with a service that they are charging me for checks in with me every couple of years to make sure that they still should be deducting money from me, even though in many instances—two-thirds of all instances—we know that there is no service being supplied for those fees.

That is pretty straightforward, but no: under the new laws that is gone too. The Liberals, who love to come into this chamber and talk about how supportive they are of efficiency and how much they support entrepreneurship and economic efficiency, are allowing a situation to continue where most people in receipt of financial advice in this country are paying for something and getting nothing in return. It is absolutely laughable; I just cannot believe that they would go down this path. It is just completely nonsensical.

I have talked about some of the provisions in the legislation before us that I think are most reprehensible and most offensive, but I want to finish my contribution tonight by coming back to where I started, which is talking a little about the people for whom these protections were designed. These were laws that were written for the everyday Australians who have lost money in recent years—who have put all of their savings after so many years into the hands of people who they believed to be trusted financial advisers, and who the law failed. The law was not there to protect them.

We have all kinds of debates in this House, but for simple issues like this one, where people come to a financial adviser and they expect that there are duties in place under the law, and they simply are not there, then we have a problem. We are meant to be here reflecting community standards and community attitudes. Labor identified an area where there was a fundamental chasm between the protections provided by the law and the expectations of the community. We set out to fix that, and we did fix it. But what happens next? We have a new government that wants to rip up everything constructive that was done by that last government and instead re-write the rule book with exceptions that you can drive a truck through.

I think that what often gets missed in conversations like this one is that there are other people who benefited. I genuinely believe that people who work in financial advice are the losers today from the legislation, because we all know what is going to happen. We all know that when we see regulation and protections taken away that we have another Storm and then we have to bring things back again, and we have to re-regulate and, in some instances, to overcompensate. Labor's reforms were strong, they were balanced, they worked and I stand today to say that they should not be overturned.

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