Graham Perrett (Moreton, Australian Labor Party) Share this | Hansard source

I commend the member for Hotham on her contribution to this debate on the Corporations Amendment (Streamlining of Future of Financial Advice) Bill 2014, which I totally support. I am going to commence by looking at a little of the history of this piece of legislation introduced by the coalition government and then go through some of the reasons for the Labor Party rejecting it.

It is important to look at a little of the history because, like the member for Hotham, I have had members of my community sit in front of me, in tears—particularly people who were the victims of Storm Financial. But I know that there are many other groups, including victims of Opes Prime. I could go through a long list of people who suffered significant losses. They were good, sensible retail investors who suffered through these unfortunate sets of financial circumstances—these significant corporate collapses. These were people who were sensible—not risky investors, but people who believed they were doing the right thing.

So that was the context where Labor brought in the FoFA legislation in the first place. It can be traced back to the 2009 report of the parliamentary inquiry into financial products and services—the PJC inquiry. That looked at the role of financial advisers and the regulatory settings for the selling of financial products and services.

In Australia, it is important that we see this because in Australia in particular, almost like no other nation in the world—because of the changes made by Hawke and Keating to superannuation—we have a significant pool of superannuation funds. It is roughly about the same size as Australia's economy, and obviously, as more and more people put money into superannuation, that will continue to be an issue.

So I stand here not as someone who is an expert in financial advice but as someone who is, I guess, first and foremost a lawyer. I always approach it from that aspect, thinking, 'What if I received remuneration in 2040 for advice I gave in 1994?' As a lawyer, part of me says that would be fantastic if I could get on to that sort of gravy train. But obviously that sort of thing does not happen in law at all. You give a bill for services and you are paid for the services. You have to negotiate with the client and work out what they are prepared to pay. You give them the bill, they pay the bill, that is it. And they of course then say, 'That's why lawyers are so loved, because it's sorted out quickly.' But the idea that you could give advice in one year to a 20-year-old person and then still have that person, when they are 65 or 69 or 70—obviously people are going to be working for a lot longer—still paying for the advice that you gave them when they were 20, that is ridiculous to me as a lawyer, irrespective of how wonderful that advice is. This is why we brought in those FOFA changes, which were basically saying, 'You need to check in.'

The reality is that while many Australians are receiving financial advice, two-thirds of them are receiving no advice whatsoever, effectively, from that initial consultation. I am not taking away from the 18,000 financial advisers in Australia; I am sure the majority of them are doing a fantastic job. They manage more than $500 billion worth of funds under advice and generate more than $4 billion revenue per annum. I am advised that between 20 per cent and 40 per cent of Australians use or have used a financial adviser, and that percentage will continue to increase as more and more Australians have a superannuation fund. Superannuation, from memory, came in around 1992-93. I remember the discussions at my workplace at the time about superannuation—what it was et cetera. I remember the Accord basically had Australian unions agreeing to forgo some pay rises as part of that deal. Those 18,000 financial advisers will continue to grow as a group and the funds they manage, and their clients, will also continue to grow in the years ahead.

In Australia there are more than 750 dealer groups who can pair and access financial products on platforms and select a range of products. I am all for a market, like the government opposite. They believe in markets—sure, they do not believe in a market when it comes to pricing pollution that might affect our planet, but when it comes to financial advice they do believe in markets. If there is a competitive market, then you will get the best advice at the best price. That makes sense. But that market mechanism is hamstrung if people do not have to dip back into the advice they are given. As I said, we could have that ridiculous example of an 18-year-old receiving advice and then still paying for that advice 40 years or even 50 years later.

The former Labor government responded to the 2009 report and it brought in legislation that basically reflected a pretty common-sense approach that there should be some checking in every now and then. Also, as many speakers on this side have touched on, there is that possibility of conflicted remuneration. It is the age-old problem for anyone selling a financial product or credit that if their own mortgage is being paid off by the advice they give, there is always that possibility of them giving conflicting advice. Certainly that is why, for lawyers, there are all sorts of rules and regulations governing who should be put first and foremost. As we have heard in speeches tonight, if there is a possibility of you receiving a trip overseas or some direct money into your wallet because of the advice you give, then there is always the possibility of you perhaps not putting your clients' interests first.

Before the 2013 election, during the consultation about the proposed FOFA package back in early 2011, Senator Cormann, now a very significant player in the government when it comes to their financial credibility—in fact, some might argue that he is the only one left with any financial credibility—stated that he supported the introduction of a statutory best interest duty, but he did not support Labor's push to force people to re-sign contracts with their advisers on a regular basis. So on this particular election promise he was halfway there in terms of having a check and balance system, but obviously he did not want extra red tape and have people go through the whole thing every two years. We just wanted people to do something that required some input.

The bill before the House basically removes the need for clients to renew their ongoing fee arrangement with their adviser every two years, which is basically the opt in requirement where you just touch base. And my understanding is it could have been as simple as a letter. I have spoken to financial advisers in my collection; they said that would not necessarily be the end of the world. And, remember, if you are that 18-year-old client that I talked about, you have value for the financial adviser—so much value in fact that you are listed on their books when they sell their business. People buy books, which is basically just the advice that you gave to a certain number of people in years gone by. It is something that is desirable, this list of clients.

The legislation put before the House by the coalition would make the requirement for advisers to provide a fee disclosure statement applicable but only for those clients who entered into the arrangement after 1 July 2013, which seems to be neither fish nor fowl. It is neither one nor the other. They have not worked out whether it should be done or not. The legislation also removes from the list of steps that an adviser must take in order satisfy the best interests obligations the requirement that advisers 'must generally act and provide advice in the best interests of their clients'. When Labor inserted that it was a catch-all provision to make sure the financial planner was not thinking of their trip to Disneyland, made sure the financial planner was not thinking about their own mortgage or their kids' private school education or whatever it was, and instead focused wholly and solely on the client in front of them. That is a bit of background and a bit of explanation of the purpose of this bill.

Obviously, when we went to consultation about this, the reliable sources to go to are consumer groups. What did Choice say when looking at FoFA1 and FoFA2? They said:

… the proposed changes will lead to costs to consumers as they reintroduce measures that encourage sales-driven practices in financial advice.

Remember that we are talking about nearly 20,000 advisers, so there will be all sorts. They went on to say:

With financial advisers working in boiler-room style sales cultures, consumers are highly likely to lose significant funds through further major market failures like Storm Financial. While no legislation can fully prevent a market failure, the original FoFA reforms aimed to curb the worst practices in the financial advice industry. The effects of recent major financial advice scandals have been catastrophic, resulting in consumers losing $5.7 billion in funds as well as their homes and certainty about retirement.

That is what Choice said—a sensible guide to what should be done. Obviously other consumer groups, like the Financial Services Council, had a different view, but, having spoken to advisers in my electorate who look after people, I was impressed by their professionalism, their intellect and the rigor that they brought to our discussions. We agreed to disagree on some of these matters, but I was impressed by their professionalism. Like any group, like politicians, we are often judged by the worst—judged by the rogues, judged by the cowboys, judged by the thieves. For financial advisers in the bigger groups that do the best work and have checks and balances, there would not be too many problems. But, obviously, if people see an opportunity, they are more likely to take advantage of people sitting in front of them, and there are the dollars associated with giving advice. As I said, if it is an 18-year-old person who is going to have a good income stream for 20, 30, 40 or 50 years, it is like sitting in front of a gold ingot, I suppose.

The Labor Party have had concerns that can be traced back to Storm Financial. That was a horrible set of circumstances, particularly in Queensland, in Townsville. A lot of people in my electorate who came to see me were former pharmacists, smart people—not people who made rash decisions. They thought they were making sensible decisions based on the advice that they had been given. Whenever there is the possibility of conflicted remuneration, the person who provides the financial product advice should have the extra checks and balances. Our legislation had only just commenced. People were re-adjusting to the new reality. The coalition wants to bring in more red tape and change the circumstances again. We are committed to going back to the original legislation. It is only going to create uncertainty.

We have a much stronger connection with superannuation than the coalition, obviously. One of their election promises was to retreat from the idea of increasing superannuation to the higher percentage that is needed to give people a bit of dignity in their retirement. Under Labor, we had started that progression, hopefully, towards what Paul Keating always said should be around 15 per cent. For parliamentarians elected after 2004, that is the super scheme we are on. Obviously, people elected before 2004 are a bit like that lawyer I talked about who gets paid for the advice they gave when they started. I am not sure where the numbers sit at the moment. Mr Deputy Speaker Whiteley, you were elected after 2004, so you have the benefit of that slightly different scheme. That is a discussion for another day, perhaps in another place. There are two sets of rules in here—

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