Andrew Laming (Bowman, Liberal Party) Share this | Hansard source

Far from being a day of shame, today really is a day to recognise the thousands of financial planners around Australia who do an extraordinary job protecting and growing the investments of Australians and the millions, obviously, of Australian clients of financial planners, all of whom are satisfied with the services they receive. If you listened to the debate in this chamber you would really get a sense, if you were listening to this majoring in the minors by the previous speaker, the member for Oxley—who never really saw a parliamentary speaking slot that he couldn't fill—in essence what he delivered could well have been done in three minutes rather than 30.

I recognise that the member for Oxley spent a lot of time while in government working very, very hard in an inquiry examining this matter. The Storm Financial collapse and other similar stories are of enormous concern to everyone. But for professional groups, who are often given trust and reliance by citizens, we do need to make sure that the services that are provided are exemplary. We live in a nation where we can expect that. But we also need to be mindful of the limits of government intervention. To give you a well-worn analogy, when an eye surgeon is sitting there talking to a patient, precisely how many pieces of paper being filled out and signed will protect a patient from an adverse outcome? In the end, we are reliant on expertise, on goodwill and loyalty to our customers. In the end we know that in 99 per cent of those arrangements that exists. So the final question we can consider here is: what do we do in the one per cent where we see a straying from that trusting and productive relationship? Never do we want to sully the other 99 per cent of relationships when we as governments stumble into the tiny financial planning practices around the station and tell people how to do their job. That is right. We tell people how to do their job. There is a reasonable balance there between ensuring a high level of service provision and still being able to ensure that we can provide low-cost advice to people who need it most.

We are not in this debate considering sophisticated investors who earn over quarter of $1 million a year and are able to indulge in some very, very elaborate and sophisticated financial instruments and schemes; we are talking about allowing more low-income people—people, for instance, in small micro businesses who do not have anyone paying them any superannuation whatsoever—to contemplate an appropriate asset mix for their future. What we are trying to do is open the door to those people so they get some, not no, financial advice. I know that the focus, post Storm, has been on irresponsible giving of advice, but, as I have said before, it is really incumbent upon us here in this chamber to understand just how complex our governmental interference can be in that relationship.

In the end, government cannot be sitting in every practice. Government cannot be holding the hand of every consumer. Government must give citizenry an opportunity to complain and protest, and to access information and have it transparently provided, and all of that rests within this legislation.

The changes that we are making here basically look at reducing compliance costs and the regulatory burden that, in the end, makes almost no difference to the information that is provided to customers and almost no material difference to their decision-making around financial advice. That is the core issue. It is not how many forms you can fill out. It is not how many times you can make a financial planner send out letters to their customers. In that relationship of trust, government's power, in the end, is quite limited. It is a matter of us understanding the limits of that power and what interventions are actually likely to be effective.

I thought that a very good analogy was this. Say you have a problem with the door on your house and you call someone to fix the door; the question is: should that person have to do a mandatory structural assessment of your entire dwelling before they can fix your door? While that is somewhat of an exaggeration, it points to exactly what we are asking of financial planners—how much they have to do; how much is mandated in their practice before they can offer quite simple, targeted advice, often to low-income earners who are not putting a great deal of money on the table to be managed.

Obviously, coming from a very different professional background, to understand this field there was nothing I could do that would be more effective than going to spend a day with a financial planner. So Mike Smith from Anchor National Financial Planning in Springwood invited me to his office, and I spent basically a six-hour day learning a little more about how a financial planner's office works. For all of the descriptive analysis from the member for Oxley about how all of this additional burden should be simply carried by the profession, it would be good for him, as a Labor MP, to simply sit down in the office of a financial planner. I was there on the day that they were sending out the letters to their clients saying, 'Under Labor's FoFA reforms, we can no longer provide you with any advice whatsoever, and we are terminating that client advice relationship,' because there was, simply, under the new rules, no cost-effective means of continuing the relationship. They were sending out a number of those letters to their clients. That outcome cannot be tolerated, because low-income people need to be able to gain that advice without it being too costly to provide.

That is why we are here in this building: we are here in this building to, where we can, as government, secure the financial future of those who vote us into this place. If FoFA goes too far and has that impact, then of course we must do something.

You can see, as I said at the start of this contribution, that we can argue over relatively small elements. But let us, on both sides of this chamber, never mix up the difference between an association between filling out more forms and a causative reduction in risks like Storm capital. Simply piling up the paperwork ain't going to get you there. Certainly you can associate more paperwork with greater scrutiny, but we have to be very careful with what we legislate to ensure that it achieves the objectives without the unintended consequences.

So the underlying objective of these very important changes, which are widely supported by smaller financial planners who are not linked to Labor-backed industry funds, is that we need to continue to build trust and confidence without any more government interference than is needed. Both sides of this chamber agree with the policy intent of FoFA—let us be honest. It is just about how we get there.

So what we intend to do is to unwind any regulatory overreach, as I have already described, and that has really been created by the current legislation because of, effectively, an overreaction and a belief in the kind of curious professional wars that Labor engaged in. I never quite understood how the Rudd-Gillard government did it, but one day we woke up and eye surgeons—that is right: ophthalmic surgeons—were the enemy. If I can just detain the House for a minute, at some point, someone somewhere decided that we had to take on Australia's eye surgeons and halve the cataract rebate because the world would be a better place. There was absolutely no understanding of the implication that that would have for the private sector and private health insurance contributions for people gaining private eye surgery, the increase in out-of-pocket costs created, and then the fall-away in people who need eye surgery actually getting it. We just had this perverse battle between then health minister Nicola Roxon and the entire eye surgery sector, until, in early 2010, when it was all going pear-shaped for the then Prime Minister, Kevin Rudd, we saw Nicola Roxon airlifted out of the red zone; white flags went up; and it was backtracking by the Labor government. It is to that sort of weird professional war that Labor, in government, wakes up and decides to embark upon that this is somewhat analogous: suddenly, financial planners were, in some way, the enemy.

I can understand the sensitivities and concerns around the tragedy of Storm Financial, but to sully the entire financial planning sector is the problem that we witnessed under Labor. So I am happy that the essential provisions of FoFA stay—and there is absolutely no doubt about that—and I will detail those in a minute.

We know that advisers will not be able to receive commissions when either general or personal advice is provided and that they will still be required to act in the best interests of their clients, and there are six clearly-stipulated criteria in the legislation to ensure that that occurs. They will be providing a warning to their clients if there is any incomplete or inaccurate information, and of course they prioritise their clients' interests ahead of their own, despite what you have heard from a previous speaker. We have supported all of those outcomes from the outset. We have also announced additional improvements to FoFA that have been agreed with some of the crossbench senators, and these improvements will, among other things, ensure that the essential protections of FoFA are front-of-mind for clients, as they will be explicitly listed on the statement of advice so that clients can see them.

I have to confess that I have not always read the statements of advice in detail, and 99 per cent of people going into these arrangements probably do not. So please let us never forget the limitations of government intervention in these areas. Just because it is written down does not mean the client reads it. Just because the client signed it does not mean that the client read it. We have an enormous challenge trying to raise the financial literacy of many of the customers and those that visit financial planners. But, in the end, we are placing an enormous amount of scrutiny on financial planners in this legislation without the overreach. So, advice continues to be in the best interest, the advice must be appropriate, the adviser will be warning where there is incomplete or inaccurate information and the prioritisation remains—that is important.

We have also made an election commitment to amend the law to enable incentive payments which do not conflict with advice that is providing general versions of advice. Many have been critical, saying that this would lead to a return to commissions and to conflicted remuneration. We have to be absolutely clear: we are only removing the overreach and the unintended consequences of FoFA as it currently stands, and it never has been or will be the intention to allow the payment of commissions or conflicted remuneration. The rationale for these changes was that individuals who only provide or receive general advice—for example, employees designing websites or providing general information seminars—were at risk under the current legislation and at risk of being affected. Of course, this pushes up significantly the compliance costs that I have already described for small to medium businesses like the one that I visited earlier this year.

During the stakeholder consultation, which has been vital on the draft legislation, there were also concerns that the amendments proposed would allow advisers to go back to charging commissions. Those concerns have been listened to and we have developed better targeted advice provision. As such, the final wording of the legislation balances those needs—the needs of the industry with the government's desire to see that we clearly indicate that commissions will not be reintroduced, and there are a number of elements within the legislation to ensure that occurs.

Both upfront and trail commissions are explicitly banned in relation to general advice. The personal advice provisions are already, obviously, ensuring that commissions are not permitted. That is on top of the already existing requirements that the person providing the general advice has to be an employee of the financial product provider and be transparently operating under the name, the trademark and the business name of that provider; that the person did not provide any personal advice other than in relation to a basic banking product, general insurance or consumer credit products to any retail client over the last 12-month period; and that the general advice can only be provided in relation to products issued or sold by the provider or under the name, trademark or business name of that provider.

To put beyond any doubt how absolutely serious we are about not permitting commissions, there will be in place regulation-making powers that I alluded to earlier that may prescribe circumstances in which all or part of a benefit is to be treated as conflicted remuneration. Therefore, if, contrary to our clear expectations as a government and our intention not to bring back conflicted remuneration, there are developments in the market that warrant our intervention, that can easily be done and very quickly through regulations—although it is very unlikely that that will be necessary.

Are we likely to see a return to commissions paid in relation to general advice? Quite clearly, these amendments indicate that benefits paid on general advice cannot be a commission. That is in the legislation, and this includes both recurring payments—the trailing commissions—and upfront. Is there is risk then that businesses will shift or transition across to only giving general advice simply as a means to push their products? This is also discouraged in the legislation. The provision first of all only applies to employees, so it limits the applicability. And an employee cannot utilise the provision if they provided any form of personal advice in the last 12 months to a retail client. Given the significant upfront and ongoing training costs that advisers incur to skill themselves to provide personal as opposed to general advice, it is really unlikely that an adviser is simply going to step away from that kind of work of providing targeted personal advice and return to a more general advice-only model.

Why is the obligation to act in the client's best interest being changed? The layperson and a small number of groups have had concern about the changes to this best-interest test. To be clear, six of these provisions remain and they must be articulated today. They effectively prescribe that to act in the best interests of a client this is what an adviser has to do: they have to identify the subject matter of the advice sought; they have to identify the objectives, the financial situation and the needs of the client that would reasonably be considered as being relevant to the advice sought on a subject matter— (Time expired)

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