Pat Conroy (Charlton, Australian Labor Party) Share this | Hansard source

This debate is symbolic of the divide in this House and the divide in Australian politics. On this side we stand firmly for consumer protection, for supporting Australians in having a decent and dignified retirement. Those on the other side stand for the support of the big banks, the financial advisers and the wealthy.

It was interesting to listen to the last few contributions from the coalition. Coalition MPs, including the member for Hasluck, were very upfront in talking about the consultations they had had with the members of the financial services industry, with the advisers. That is fair enough; you should be talking to that. But not once did they mention talking a meeting with the victims of the financial scandals—the victims, the savers, the consumers, who have lost their life savings because of dodgy financial advice. That is really what this divide is about. Those on the other side are trying to protect an industry that all too often has done the wrong thing. Whereas, the people on our side are trying to protect the victims. Those who have been exposed, have lost their life savings and have come to some very difficult circumstances.

The other response from the coalition MPs has been to call for greater financial education for consumers. That is absolutely right. We should be doing our best to educate consumers about financial matters, but that is no excuse to allow financial advisers to be excused from acting in the best interests of their clients and that is what they are saying. They are basically putting all the onus onto the consumers and onto the public to protect themselves against some of the more irresponsible financial advisers out there. Again it does acknowledge huge issues in this industry, such as asymmetry of information and other matters.

We are having this debate because at the moment Australians have over $1.8 trillion in savings. We have one of the most advanced retirement savings industries in the world. But at the same time we have seen a series of collapses which have lost the life savings of hundreds of thousands of Australians. Between 2006 and 2010 we saw the collapse of Storm Financial, Opes Prime, Trio Capital and Westpoint Property Group. This has resulted in more than $6 billion in losses and has involved more than 120,000 people losing their life savings. The member for Fraser detailed some of the personal experiences of those. I have had people come to me in my electorate talking about similar circumstances where they have lost their entire life savings. It is tragic. I can certainly empathise with them because I, myself, have seen faulty financial advice, which was nowhere near as tragic as what was involved in these particular corporate collapses. But I remember as a young 20-year-old, having entered the workforce, and coming from a family that emphasised savings for your retirement, I went off and saw a financial advisor. That financial adviser spent a sum total of 10 minutes with me. He put a brochure in front of me for a particular bank's products and said, 'This is a goer and if you invest in this regularly, you'll be well looked after.' Being a young 20-year-old, probably not having spent as much time on it as I should have—so some of the responsibility certainly bears with me—I invested in that product. Thankfully, that product did well despite the 10 minutes the financial adviser spent with me. But he never disclosed to me that he was reaping two per cent of the regular contributions I put into that product. For the eight years I invested in that product, and for the 10 minutes work that gentleman did in providing me with a pamphlet, he received two per cent of every dollar I put in. As I said I came off lucky, but that is symptomatic of an industry in serious need of reform.

That led the last Labor government to introduce a series of very significant reforms that were supported by consumer groups and the more responsible members of the financial services industry. I recognise that not all advisers are shonks. Most financial advisers are deeply responsible people committed to the clients' best interests. But there is a minority who have done the wrong thing and it has had a very dramatic impact on our society.

It is interesting to quote from an ASIC survey that Peter Martin in the Fairfax papers highlighted a few weeks ago. In this survey by ASIC, it was found that 86 per cent of Australian consumers surveyed said that they had received good quality advice, 81 per cent said that they trusted their advice a lot. But when ASIC examined that advice, they found that only three per cent of that advise could be classified as 'good', 58 per cent was classified as 'adequate' and 39 per cent as 'poor'. This survey demonstrated two important foundations for Labor's reforms: first, that there is an asymmetry of information and that the Australian public like financial education, and second, when you apply an evidence-based assessment, then a lot of financial advice could be classified as 'poor'—40 per cent of financial advice being classified as 'poor'. This survey by ASIC also founded advisers who renounced commissions were most likely to provide good advice. ASIC concluded that unsurprisingly where advice fees was contingent on a product recommendation, then there were numerous examples where the advice appeared to be structured towards recommending or selling financial products. So this is the evidence of ASIC that, quite frankly, is consistent with a lot of other conclusions.

On Labor's package, Choice said consumers had more reason to have confidence in financial advice they received with the successful passage of those reforms. To quote Choices' chair:

This is a big win for consumers because advisers are now obliged to put the interests of their clients ahead of their own when providing financial advice.

CPA Australia and the Institute of Chartered Accountants Australia encapsulated the positive reception these reforms received, in the responsible elements of the financial services industry, by saying: 'The passage of the FoFA reforms was the result of extensive, widespread consultation over many years.' This is in contradiction with the claims over the other side that FoFA was some fly-by-night gut reaction to a specific collapse. Nothing could be further from the truth. The industry's own practitioners acknowledged that the passage of the reforms was the result of extensive, widespread consultation over many years. To continue with the quote:

Its introduction marked a milestone opportunity for the sector to take a greater responsibility and refocus its efforts on providing and promoting quality financial advice in the best interests of the client, free from conflict and in a transparent manner.

Someone who is not renowned for being a friend of Labor, especially the last Labor government, is Alan Jones—not you, the member for New England, but he is someone almost as opposed to Labor as you. He said: 'I'm no fan of the Labor Party'—evidently very true—'but I think on this issue their legislation is correct'. I would submit that to get praise from Alan Jones for a Labor Party reform means it must have passed a very high bar indeed!

The key parts of these reforms were around the 'best interests duty', a legislative requirement to ensure that the processes and motivation of financial advisers are focused on what is best for their clients. These include: requiring financial advisers with an ongoing fee arrangement with a retailer client to obtain their client's agreement at least every two years, to continue that ongoing fee arrangement; annual disclosure with fee-disclosure statements providing customers with a single statement that shows, for the previous 12 months, the fees paid by the client, the services the client received and services the client was entitled to receive; and a ban on conflicted remuneration, banning the licensee and their representatives from receiving remuneration that could reasonably be expected to influence the financial-product advice given to retail clients.

We have a situation where FoFA had been barely implemented; in fact, the new government was doing everything it could to avoid implementation of these very important reforms. At this stage, the new government decided to water them down. This was in response to the pleadings and bleatings of the big banks and the more irresponsible elements the financial services industry, who came and saw them. As the member for Hasluck said, he saw plenty of financial advisers but not a single client or victim of the corporate collapse.

The government's changes remove vital protections. They remove the essential catch-all provision 'in best interest'. This adds a loophole for advisers that means best interest will become ineffective. We will hear plenty from the other side about these six other tests that financial advisers must tick. The truth is, without the important catch-all provision that requires financial advisers in all other circumstances to act in the best interests of their client, these other six tests are meaningless. Dr Paul O'Shea from National Seniors Australia argued that this amendment 'would reduce the advisers' responsibility to act in the best interests of clients and allow advisers to hide behind a tick-box exercise on a limited list of actions'.

Secondly, the government's changes scrapped opt-in, allowing advisers to continue to charge fees—sometimes without having actively worked on a client's file—indefinitely, without receiving consent from the client. This is a really important and dramatic change. The truth is, two-thirds of financial-planning clients are passive. They receive no continuing service from their advisers. In fact, under the arrangements the coalition government is seeking to enact, advisers would be getting a fee for no further service, not a fee for service. That is a dramatic weakening of the provisions.

Thirdly, they amend the annual-disclosure requirement so that advisers only have to provide annual disclosure to clients who commenced with them after 1 July 2013. This is dramatic. Why is it okay to have transparency for advice post-2013 but not for clients pre-2013? Perhaps the worst change in this legislation is lifting the ban on conflicted remuneration so that the ban on conflicted remuneration will only apply to commissions on general advice. This will open the door for a sales-push culture of products rather than focus on the provision of quality personal advice. Clearly, it is not in the personal interest.

CPA Australia was of the view that the trouble with commissions was the potential to create real and perceived conflict of interest:

CPA Australia has said consistently that the changes the Government is seeking to make to FoFA tip the balance too far the wrong way and erode important and hard won consumer protections.

The important thing is the coalition government will say they have abandoned it, but they have left so many loopholes that you could drive a truck through it. Banks are allowed to send their advisers and other representatives on trips overseas as rewards, commissions of up to 10 per cent, volume-selling commissions, are still available.

Quite literally, they have lifted the ban on conflicted remuneration, and this will lead—without any doubt—to more financial collapses. It is, without doubt, a factor that drove the collapses we saw previously that led to $6 billion in losses and 120,000 people losing their life savings. The government lifting the ban on conflicted remuneration will open the door to more corporate collapses and will be on the heads of the coalition government and the members who vote in favour of these changes when these collapses come.

The truth is that the compromise with the Palmer United Party does not solve any of these issues. The changes were purely superficial and do not to anything of substance. I quote some of the responses from expert groups. CHOICE CEO Alan Kirkland said today when the Senate passed this compromise:

Today, the Senate has failed the best interests of consumers, and failed to learn the lessons of repeated financial advice scandals and collapses, where Australians have lost their life savings.

Economic correspondent Peter Martin, of the Fairfax papers, said:

Clive Palmer has been conned. In the most exquisite of ironies he has allowed the Coalition to water down financial advice rules without first seeking advice.

And:

The regulations Palmer has agreed to will allow banks to continue to reward advisers for shifting their products … Payments or in-kind payments not linked to the sale of a particular product are fair game … They are generous loopholes. They would have been illegal had Palmer not caved.

The further response from the government, when people voice their opposition to these changes, is to attack these voices and say they are vested interests with political motivations—people like National Seniors, the CPA and Industry Super Australia. Well I am proud to stand with the seniors of Australia in opposing these changes. These changes, according to modelling, will cost consumers $500 million per annum, a lot more than the supposed savings—and red tape—that these changes attest to, which are not credible.

I am proud to stand with the consumers of Australia. I am proud to stand with the seniors of Australia. I am proud to say that Labor introduced very significant consumer protections that were supported by the responsible members of industry—changes that would, in the future, help avoid collapses like Storm Financial. These changes are now being watered down through a dodgy deal between the coalition government and a minor party. These changes are at behest of the bankers, the spivs and the worst elements of the financial industry. It will be on the heads of those opposite when the next collapse comes through and it is demonstrated that it could have been avoided, or at least mitigated, by strong protections around acting in the best interests of consumers or conflicted remuneration. So I am proud to stand on this side. I am very confident the Labor will be on the right side of history on this debate, as we are on most things.

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