David Coleman (Banks, Liberal Party) Share this | Hansard source

I am very pleased to speak on the Corporations Amendment (Streamlining of Future Financial Advice) Bill 2014. I think this whole area really is a good insight into the differing approaches on the differing sides of the House because there is a temptation to seek to regulate all conceivable scenarios in a particular industry so as to manage any situation that could come up. Of course, on the odd occasion things do go wrong and there is a natural tendency to ask: what can we do to minimise that issue? But there is also a risk that, in the process of trying to fix the evils that you perceive, you can really hurt an industry very substantially—so much so that you actually make things worse. In trying to create a more perfect world, you actually create a less perfect one.

I have some experience in this area. I served on the board of a company called Yellow Brick Road, a provider of financial advice, mortgage advice and various other products so I do have some understanding of this area. One of the things that I learned from that experience was that you need to be careful before you regulate too aggressively in this space. Again, we do not want to create a scenario where the only people who can afford financial advice are wealthy Australians. In fact, that is the exact opposite of what we want to occur. We want a situation where the average family is thinking about their future, thinking about their kids' education, thinking about superannuation, thinking about maybe buying an investment unit—all those things that millions of Australians think about. It is very important that there is somewhere where those people can turn for advice and it is very important, frankly, that it does not cost them an arm and a leg to do so.

The problem with over-regulation is that you create such complexity for the provider of the service that the only people who can provide the service are those who have jumped through a hundred hoops and, consequently, are able to provide the service. But the price of jumping through all of those hoops is a very high compliance burden. Who pays for that? It does not matter what the industry is, and it does not matter what the source of the cost is, wherever the cost comes from, the person who ultimately pays for it is the consumer. That is not what we are about. We are about providing sensible regulation in the financial services space, but we are also about ensuring that we have a viable financial advice industry—an industry that can provide advice to people in the suburbs of my electorate and not just to people in the big end of town. Ironically, the Labor so-called reforms in this area risk exactly that. They risk promoting a situation where the only people who can get financial advice are those people who can pay thousands and thousands of dollars for it, and that is just wrong.

There are a number of areas that the legislation touches on. One of the really important areas is scaled advice. This is an important area to understand because it really goes to the heart of the differing approaches. 'Scaled advice' sounds a bit like a technical term, but it is really pretty simple. It means that if I go to a financial adviser and say, 'I want advice about life insurance,' the adviser can simply focus on life insurance products. The adviser in that circumstance does not have to boil the ocean, so to speak, thinking about every conceivable investment product and every conceivable situation that may or may not occur in the future; the adviser can simply say: 'All right, he wants life insurance. What are the right products for somebody like him, in his age group, with his family profile and his income?'

This is really important, because under the existing reform by the previous government there was a great deal of uncertainty about scaled advice. I have met with people in the industry about this issue and there is a lot of concern. As a financial adviser, if I am asked to solve problem x then that is fair enough; I will solve problem x. But I should not also be expected to solve problems a, b, c, d, e, f and g. This is a really important point because of the cost involved in providing that advice. The adviser knows that they are only expected to provide the advice that they have been asked to provide.

In the context of providing scaled advice the adviser must act in the best interests of the client. In the example of life insurance, the adviser would be in contravention of the act if they did not, in a diligent and responsible fashion, look at the life insurance products that were most appropriate for the client, but the adviser does not have to say, 'You've asked me about life insurance; let me tell you about an index fund in Norway that might be good for you.' It might be good for you, but it might not have anything at all to do with superannuation.

Another area that is very important to understand is around the best-interest test. It is in this area where we have heard some of the more over-the-top, hysterical commentary from those opposite. Of course, under the Corporations Act, it is an absolute requirement for a financial adviser to act in the best interests of their client, and it continues to be. In fact, the act and other legislation, go into some really quite specific provisions about the sorts of things you have to do as a financial adviser. So if you are sitting in Hurstville in my electorate, providing financial advice to a small business employing only one or two people, there is already a quite significant burden—appropriately so, because it is important that these advisers act in the best interests of their clients. The adviser has got to base all judgements on the client's relevant circumstances, conduct a reasonable investigation into the appropriate financial products, ensure that the adviser has the relevant expertise and tell the client if you do not. The adviser has to make inquiries to get complete information, because a client might tell you a number of things about themselves but they might neglect to tell you about their other bank account or investment property. As an adviser, in order to address the best-interest test, you must make sure that the client gives you the full picture. The adviser also has to identify the objectives, financial situation and needs of the client. So, there is really a very extensive range of requirements in relation to this best-interest test.

The dispute arose in relation to another clause, in addition to all of those other clauses, that the previous government had inserted. Basically, the clause said that even after you have acted in the best interests of the client, even after you have done all of these other things and addressed all of these various specific requirements within the legislation, you then have to do anything else that might have been good for the client. Imagine a small business person with one or two employees, with a small turnover and not a lot of time to conduct academic research in the process of providing advice. That adviser has acted in the best interests of their client and checked off a significant list of items that they need to follow. They have been reasonable, have made sure that they have the expertise, have asked all the right questions and looked at different products. If they do all of that it is not enough because, under the previous government's legislation, this vague clause—it is infinite in its applications—says, basically, 'And do anything else that might be a good idea.' That is a provision that is so broad that it is not a practical thing to ask a financial adviser to do.

If you are sitting in a big office tower in the CBD of Sydney in a multimillion-dollar operation, and you have got 20 compliance officers working with you, it would still very difficult but it would be more within reach. But it is not fair to expect a small business adviser to go through that process and it is counterproductive to clients. Do you know why it is counterproductive to clients? It is counterproductive because for an adviser to be able to sign-off and say, 'I have done absolutely anything else that might have been appropriate,' you can imagine the additional cost and resources that are required.

Debate interrupted.

See this speech in context