Russell Matheson (Macarthur, Liberal Party) Share this | Link to this | Hansard source

The Corporations Amendment (Future of Financial Advice) Bill 2011 and the Corporations Amendment (Further Future of Financial Advice Measures) Bill 2011 seek to address the obvious need for reform within the financial advice industry, as highlighted by the collapse of Storm Financial in 2009. Most financial advisers would agree—indeed, as ASIC found—that Storm Financial acted recklessly and not in the best interests of their clients. The fact that Storm Financial collapsed leaving thousands of clients destitute and bankrupt highlights a need for a stronger regulatory framework within the financial advice sector.

However, this legislation in its current form does nothing more than increase red tape and regulatory costs for businesses and in turn pushes financial advice products out of the reach of the ordinary consumer. This legislation will deliver little to no additional protection to consumers and will make the cost of providing quality financial advice to consumers more expensive and cumbersome.

The coalition members of the Parliamentary Joint Committee on Corporations and Financial Services made 16 recommendations in their dissenting report which address many of the shortfalls of this legislation. These recommendations have been positively received and supported by a number of key industry groups and associations. It astounds me that, despite going through a rigorous committee process, the Corporations Amendment (Future of Financial Advice) Bill 2011 and the Corporations Amendment (Further Future of Financial Advice Measures) Bill 2011 are still unnecessarily complex and unclear in a number of parts.

It is of no surprise to me that the government's own Office of Best Practice Regulation, the OBPR, has issued a damning assessment of these FoFA proposals. I support, as do my colleagues in the coalition, sensible reforms to financial advice and the financial services industry. However, when these reforms create unnecessary complexity and produce unclear and convoluted regulations, the result is the creation of a barrier rather than an incentive to more consumers receiving quality financial advice. For the best interests of consumers and industry alike, the parliament should adopt the first recommendation of the dissenting report and defer consideration of the FoFA legislation until the government provides a full regulatory impact statement in relation to the legislation currently before the parliament.

Moreover, this regulatory impact statement must be compliant with the requirements of the government's own Office of Best Practice Regulation. Anything less is an insult to those thousands of professionals practising in the financial advice sector and will let down millions of Australians who seek professional and quality financial service.

The FoFA reforms are going to completely restructure the financial advice industry. It is only common sense that the government does its homework now on how these reforms will affect the industry and consumers. Specific industry concerns regarding the FoFA reforms include high implementation and compliance costs as well as a reform package that favours larger, concentrated financial advice service providers. Last year, industry bodies warned the government that the FoFA reforms in their current form would cost jobs. We are already seeing a watershed, with jobs going out of the financial advice sector as firms prepare for the pain of more red tape and the extra cost caused by these reforms. Conservative industry estimates place the cost to implement these reforms at around $700 million, with a further $35 million a year for compliance.

One of the most contentious aspects of the FoFA reforms is the mandatory opt-in requirement, under which consumers must re-sign contracts with their financial advisers every two years. This requirement removes from clients' control when and how they terminate their relationship with a financial adviser. This will significantly increase red tape and costs for financial planners and consumers involved in long-term financial advice relationships. The creation of the opt-in requirements also takes away key protection mechanisms for advice and dispute resolution schemes.

It is very important to remember that in 2009 the parliament asked the Parliamentary Joint Committee on Corporations and Financial Services to conduct a comprehensive inquiry into Australian financial products and services—the Ripoll inquiry. This very comprehensive inquiry received a vast number of submissions and made a number of recommendations. However, instead of implementing the recommendations made by the Ripoll inquiry, which would have resulted in bipartisan support as well as industry support and approval, this government has allowed its own self-interest and the vested interest of the Industry Super Network to hijack the FoFA reform package until it is almost unrecognisable.

As a number of my colleagues have noted, the Industry Super Network provided the only submission to the Ripoll inquiry that advocated a mandatory opt-in requirement. Its proposal was not even accepted as a recommendation by the Ripoll inquiry—that fact should be well noted. Yet now this unworkable provision is being thrust by a vested interest into an incredibly important reform agenda to the detriment of the industry, the consumer and the economy. I cannot even begin to express how frustrated and angry financial advisers are about the constant changes and last minute additions, along with the overt political interference and policy reversals that have occurred during the creation and passage of these FoFA reforms.

Financial advisers provide professional advice to Australians about how to better manage financial risks and maximise financial opportunities. This legislation sends the wrong message about the professionalism of financial advisers and presumes that clients are not in a position to make an educated decision about their relationship with their financial adviser.

Until this legislative reform package, payments for financial services have been flexible and accessible, especially fees paid by commission from a customer's superannuation. I have canvassed the views of a number of financial advisory companies in the Macarthur electorate about their thoughts on the proposed FoFA reforms, especially with regard to the practical workings of the legislation. The common theme that has arisen in my conversations is that this legislation will create a number of key problems for businesses and clients and will fail to deliver the intended protections and benefits to their clients. However well intended the FoFA reforms may be, making the financial advice industry over-compliant will push up fees and in turn make this important and valuable product unaffordable for many hardworking Australians. This is especially true in my electorate of Macarthur, which has a very high proportion of young families who are mortgaged to the hilt and who often do not have available finances for additional financial products, especially for risk insurance outside their superannuation.

The government clearly has not given enough thought to the complexity of, and costs associated with, many of the initiatives within the FoFA package. The government has already failed its own standards with this reform package and it is creating a legislative nightmare for smaller financial advice businesses. While the government has at least decided to adopt the coalition policy of allowing commission payments on risk insurance products outside of superannuation, it is still stubbornly pursuing a ban on commissions inside superannuation. That will increase costs for consumers, remove choice and leave many people worse off, particularly small business people who self-manage their super.

The government's decision to draw a line in the sand, and ban commissions on risk insurance inside superannuation, will cause pain to the consumer. It will limit consumers' choice and the flexibility of remuneration options. In fact, just two years ago the United Kingdom went through this same process of banning commissions on risk insurance. They have discovered that banning has not worked. The UK have learnt from their actions and they recently reversed that decision. That has hardly got a mention in this chamber. We should learn from that experience, as opposed to putting our financial advice industry through the wringer. Australians are already underinsured. This legislation will greatly exacerbate this significant problem.

Another failure of these bills is the last-minute addition by the government of the additional fee disclosure statements for both existing clients and new clients. These additions occurred after the minister assured industry groups that this last-minute addition would not be retrospective. This legislation will require financial advisers to report to each client, whether the adviser had a relationship with the client before the reforms or not, with a detailed outline of every service performed. While this may not seem onerous on paper, in practice it will result in financial advisers sending reams of paper to clients outlining every phone call, transaction, decision, meeting and inquiry made on the client's behalf. This is especially burdensome as fee disclosure obligations already exist for advisers and product advisers in disclosing to the client the fees paid.

The government's addition of overly prescriptive fee disclosure statements will dramatically increase administrative costs and red tape. I urge the government to accept recommendations 4 and 5 made by the coalition members of the Parliamentary Joint Committee on Corporations and Financial Services. In their dissenting report, they call for the government's prescriptive fee disclosure statements to require a summary of fees to be given to clients annually only and for these fee disclosure statements to not be applied retrospectively. These recommendations strike an effective balance between the need for transparency and accessible information of financial advice services by not placing an overly prescriptive legislative burden on the industry.

The last point I make about these two bills is with regard to the best interest duty that will be established by this legislation. The Ripoll inquiry made a number of recommendations regarding the duty of financial advisers to provide advice in the best interests of their clients rather than the adviser's own financial interests, including that of their providers and wholesalers. This is an important provision and one that I am glad the government has chosen to adopt. However, in its usual fashion, the government has failed to provide a robust and well thought out framework for this new duty. I urge the parliament to adopt the coalition's recommendations 6 and 7, which will resolve much uncertainty within the industry about the practical operation of duty and facilitate the provision of scalable advice.

One of the firms in my electorate, Macarthur Financial Planning, has expressed concerns about the future of scalable advice under the FoFA reforms in their current form. Change is good when it brings improvements, efficiencies, transparency and better value for consumers. With the recommended amendments to this legislation, the FoFA reforms could deliver a balanced result for the financial planning sector and their clients. However, this legislation in its current form is unnecessarily complicated and unclear. In particular, the opt-in renewal measures of the legislation create a number of significant barriers rather than incentives to people receiving quality financial advice at an affordable price.

Even on conservative industry estimates, the changes these bills seek to legislate will cause job losses in the financial services industry. They are likely to cost the industry around $700 million to implement and a further $350 million per annum for industry to comply with many of the onerous requirements. These amounts will surely be borne by the consumer. This legislation will enshrine an unlevel playing field amongst financial advice providers and will increase red tape, an additional cost for both businesses and consumers, with little to no additional benefits to protect the consumer.

Today, I urge the House to accept the coalition's amendments to this legislation. They will improve this legislation and turn around a good intention that has been poorly executed into a piece of legislation that will bring positive change to the industry. But it wants and needs real reform rather than pandering to the whims of the minister's mates.

Michael McCormack (Riverina, National Party) Share this | Link to this | Hansard source

The coalition has sensible and timely amendments to the Corporations Amendment (Future of Financial Advice) Bill 2011 and the Corporations Amendment (Further Future of Financial Advice Measures) Bill 2011. The shadow Assistant Treasurer and shadow minister for financial services and superannuation, Senator Mathias Cormann, is doing a terrific job on this. The words in the previous sentence are not mine, although I wholeheartedly agree. They are in a comment from highly regarded Wagga Wagga financial adviser, Australian Financial Services authorised representative and Australian Credit Licence credit representative Gary Langtry. I have known Mr Langtry for many years. He, like me, hails from the Marrar district, and is a straight talker. He will look you in the eye and tell it as it is. It is the best way to be, particularly in his line of work. Clients know where they stand. That is important, crucial, essential.

Mr Langtry was pleased Senator Cormann was holding the Minister for Financial Services and Superannuation to account on this issue. The bill as it stands 'feeds beautifully into the hands of the union controlled superannuation fund network', Mr Langtry observed. How very true. Mr Langtry sent me a paper compiled by the Association of Financial Advisers on the key recommended amendments and impacts of these bills, which have been described by the association as 'the biggest change to the industry in a generation'. Now that the Parliamentary Joint Committee on Corporations and Financial Services has put in a dissenting report, the association is correctly and understandably railing against the legislation, which includes elements that are anticonsumer, anti-adviser and anti small business. Its paper says:

The key test for FoFA, which the AFA has continued to support, has always been:

1. improved transparency and

2. increased access to advice.

Our view is that FoFA, as it is currently drafted, delivers neither. Minister Shorten has stated on a number of occasions that FoFA is a growth strategy for the financial advice industry and also that there is broad industry support for FoFA. In fact the financial services industry has many concerns with the current draft of this legislation, much of which has been recognised and addressed in the Coalition’s dissenting report.

Why is it that it seems everyone outside of the government can see what the Labor government is doing wrong and how it will affect Commonwealth coffers, businesses, regardless of size, families, farmers and everyday people juggling a household budget, yet those on that side of the chamber seem to be oblivious to it all? There are none so blind as those who will not see. The association's paper is a damning denunciation of the government's proposals.

It takes up five key issues related to the bills. First, retrospective fee disclosure is a huge cost burden to the financial services industry for information consumers already receive. The Financial Services Council has estimated implementation costs of $700 million. We heard the member for Macarthur just a few moments ago talk of the job losses that the financial services industry would have to endure. We on this side of the House do not want to see any further job losses in any industry, let alone the financial services industry, which plays such an important part in our economy and for small business, which, as the member for Macarthur would also know, is the engine driving our economy.

Further, the council has suggested the cost per client for fee disclosure will be halved if it only involves new clients and summary information. As with everything when a government introduces overbearing, onerous—and that was a word that the member for Macarthur used well too—and unnecessary legislation, someone has to pay. Invariably the cost is borne by those at the end of the line: the consumer, the customer, the client. Second, the opt-in obligation is an issue of concern because it will add costs of about $120 per client per year. Unintentional failure to opt in could result in a possible risk for consumers, as they could miss out on the receipt of adviser-initiated important advice, according to the association. Access to advice will, according to the association, reduce as advisers reposition their offer up-market. The association argues that it is better to strengthen opt-out provisions. As with so many of Labor's policies, the ones who will suffer most will be clients in the regions, clients in country areas of this great nation of ours.

Third, proposed section 961B(2)(g) creates uncertainty, and, if enacted, could well eventually need to be tested in the courts. Then we have the question of who pays for the court to decide what is right and what is wrong. Is it the government, aka the taxpayer? Is it the customer, the client, the consumer? Is it the financial adviser? Whichever way, someone is going to lose, and generally the person who loses will be the one who can least afford it, possibly the taxpayer. This uncertainty with respect to the best interest duty could lead, the association says, to a rise in professional indemnity premiums. The association wants to adequately ensure that the ban on conflicted remuneration is not applied retrospectively.

Fourth, the government has repeatedly pledged that its proposed legislation will not be applied retrospectively, yet the transitional arrangements fundamentally fail to ensure this. We have heard that word 'transition' used so often by the government. They are always transitioning something, and it is a transition from something that is decent and good and working to something that is not decent or good or working. The word is 'transition' or 'transformation'. That is the government's way. It is the Labor way of doing things—no thought whatsoever. Any change to the law should still allow an adviser to sell their business or a book of clients without triggering a retrospective loss of property rights. This will have an adverse effect on the value of advice practices, and again that is so crucial in regional Australia.

Finally, the association has called for a delay in the start of the legislation until the industry is adequately prepared—1 July 2013 has been mooted. FoFA involves expensive and lasting changes. This will require significant system alterations and adviser training. For these companies, particularly in regional Australia, adviser training is often an expensive and onerous thing. Sometimes they need to go to metropolitan areas, and that involves aeroplane fares, accommodation and people being away from the business at busy times. When these things are brought in, they always hit regional Australia in the neck. Rushed implementation will cause errors and inefficiency, which the industry does not need, given the fact that it is dealing with people's money—in some cases, people's lifetime investments. Given the ongoing legislative uncertainty, 1 July 2012 is an administrative impossibility. But we have seen so many things that the government are rushing through, so many things that they want to get done by 1 July 2012—

Jill Hall (Shortland, Australian Labor Party) Share this | Link to this | Hansard source

Absolutely, and you're trying to prevent democracy.

Michael McCormack (Riverina, National Party) Share this | Link to this | Hansard source

Well, I find that your government is all hypocrisy and no democracy, and I am sure a lot of members of the public agree. I will take that interjection.

The association's demands are not unreasonable. Any reforms in this area must find the right balance between suitable levels of consumer protection and the need to safeguard the ongoing accessibility, affordability and availability of high-quality financial advice. This needs to happen not just in metropolitan areas but also in regional Australia. Labor has failed to accomplish an appropriate balance with FoFA because it did not meet its own internal process requirements around best practice regulation. There is nothing surprising there. The government falls short in so many areas. It probably thinks, 'Why should financial reform be any different to any other policy area?'

Labor's mismanagement of this legislation was exposed by the damning assessment of the FoFA proposals by the government's own Office of Best Practice Regulation. How utterly embarrassing for this government. This government has been embarrassed so many times in recent weeks and months. The trouble is it is always the voters—the people who are paying this government's way with their hard-earned taxes—who are being caught out, being penalised. These Labor reforms are just another example of that. They are a sad and terrible indictment, given the complexity and associated costs of the proposed changes, especially the highly controversial and contentious aspects of these bills.

There is no precedent in the world for introducing the sort of additional red tape which will follow the government's opt-in proposal. There is no precedent in the whole wide world. But have we not heard that before? To my mind, it sounds similar to the Clean Energy Bill—the carbon tax—where Australia will set the benchmark and our citizens will be poorer because of it. We hear all the time that it is a carbon pricing mechanism. I beg to differ; it is a tax. The people out there know that it is a tax and Labor in here know it is a tax, but they refuse to call it what it is. It is not carbon pricing; it is a tax.

The coalition has made 16 recommendations—reasoned, well thought out, industry backed proposals—as to how the current FoFA amendments can be improved and strengthened. The 16 suggestions are consistent with those in the dissenting report of the Parliamentary Joint Committee on Corporations and Financial Services. They make good sense. They will help customers, Mr and Mrs Average, who use financial advisers to help them with their savings and investments in these challenging times. They will help the industry, which plays such an important role in Australian society today. The Labor government just needs to take them on board.

Craig Kelly (Hughes, Liberal Party) Share this | Link to this | Hansard source

I rise to speak on the Corporations Amendment (Future of Financial Advice) Bill 2011 and the cognate Corporations Amendment (Further Future of Financial Advice Measures) Bill 2011. The financial services and advice industry provides a very important service to many Australians. It helps Australians with their financial health and wellbeing. Financial advisers help Australians to manage financial risks and maximise the financial opportunities available in today's economy. But we must always remember that financial advice, like any other form of advice, is only an opinion or a recommendation offered as a guide. No financial opinion or recommendation can ever be perfect. For example, look at American economist Mr Alan Greenspan, who served as Chairman of the United States Federal Reserve Board from 1987 to 2006. He was a man credited with masterminding the postwar boom, who had a track record of demonstrating that there was hardly anyone else in the world more qualified to provide financial advice. But, following the GFC, Mr Greenspan admitted that he had been partially wrong. He said:

… I have found a flaw. I don't know how significant or permanent it is, but I have been very distressed by that fact.

When questioned further about his ideology and his opinion of the economy and economic advice, he said that his ideology was not working.

… that’s precisely the reason I was shocked, because I had been going for 40 years or more with very considerable evidence that it was working exceptionally well.

That reminds us that even the most qualified economists and financial advisers give just that—advice, which sometimes may not be in the best interests of their clients. The coalition recognises the role that financial advisers play in helping Australians to better manage the financial risks and to maximise the financial opportunities. In providing this service, financial advisers actually deal with other people's money. That is the reason why we must have an appropriate robust regulatory framework in place to ensure effective consumer protection and to ensure that high-quality services can be made available at a low cost and that they are accessible and affordable.

The financial services sector came through the GFC in reasonably good shape. But, like anything, there is always room for improvement. In pursuing any regulatory change, we must focus on making things better, not just more complex and not just creating more red tape and not just making it more costly for everyone. We must avoid any regulatory overreach where increased red tape increases costs for both business and consumers with no additional consumer protection or benefit. But, sadly, like so much we have seen from this government, this is flawed legislation, arising from a flawed process. The reform package was simply hijacked by vested interests after more than two years of unnecessary regulatory uncertainty and upheaval for our financial services industry. Confidence in our financial services industry requires that there be transparency, choice and competition. Unfortunately, these bills provide absolutely none of those three. We need to also make sure we are striking the right balance between appropriate levels of consumer protection—but again these bills fail.

I would like to quickly go through a few areas where the coalition believes that these bills fail. Firstly, they are unnecessarily complex and in large parts unclear. Secondly, they are expected to cause an actual increase in unemployment. Thirdly, they legislate to enshrine an unlevel playing field amongst advice providers, inappropriately favouring a government friendly business model against the interests of small business in the financial planning area. Fourthly, the reforms in this legislation are likely to cost about $700 million to implement and a further $350 million per annum to comply with, and they are conservative industry estimates.

I come to a few specifics about the impact of these bills on financial advice. Industry participants have expressed serious concerns about the detrimental effect that this legislation will have in its current form. The committee that investigated these bills received evidence from the Financial Services Council that the government's proposed changes would cost the industry $700 million to implement upfront and $350 million every year thereafter. I think the comments from Mr Richard Klipin, the chief executive officer of the Association of Financial Advisers, are worth reading. He suggests that the total job losses resulting from this legislation could exceed 30,000. He states:

In conclusion, FoFA, as it stands, will decimate the financial advice profession. Over 6,800 adviser jobs are at risk and over 30,000 jobs in total. This excludes the businesses they support in the communities they serve and the clients they service. A piece of legislation that inflicts this amount of damage is unacceptable.

He is exactly right. He continued:

FoFA as it stands will also increase the cost of advice to consumers.

He goes on to say:

This committee has already had evidence that FoFA will cost hundreds of millions of dollars to comply with—and this is just for the product providers at the big end of town. It will also decimate the provision of financial advice to clients in the bush and the regions. Advice will … become a service for the wealthy, and working families and lower- to middle-income Australians who really need advice will be priced out of the marketplace.

That comment alone shows why this legislation should at least be put on the backburner. I further offer some comments about financial advisers from AMP, who have expressed concern that these reforms would actually increase the concentration of players in the market and lessen competition. A representative of AMP stated:

… I think there is likely to be a migration of advisers to large players like AMP. So, despite the fact that we think there is some competitive advantage in the advice industry for this legislation to companies like my own, we do not believe it is in the broader interests of the financial advice industry that there should be what we think is likely, which would be a consolidation of advisers.

Further, Mr Grahame Evans, the Group General Manager of Professional Investment Services, stated:

Australia did not get to be the No. 1 financial services hub in the world and respected by everybody else because we were anticompetitive. I think this is an important aspect of FoFA. We have to make sure that, in our rush to protect the consumer, there is a balance between the objectives of being able to give the consumer appropriate protection and not reducing the competition that is out there in the marketplace.

We have seen the dangers of increasing market concentration in many sectors of our economy and we have learnt from the mistakes. We have seen the problems our supermarket sector and we have seen the problems in the trucking industry all relating to increasing market concentration. Unfortunately, that is what we see these bills doing. We see an increasing market concentration in the provision of financial advice whereby we risk creating financial planning services that are too big to fail.

Australia simply did not get to be the No. 1 financial services hub in the world and respected by everybody else because we were anticompetitive. I think this is an important aspect. We have to make sure that, in our rush to protect the consumer, we create a balance between the objectives of being able to give the consumer an appropriate level of protection and not reducing the competition that is out there in the marketplace, so not resulting in increasing market concentration. That is simply another reason why these bills in their current form should be opposed.

Another reason why these bills should be opposed is the unrealistic implementation time frame. As it stands, this legislation will actually become effective on 1 July this year, a little more than three months away. The current implementation time of a little more than three months is completely unrealistic, creating great uncertainty for the industry. Businesses will need to change processes, they will need to change software and they will need to train advisers—all before business has even seen the regulations. Three months is simply too short a period of time.

A few interesting comments concern the problem that it will all create. If we try and bring this legislation in and enforce this on our financial services industry in three months, we will create havoc. There will be mistakes made. It will all cost the industry likely even more than the $700 million estimate of implementation. What we should be actually doing, as the coalition has recommended, is this: even if the government thinks this legislation in its current form is the right way to go, its implementation should be postponed to 1 July 2013 so the changes are synchronised with the start of MySuper. In this way, it will make it much easier for the industry to work through these changes, to accept them and to make sure they are implemented on the lowest cost basis.

Another great problem with this legislation is the opt-in provisions. These opt-in provisions will add unnecessary additional costs and create red tape. The government's proposed two-yearly opt-in provisions will make it questionable whether they actually provide any consumer benefit. There is simply no precedent for these opt-in provisions and this increase in red tape anywhere else in the world, yet this is what this government is trying to do. Evidence received during the inquiry expressed concerns about the negative consequences which may flow to consumers who do not opt in within the required 30-day period. That is even though they may have intended to continue with their financial advice relationship and may even have assumed that the relationship was ongoing. Even where the lack of opt-in is inadvertent, clients are automatically deemed to have ended their financial advice relationship. In its submission, the Financial Planning Association expressed its concerns as follows:

Unfortunately, the legislation in its current form does not provide adequate protection to financial advice clients where 'the disclosure obligation' or 'renewal notice obligation' is not satisfied by the financial planner/licensee.

This is because, by virtue of the default, the client will no longer be considered to be an 'advice client' if the planner does not receive the client's opt-in renewal notice within the 30-day period. This may be completely contrary to what the client understands may be the relationship and could have significant ramifications at a later date when the client attempts to seek compensation from their planner for not advising them of changes to the law or market movements that may affect their financial position.

This also affects many of the small business financial planners out there. It affects the value of their business. They may have built up a business with customers, built up a personal relationship, but if this automatic opt-out provision is there, where another form needs to be sent out, it diminishes the value of their business, because those clients automatically fall away from being their clients if that customer fails to fill that form out.

I'm sure that we all know the number of forms that we get through the mail to fill out every day. If this legislation goes through, by simply failing to fill out one of those forms, which often a consumer would put aside and think was unnecessary, they are automatically be opted out of that financial planner's advice. This is simply another reason why this bill should be opposed.

Another problem is with the retrospective fee disclosure statements, because these were not part of the government's proposed changes until the very last minute. It was a last-minute throw-in that was done without any consultation with the industry, without any discussions of the ramifications or the unintended consequences that would result. Mr Richard Klipin, Chief Executive Officer of the AFA, told the committee investigating this bill:

Fee disclosure statements were never part of the conversation and never part of the consultation. They jumped in at the last minute and are retrospective. They are a redundant item and will just cost endless amounts of time and money and will be one of the reasons why a lot of advisers will focus on the higher value clients at the expense of low and middle income Australians.

This is why this bill is deeply flawed. Financial planning and advice is a very complex area. To throw in such late changes at the last minute, without proper consultation with the industry, without consideration for their consequences, simply is a reason why we have ended up with such a flawed bill.

There are many other problems with this bill. The coalition has put forward 16 recommendations. We ask the government to use common sense and reason and at least hold this bill off for another 12 months.

Ken O'Dowd (Flynn, National Party) Share this | Link to this | Hansard source

The Corporations Amendment (Future of Financial Advice) Bill 2011, which is before us and is being debated cognately with the Corporations Amendment (Further Future of Financial Advice Measures) Bill 2011, has been considered in the short time we have had to go through the bill as it stands. Whilst the bill has some merit, it definitely does need not tinkering but major changes to it. In fact, we have come up with 16 amendments that we wish the government would consider. If they were to consider these amendments, we would have no hesitation in supporting the bill through the House.

In its current form it is an extension from 2001, where the government of the day—John Howard's government—provided a solid regulatory foundation for our financial services industry. Since then a lot of things have changed. We admit that changes need to be made and there is always room for improvement. If the coalition's amendments go through and are adopted into the bill it would be great for the people in the industry. In my seat of Flynn there are many financial advisers. There have been many financial advisers living with the communities in the business world that have been there as a normal part of doing business. A lot of people rely on financial services because they do not have time to go through all sorts of legislation and investment advice. When you have been out mustering cattle all day or out branding you might be away from the homestead for many days. The last thing you want to do is come back to your home to do paperwork. That is what country folk have had to base their business on over the years. They have had to become more and more astute with government policies and legislation. People in the financial services sector are there to help them, and a lot of financial advisers are very concerned about what is in store if we were to disrupt this type of business. The bill was first mooted over two years ago and only came to the House's attention in February this year. That does not give anyone too much time to scrutinise the bill, to go through it to see what changes have to be made.

As the member for Hughes has just said, software staff have to be trained. As you know, Madam Deputy Speaker Livermore, we are flat out getting staff in the Central Queensland area. It is very difficult for these businesses to get new staff and to train them on updates to software packages. We strongly suggest that the whole bill not come into force until 1 July 2013 along with the MySuper policy. It makes sense to us on this side of the House that the two acts commence on 1 July 2013, not 1 July 2012.

We need to set up hotlines to help these people through the changes. March has nearly gone and that does not leave much time for industry as a whole to make these vast changes to the regulations. Reform is going to be bogged down in red tape and it is also going to be costly. It is estimated that the cost will be $700 million in the first year of these changes and $350 million each year after that. You can see it is not going to be expense-free for the government or for industry. If we could spread it out over a little further time and adopt these 16 amendments it will serve everyone in Australia much better.

We do not want to see what happened in the Storm Financial disaster—there were some other companies involved in that too. The company was based in Townsville and people from Cairns, Townsville, Mackay, Rockhampton and Gladstone took the brunt of that loss. I know many people in Rockhampton and Gladstone who were hit and lost their life savings. It was a very bad thing. Nonetheless, it has happened and we are still going through why it happened and what can stop it from happening again. That is why this bill is important and it is important that we get it right.

We will probably have to face job losses if the financial companies have to wind back. While those people in our area can soon get another job it is different for other people around Australia. They might find it hard to get jobs in the financial world if the banks cut back their services, as they are. The banks are starting to lay off people. If financial advisers start to lay off their staff, there could be a crisis in that particular area of employment. As the member for Hughes has said, will it favour the big companies and not the little guys? Under this bill, we think there will be inequities and the smaller players will be bowled over and will have to leave the market, and that the big guys will be favoured. We think that will be a tragedy for our area. There are not too many with the big corporate companies in our area. The playing field will be uneven, and I would not like to lose the smaller players from the financial services sector.

It is good to pick up the phone and call someone you know in your home town and have a good yarn about what is happening in the financial world, what is happening in the share market, what to invest or what to divest and so on. It is day to day for these guys. But with large corporations you do not have the ability to pick up the phone and say: 'Hello, Tom. How are you going? What should I be doing? Should I be investing in gold? Should I be investing in silver, the metals or the share market, or just keep the money in the bank?'

The trouble is even if you do not have any wealth, you still need them. For young people it is difficult to get finance for housing. Once upon a time, if you had a good bank account or good cash flow, you could get a bank loan. Now there is a more serious approach and you need a good job and you need to be investing in a good business or a good asset. The banks will no longer take just one of those; they need both. They require a good cash plan and good assets to back up the loan. This is where the financial adviser comes in. A young person might even have a good education, but they still need financial advisers and providers to help them through the maze to get finance for their new home or small business. At the moment, small business is on the nose with the banks. I would like to see this changed. The help of financial providers can point young people in the right direction.

The implementation time frame is 1 July 2012 and there is inadequate information available. It has not gone through the House yet, so the financial advisers will not be left with much time to make some very important decisions for themselves, their businesses and the people whom they service. Who knows when this bill will go through. We do not sit for another five or six weeks and that takes us another month or so closer to 1 July, when this legislation will take effect. That is why we say that we want to put it back at least 12 months to 1 July 2013. We oppose the opt-in section. It was not even a recommendation of the Ripoll inquiry, but the government wants to bring this opt-in clause into the act straightaway. We do not support that. It is one of the 16 things we want changed in the legislation. The retrospective application of the additional annual fee disclosure requirements is another thing we would like changed. We would also like to see improvement in the drafting of the best interest duty. The ban of commissions on risk insurance also has to be further refined. There needs to be much more clarity for financial providers. That is all I have to say, but I plead with the government to delay the implementation of this bill a further 12 months and to take up all 16 of our recommendations.

Alan Tudge (Aston, Liberal Party) Share this | Link to this | Hansard source

The objectives of the Corporations Amendment (Future of Financial Advice) Bill 2011 and the Corporations Amendment (Further Future of Financial Advice Measures) Bill 2011 are sound. They aim to improve the quality of financial advice while building trust and confidence in the financial planning industry through enhanced standards which align the interests of the adviser with those of the client and reduce conflicts of interest. The bills aim to facilitate access to financial advice through the provision of simple or limited advice. They also aim to create a requirement for advisers to act in the best interests of clients and a ban on conflicted remuneration. Many of those are very sound principles.

Our concern is that the government, in putting forward a package to try to meet these objectives, has gone too far. As it currently stands, the legislation will lead to increased costs and reduced choice for Australians seeking financial advice. So we have put forward a number of amendments, and it is these amendments which we would like to discuss today. Our amendments seek to get the balance right, with a sensible regulatory framework providing appropriate levels of consumer protection while ensuring financial advice remains available, accessible and affordable. This is because we recognise the important service provided by financial advisers helping people to improve their financial health and wellbeing.

The reforms we are debating today have their origins in the 2009 Ripoll inquiry. This inquiry into financial products and services made a number of well-considered and reasonable reform recommendations. The pivotal point was to require financial advisers to put their clients' interests above their own—a very sensible point. Had the government proceeded in this direction and just agreed to the basic recommendations of the Ripoll inquiry, I think the bills would have received bipartisan support. Some of the recommendations of the Ripoll inquiry included making the cost of financial advice tax deductable for consumers; getting ASIC to work together with the industry to form a professional standards board that advisers would be required to join; giving additional powers to ASIC; and having the government investigate options for a last resort compensation scheme.

All the industry bodies supported the committee's recommendations in the Ripoll inquiry and, as I said, had the government limited its legislation to matters which were recommended in the Ripoll inquiry then this legislation would have received bipartisan support. But it did not do that and that is why we are here today putting forward a number of amendments which we believe will improve the legislation.

These include amendments for: the government to be required to table a regulatory impact statement; the opt-in to be removed from FoFA; the retrospective application of the additional annual fee disclosure requirement to be removed; the drafting of the best interest duty to be improved; the ban of commissions on risk insurance inside super to be further refined; and the implementation of FoFA to be deferred a year until 1 July 2013, to align it with MySuper. I do not want to go through every single one of the 16 amendments. I want to focus on three of the more important ones. The first is the amendment which requires the government to undertake a regulatory impact statement. We believe that is important, given the very heavy financial cost imposed on the industry by the proposed changes and the associated potential for job losses. As an absolute minimum, there should be a regulatory impact statement done on this, which would comply with the government's own best practice regulation requirements in other areas. The parliament should insist on a proper regulatory impact statement before dealing with any of these bills. Based on the evidence provided to the committee, the coalition committee members concluded that this legislation would lead to increased costs and reduced choice for Australians seeking financial advice. In pursuing regulatory changes, the government must rigorously assess increasing costs and red tape for both business and consumers.

The second issue is the opt-in provisions, which we believe should be removed, and one of our amendments would implement that. The coalition does not support the government's push to force people to re-sign contracts with their financial adviser every year through a so called opt-in process. This would add an unnecessary regulatory burden, imposing too much additional cost for both small business and consumers, for questionable additional benefit. It would create additional red tape. Financial advisers would have to spend an inordinate amount of time chasing up contract renewals. According to Treasury, there would be increased costs for the average financial advisory firm of about $100,000 every year if the opt-in provisions go ahead. It will be small businesses and individuals who pay the cost. The move will add to the Australia-wide problem of underinsurance, and a large proportion of people may well miss out on advice at a time when they need it most.

The third area is the proposed ban of commissions on risk insurance. We do not support the ban. Our view is borne out by the experience in the UK when they went down this path. They have since reversed the move. Like opt-in, banning commissions on risk insurance would make the problem of underinsurance in Australia worse, as access to risk insurance would become much more expensive upfront. I have been approached by a number of concerned constituents from the industry in relation to that provision in the draft bill. One of them, Garry, puts it well when he says:

When I provide advice to my clients or would be clients, they are not required to pay for the advice received. If they proceed with the insurance recommended, and an application for insurance is accepted, then we receive a commission. This covers my costs and provides my remuneration. In the service I provide, I do not discriminate, be it a large client with significant needs, or a smaller client whose needs and ability to pay premiums are modest, the service provided is the same. The bigger client has needs and if asked would be able to afford a fee for my time, the smaller clients whose needs are just as important to them, may struggle to obtain advice if a fee had to be paid.

Garry illustrates his point with an anecdote which, to my mind, characterises best practice with regard to fees and commissions. He reports:

Last year a client of mine died in tragic circumstances at work. We assisted his widow with all of the necessary paperwork for the claims process. This was made much longer than was reasonable as the coroner was delayed in handing down a final decision due to delays in obtaining toxicology results. Despite this, with constant and regular follow up by our office, we were able to obtain a release of the much needed life Insurance proceeds, enabling her to own her home and get on with her life and care for her young children.

The client paid no fees at all for our work and nor should she. It's our job. Being paid commissions for new sales and on renewals of existing insurance we are able to offer a high level of service to all our clients, and when assistance is needed we are able to do so.

I think that is a very good anecdote. It illustrates the type of service that would be at risk if were to go down this path of banning commissions on risk insurance.

There are a number of other issues which we have identified with the draft bill. We on this side have pointed out that it is unnecessarily complex and many parts remain unclear. We have pointed out the problem that it may lead to underinsurance in the industry. We have pointed out the problem that it may lead to further job losses, something that we do not need at this time of job insecurity. The amendments which we have put forward are sensible amendments. There are 16 in total. I have emphasised three of them today and other members on our side of the chamber have emphasised other amendments. We believe that they would make some sensible improvements to the draft bill. If those amendments were agreed to by the government, then we would support the bill. If those amendments, on the other hand, are not agreed to by the government, then it would be very difficult for the coalition to support the legislation as it is, due to the problems which I and my colleagues have outlined.

We are always prepared to consider sensible proposals to improve the regulatory framework for financial services. However, to get the coalition's support, proposed changes have to be focused on addressing genuine issues, be practical and make things better. We simply ask that the government put its legislation through the proper scrutiny and deal with the clear and obvious problems by taking on our sensible amendments. Then we will support this legislation, but in its current form we are unable to do so.

Russell Broadbent (McMillan, Liberal Party) Share this | Link to this | Hansard source

I have just read the second reading speech of the Minister for Financial Services and Superannuation for the Corporations Amendment (Future of Financial Advice Measures) Bill 2011. I have only one complaint, and that is about the English used. It says:

Platforms should be incentivised to put the most appropriate products on their menus.

'Incentivise' is not a word and never has been. As members have pointed out today, this is a really important issue. Mr Tudge has just said these are important issues for Australian people; they are important for people who are heading towards retirement and for people in the earlier years of their lives as well. When we use a word like 'incentivise' or 'incentivisation', we are bastardising the language to the point where it offends me greatly. Having got that off my chest, I will now talk about the legislation.

These issues are a matter of extreme importance to this parliament. They are a matter of importance to both sides of the House. The Parliamentary Joint Committee on Corporations and Financial Services' work and report were excellent. The opposition has put forward some very reasonable recommendations, not with the intent of opposing whatever the government is doing but with the intent of making in a bipartisan way this legislation better for all concerned, both for the financial advisers and their clients. That is what these amendments that the coalition is putting forward are all about. Having described that situation, it is important now that we discuss why this all came about in the first place. Every one of us knows somebody who has lost nearly all their savings after getting some inappropriate advice. Did they take that decision on their own? Yes, they did. Did they receive that advice and therefore take the risk? Did they perhaps go for a rather higher interest rate than was being offered by the banks or the general market? Yes, they did. Is it our own fault sometimes when we are greedy? Yes it is. Having said that, we genuinely want to go to people who have the knowledge and the ability to point us in the right direction as to how we can maximise our retirement benefits, our income at the time or our savings.

As parliamentarians, when something goes wrong, people say: 'What did you do about it? What are you doing about it? How could these people possibly lose this money in this country? How could the financial advisers do the things that they did without the knowledge of the client?'—as in the Storm collapse. As I understand it, even some of the Storm clients did not know they were reinvesting at that rate. I am not a financial expert, but I know that things went badly wrong to the point where people lost everything. They did not just lose their savings that they had invested; they lost the houses they had been put up as the basis for their loan.

The government and the parliament have responded through our processes. For those who are listening, the process is that there was an issue of concern about the prudential status of financial planners and the way they went about their work. That needed to be addressed in some way, so the parliament addressed it through a committee of inquiry. There was an extensive inquiry with submissions from all over the country and from everyone who had possibly been involved in the process. That is how parliament works. I note that there was a dissenting report by the coalition members on that inquiry, who thought there should be further emphasis on other areas around the issue. That is part of the process of what we do too. You can have a dissenting report by saying, 'I agree with most of what the committee has put up, but we are going to make a dissenting report on these areas,' which I may outline in a moment.

The coalition have said that we support the fact that we need to address some of the issues on behalf of the people and we need regulations therefore to protect the consumer. Yes, we must bring in regulations that protect the consumer, but they must not cost them in the long run and we should not put more red tape into the system, making it more difficult and more expensive for the provider of the service and the receiver of the service to go through the process.

We should never remove the flexibility from the client, not the service provider, to access part of the services and not the whole package. Under this legislation, I understand they have to go through a whole financial package. The client should be able to access just parts of the service, especially if it is the first time they have gone to a financial planner. Quite often people go to a financial planner and are overwhelmed by a need for a huge financial plan for their family when they only went there to get some advice on a specific investment. We should allow flexibility and I do not think this legislation allows enough flexibility.

There has to be a pathway for people who have not had this advice before to go to a financial adviser without any sort of commitment, get advice and pay upfront. It is clear and open, and they know what it is going to cost to get some advice or to have one or two hours with the financial adviser. We are concerned that it may be that the financial adviser pushes a product—and this has happened in the past—that may be beneficial to the financial adviser unbeknown to the client, where the client thinks they are getting the best advice. It does not matter whether we are looking at real estate agents or lawyers; we like to know and trust that those people are absolutely working on our behalf as the client. This parliament wants a focus on the consumer that says, 'To the best of our ability as a parliament—not necessarily as a government or as an opposition—we will try to give you the regulatory framework so that you can get the best advice in this country, and Australia then becomes a world leader in this process.' I think the emphasis behind what the government has done here is right. They are really trying hard to get this framework right for the benefit of the client and those who are providing the service. The opposition has said, 'We support your bill as long as you have a look at and address the amendments we have put forward.' That is not a big ask. Because this is such a complicated area, the amendments are listed as to what we would like considered. I am sure the minister would be prepared to consider those arrangements if he felt they were beneficial and improved the legislation. These amendments are not put in to make the legislation poorer or less safe; they are put in so that the system may work better on behalf of the clients represented here.

Remember, we are not talking about a few hundred people. We are talking about nearly everybody across the nation. People are always looking for advice on financial planning: 'How can we do this better? Where are there areas that I am not involved in that I could be involved in that may be beneficial for the existing wealth that we share now and perhaps the generations that I will be passing my wealth on to?' I do not want to say, ever, that there is not a group of people out there who do not need our support—our helping hand. They will always be there and we, as members of parliament, acknowledge that.

There are others who have worked very hard and have accumulated some wealth. They would like some advice as to how they might use that wealth. We recognise that too. From that point of view, if you drive anywhere in this country, especially up the far north, you see people who have done very, very well. In this last 10 to 15 years, wherever you go, you see beautiful developments and people doing quite well, as opposed to those who may be struggling. We recognise too that we have people who struggle and we do our best as a community to benefit them in ways such as through the taxation system and our welfare system. We look after them as best we can but we can do better.

But the nation's wealth overall has improved dramatically. I do not care where you go in this country, you will see that Australia—as compared with the rest of the world—is a very wealthy nation with individuals who are very wealthy. I would like to think that the government will look at these amendments from the opposition, takes them seriously, address itself to these issues and see if we can work together to get the best outcome on this legislation that we possibly can.

In the end, the bottom line is that we want to leave this place with legislation that is better than when we came in. Whoever is in government, there is an underlying intent that we do the best for the Australian people that we possibly can, and this is one of the best examples I have come across. If we can get this regulatory framework right, we can benefit family after family, generation after generation. It is not a big ask that we work together to get the best outcome here. We will never, ever, protect ourselves from a shyster but at least we can put together the best framework we can to stop the shysters. There are a lot of very good people across this nation working as financial advisers and they have benefited thousands upon thousands of people and their families.

All we ever hear of are the worst examples of advice. Even in the minister's second reading speech he says that we cannot stop every failing of the system. All we can ever do is to give it our best shot. He does not actually say that in those words, but he is virtually saying that we can give it our best shot. So I would like to see in this legislation that we give it our best shot to get the best arrangements we possibly can, and I would ask in that process that the government look at the opposition's amendments without threat and just ask 'Can these amendments be accommodated?' because it would be one piece of legislation that I would like to see go through the parliament with bipartisan support. I think that is all I need to say.

Dennis Jensen (Tangney, Liberal Party) Share this | Link to this | Hansard source

As stated by the government, the purpose of the Corporations Amendment (Future of Financial Advice) Bill 2011, which is being debated cognately with the Corporations Amendment (Further Future of Financial Advice Measures) Bill 2011, is to tackle conflicts of interest within the financial planning industry in an effort to restore the confidence and trust of retail investors following the fallout from Storm Financial, Opes Prime, Westpoint and the like. The key test for the success of FoFA, supported by the coalition and peak industry bodies, will be improved transparency and increased access to advice as a consequence of these reforms. In its current draft the first will be achieved but the bill will fail to deliver the second. Advice will come at a higher cost and be provided to fewer people. This legislation is unnecessarily complex and unclear, is expected to increase unemployment and legislates unfair advantage to certain service providers, inappropriately favouring a government-friendly business model. It would be incredible if fewer Australians received advice because of these reforms.

The Minister for Financial Services and Superannuation has stated on a number of occasions that FoFA has broad industry support. This is largely the case. However, the coalition, and indeed the financial services industry, hold many concerns, addressed comprehensively in the coalition's dissenting report. Evidence before the recent Parliamentary Joint Committee on Corporations and Financial Services in its inquiry into this legislation confirmed our view that the legislation in its current form would be bad for consumers, bad for small business, bad for small business financial advisers and bad for the industry as a whole. It would unnecessarily increase red tape and increase costs for business and consumers while reducing choice, as well as reducing competition and diversity across the financial services industry.

In February 2009 the Parliamentary Joint Committee on Corporations and Financial Services conducted a comprehensive inquiry into Australian financial products and services. The centrepiece of the Ripoll inquiry's report was the recommendation to introduce fiduciary duty for financial advisers, requiring them to place their clients interests ahead of their own.

The Financial Services Council of Australia welcomed this report and has welcomed the majority of the reforms these bills offer. The industry already strives for higher standards for financial advisers, embraces a best-interest duty and wants the end of remuneration structures that have the potential to distort advice. These elements of the FoFA bills are important for the customer but also significant for the future growth and stability of the industry. Very constructively, the coalition has made a series of recommendations on how FoFA can be improved and progressed from here.

The coalition will be moving a series of amendments, including that the government be required to table a regulatory impact statement on FoFA consistent with the government's own process requirements. This must be done before anything else. Given the magnitude of the changes and the costs involved, it is imperative that a proper regulatory impact statement with a proper cost-benefit analysis be completed.

According to the government's own Office of Best Practice Regulation the government did not have before it adequate information to assess the impact of FoFA on business and customers—or, indeed, adequate information to assess the cost-benefit of the proposed changes. This simply is not satisfactory, given the complexity and costs associated with the contentious parts of the proposed changes. The minister must remove the contentious elements of this legislation and proceed with the important and widely supported FoFA reforms. The minister must remove the opt-in obligation, as it imposes unnecessary additional red tape and costs that are not reflected in any other industry or country. The imposition of a mandatory requirement on customers to re-sign contracts with their financial advisers on a regular basis is unreasonable and incurs costs for both planners and consumers. Remember, opt-in was never a part of the initial Ripoll inquiry recommendations. And the government has been unable to point to another example anywhere in the world where a government has sought to impose a mandatory requirement on consumers to re-sign contracts with their financial advisers on a regular basis. The coalition is strongly opposed to this element of the bills before the House. The inclusion of the best interests duty and the ban on conflicted remuneration address any factors that may have driven the inclusion of this clause. They offer appropriate transparency of fees charged and an ongoing capacity for clients of financial advisers to opt out of any advice relationship at any stage. This offers adequate consumer protection. Left without amendment consumers face increased costs and reduced access to appropriate advice as advisers reposition their offerings to the market to maintain turnover and productivity. Consumers will stop receiving advice or not seek advice at all.

In relation to removing the retrospective application of the additional annual fee disclosure requirement, again, the Ripoll inquiry made no recommendation to introduce an additional annual fee disclosure statement over and above the current regular statements provided to clients. This requirement in fact infringes on existing contractual arrangements and information that is already provided to clients. Failure to amend these measures will see a huge cost burden on industry for information consumers already receive. The Financial Services Council estimates that implementation of the fee disclosure requirement alone will cost approximately $54 for each new client and $98 for each existing client—an annual cost to the industry of $375 million. Like all costs these will be passed straight to the consumer. The government must be held to account for the commitment it made during the consultation process that these additional annual fee disclosure requirements would apply prospectively only.

Regarding improving the drafting of the best interest duty, the coalition supports the introduction of a statutory best interest duty for financial advisers into the Corporations Act. This is a central and very important part of the FoFA reforms. However, to avoid confusion and minimise the risk of future disputes it is important to get the drafting of the best interest duty absolutely right. Peak industry body the Association of Financial Advisers also support the best interest duty. But they too seek greater clarity and certainty for financial advisers. It is obvious that the government has struggled to come up with an appropriate definition of the best interest duty. The coalition remains concerned that a catch-all provision will create uncertainty for both clients and their advisers.

Proposed section 961B(2) defines a series of steps that are comprehensive in their definition and provide unambiguous guidance to advisers. However, paragraph (g) allows for any other steps that would be reasonably regarded as being in the best interests of the client. If there are further steps the legislation must clearly state so. They should be included in their entirety and paragraph (g) removed. Left as is, this section creates uncertainty that will eventually be tested in the courts. And, again, this section will lead to higher costs to the customer as ambiguity is likely to result in an increase in professional indemnity premiums. Regarding further refining the ban of commissions on risk insurance inside superannuation, the coalition supports the ban of conflicted remuneration structures such as product commissions within the financial services industry and commends the industry for moving proactively and effectively to abolish such conflicted remuneration structures. However, we do not consider commissions paid on advised risk insurance inside or outside superannuation to be conflicted remuneration structures. Again the government's own Ripoll inquiry did not make any recommendation to ban commissions paid for by risk insurance products. Banning such commissions will increase costs for consumers, remove choice and leave many people worse off, particularly small business people who self-manage their super.

To treat commissions on all risk insurance inside super differently from insurance outside super will also create inappropriate distortions which will fail to be in the best interests of customers. We agree that those Australians who receive automatic risk insurance within their super fund without accessing any advice should not be required to pay commissions. However, those Australians who require and seek advice to ensure adequate risk cover, whether inside or outside of their super fund, should have the freedom to do so.

We must also ensure that the ban on conflicted remuneration is not applied retrospectively. We must delay the implementation of FoFA to 1 July 2013 to align it with MySuper. The current implementation time frame of 1 July 2012 is completely unrealistic given that the proposed commencement date is less than four months away. Given the ongoing legislative uncertainty, implementation by this time is surely impossible. These two major changes require significant and expensive changes to the same financial service provider's IT systems and adviser training. It is the government's lack of understanding of practical business realities that sees it attempt to impose two different implementation dates involving significant and costly system changes in relatively quick succession. It is symptomatic of the government's chaotic approach not only to this policy area but to all legislation. Ultimately, the government must see that consumers' best interests must determine the timing of these reforms.

Dante De Gori of the Financial Planning Association of Australia told the Senate Economics Committee that his organisation supported a one-year transition and implementation of the scheme, emphasising the reforms had to be 'implemented accurately, while ensuring they are workable'. A one-year transition will 'allow all financial planners the time needed to implement these reforms in a transparent and efficient way'. The coalition agrees with this observation and, if amended, these regulations should not commence until 1 July 2013.

At a time when our population is ageing, growing superannuation balances mean Australians will need more and better financial advice. We must ensure that the implementation costs of these bills do not come at the expense of product development, in particularly post-retirement products. But the current regulatory change makes it hard for companies to allocate budgets to these projects. Over the past two years there have been continual and unexpected changes to the proposed regulatory arrangements under FoFA right up until the introduction of the current legislation. Companies are keen to develop better retirement products, but they cannot spend money on that if they have to spend money on FoFA. The current draft of this legislation will significantly and negatively impact not only customers but, most importantly, older and retired customers.

The Australian financial services industry performed very well in the stress test of the GFC. When it comes to providing financial advice in our region, the Australian market is considered best practice, with established industry bodies and licensed advisers with specific training. And efforts to professionalise financial advice and planning in Australia go back many years. There is no doubt that financial services reforms legislated in 2001 provided a solid regulatory foundation for our financial services industry. But there is always room for improvement.

The financial services minister and cross-bench members must seriously consider the coalition's amendments and support them. The original intent of the FoFA reforms should be adhered to, ensuring that all financial advice is in the client's best interests and financial advice should not be put out of reach of those who would benefit from it. Our goal must be to balance effective consumer protection with access to high-quality financial services that are available, accessible and affordable. We must avoid regulatory overreach that increases red tape and costs for both business and consumers with little or no additional consumer protection benefit. I call on the House to adopt the coalition's constructive recommendations and amendments to allow these important reforms to pass in a form that is beneficial both to industry and to the customer.

Andrew Robb (Goldstein, Liberal Party, Chairman of the Coalition Policy Development Committee) Share this | Link to this | Hansard source

I rise to contribute to the debate on the Corporations Amendment (Future of Financial Advice) Bill 2011 and the Corporations Amendment (Further Future of Financial Advice Measures) Bill 2011. I start with a note of thanks. This is a highly complex area, highly important. So many thousands of people's lives are affected by this decision, not only those receiving advice, most importantly, but also those that are giving the advice.

A division having been called in the House of Representatives—

Sitting sus pended from 18:01 to 18:22

As I was saying before we were rudely interrupted with a division, I would like to begin my comments with a vote of thanks in particular to John McInerney, who is a financial planning consultant from Bentley and has given me enormous assistance, with invaluable, informed advice and insights from the coalface. He organised some 60 fellow professionals within the financial planning profession locally to gather with our shadow minister, Mathias Cormann. We had a 2½ hour session on the impacts of the legislation on their services and on the way they interact with their clients. It was a most valuable exercise. John has been in the financial planning industry since 1988, and before that spent 23 years as an educator, so he is a person with the sorts of qualities to be very effective, as he has been in providing advice to clients. He has also been an active participant in raising the standards in the profession, as a member of FPA's Towards Professionalism Task Force, and has assisted the Securities Institute of Australia to develop its financial planning course amongst the profession.

I feel I had some very good guidance locally, meeting so many of them from the southern suburbs in Melbourne. It is certainly something that has greatly exercised the sector, and this legislation is very important. They are very proud of the profession that they are part of and the service that they give to individuals. I suspect that the one-on-one nature of the profession is something that elicits from so many of them a great desire to assist and ensure that the quality of life and the opportunities of their clients are maximised. You would expect that they are 'people people', and they are professionals who take great pleasure in seeing the success of others, because, if that happens, that means they have been successful. The coalition cannot support the future of financial advice bills in their current form. This is very unfortunate because, as we all know, a cross-party committee—the Ripoll committee—did some very solid work, coming up with a list of comprehensive, balanced recommendations that had the support of both sides of the House. Sadly the Minister for Employment and Workplace Relations, after several months of being influenced by other vested interests, has materially changed some recommendations and added other recommendations which we find unnecessary and in fact counterproductive and in particular serving the interests of one part of the industry—the industry funds. This reflects the continuing bias of the minister for workplace relations. I see him as the minister for unions in much of what he does. This is a very unfortunate development.

A division having been called in the House of Representatives—

Sitting suspended from 18:26 to 1 8:40

As I was saying before the division, it is a bit ironic that after a day in the House when there were quite wild and ridiculous assertions being made of undue influence, here we have in this very bill tonight a concrete example in legislation. A very strong bipartisan position has been derailed by the decisions of the minister, who has been quite clearly and unduly influenced by former colleagues and cronies within the union movement. It really is an unfortunate state of affairs that we have here a piece of such significant reform legislation which has been so sadly derailed, one which was agreed on by those who are very experienced and well credentialled on both sides of the House on these issues. Their agreement had laid out a series of comprehensive and quite effective measures that would have been dealt with in a bipartisan way. If this legislation were to be amended along the lines put forward by the coalition, we could return to a position of bipartisanship, instead of a position that will quite clearly benefit a certain sector of this industry in a most unfortunate way and will impact dramatically on the lives, the profession and the businesses of many thousands of people who are so strongly experienced in this sector.

Unfortunately, the FoFA package of legislation in its current form is unnecessarily complex and in large part still quite unclear. It is expected to cause increased unemployment and it is legislating to enshrine what is really an unlevel playing field amongst advice providers while inappropriately favouring a government-friendly business model. It is likely to cost about $700 million to implement and a further $350 million per annum to comply with, according to conservative industry estimates. To go from a position where there was industry and bipartisan support for a range of measures to one with all of those faults is quite unacceptable. I can understand what has happened but, for the life of me, I do not know how the minister can stand there with a straight face and support the measures he has now made decisions on. In some cases, as I have said, they are decisions which are still unclear about how the measures would operate—and I am not sure that he knows either. As it currently stands, the legislation will lead to quite significantly increased costs and reduced choice for Australians seeking financial advice.

The coalition will be moving a series of amendments, the most important of which are that the government be required by parliament to table a regulatory impact statement on FoFA which has been assessed as compliant by the government's Office of Best Practice Regulation. The level of regulatory impact of this bill is just beyond the pale. In the last 3½ to four years we have seen the greatest growth of government in our lives, and that includes the Whitlam era. This place is now awash with legislation despite the hand-on-heart commitments given by former Prime Minister Rudd, when in opposition, about one regulation in and another one out. I think it is currently something like 16,000 pieces of regulation in and at most 200 or 300—and I think I am being generous—pieces of regulation out. We are awash with regulation and this bill will add another bucketful to the industry and massively increase costs. The opt-in arrangement should be removed from FoFA. It is something that was not part of the bipartisan agreement. The opt-in arrangement imposes a mandatory requirement on consumers to re-sign contracts with their financial advisers on a regular basis. Not only is this a significant increase in red tape and cost for both planners and consumers, it will make Australia the world champion in financial services red tape. It was not part of the initial Ripoll inquiry recommendations. In this context it is important to note that the Industry Super Network provided, not surprisingly, the only submission to the original Ripoll inquiry, arguing in favour of opt-in. The proposal for a mandatory opt-in requirement was not accepted by that very comprehensive inquiry.

The minister has been unable to point to another example anywhere in the world where the government has sought to impose a mandatory requirement on consumers to re-sign contracts with their financial advisers on a regular basis. On our side of the House we strongly oppose Labor's push to force people to re-sign contracts with their advisers on such a basis. If you know anything about the nature of the industry and what functions within some of these Industry Super Network organisations you can see that they will have a very clear advantage. This is what it is there for: to siphon customers away from small business people who have spent a lifetime developing relationship and expertise and giving independent advice. They will be siphoned off into industry funds because of these sorts of arrangements. The industry funds can absorb a lot of this complicated procedure and they have other benefits that the small independent players may not such as connections with different policies and all the rest those things that will come into play.

Again, all of that is within organisations—these industry funds—where there is no transparency about the directors who run the organisations and the salaries they get. These are the sorts of things that are commonplace within the corporate world. They are multibillion-dollar industries and organisations that are responsible for billions in funds. We have this extraordinary situation where they are able to pull the levers of influence and not have any transparency. We had a day in the House on transparency and here is another perfect example where there is no attempt for real application of it. Yet one of the major recommendations of the Cooper inquiry was to shed some light on the inner workings of the sector so that there is more competition. When there is competition you get self-regulation in many respects, because the consumer is able to make their own judgments and they will discipline organisations by taking their business to where they see they will get the best opportunity.

Amongst these amendments the coalition has moved—and for which we are looking for support—we also see proposals that the retrospective application of the additional annual fee disclosure requirement be removed; the drafting of the 'best interest' duty be improved; the ban of commissions on risk insurance inside super be further refined; and the implementation of FoFA be delayed until 1 July 2013, to align with MySuper. Minister Shorten and the crossbench members should seriously consider these amendments.

This industry provides important financial services and advice. It helps Australians with their financial health and wellbeing. Australians are becoming far more financially literate and far better able and prepared to seek advice and have an informed view themselves to balance up the advice they get from these advisers. The services are dealing with other people's money, which is why it is so important to have an appropriately robust regulatory framework in place. The framework worked satisfactorily through the global financial crisis. We think there is room for further improvement and that is why within the very comprehensive Ripoll committee inquiry we agreed to a raft of changes on a bipartisan basis with those on the other side of the House. Certain elements of it have been turned on their head for no good reason. There has been no justification. You just get an assertion from the minister that this is the way it is going to be, and you will cop it. Well, we are not going to cop it. If we do not get these amendments in place we are going to oppose these things so that we can protect the livelihoods of so many thousands of very strong and professional people— (Time expired)

Ken Wyatt (Hasluck, Liberal Party) Share this | Link to this | Hansard source

I rise to oppose the Corporations Amendment (Future of Financial Advice) Bill 2011 and the Corporations Amendment (Further Future of Financial Advice Measures) Bill 2011. I would like to emphasise this immediately: no-one in the coalition is saying that the financial services industry does not need regulation; of course it does. However, the Australian financial services industry was subjected to the stress-testing of the global financial crisis and performed well overall. There is no doubt that Australia's financial services reforms, legislated in 2001, provide the solid regulatory foundation for our financial services industry. Therefore the coalition believes that, with the existing legislature in place and increased resolve to police it, improvements can be made. This point of view was one of the key observations of the Ripoll inquiry in 2009, which stated:

The committee is of the general view that situations where investors lose their entire savings because of poor financial advice are more often a problem of enforcing existing regulations, rather than being due to regulatory inadequacy. Where financial advisers are operating outside regulatory parameters, the consequences of those actions should not necessarily be attributed to the content of the regulations.

This is an extremely important point to make from the beginning and it points to the philosophical differences between the coalition and the Left of Australian politics. When times are tough, when money is tight or when things go wrong, the coalition will look to work harder to improve the existing frameworks, tighten our belts and encourage others to do the same. Those on the other side of the parliament prefer to take the easier option of introducing new taxes or imposing even stricter regulations. This broadbrush approach to governance and fiscal policy is lazy. Instead of rolling up their sleeves and finding ways to improve, the Gillard-Greens alliance think it is easier to put their hands deeper into Australia's pockets than to change the rules of the game to prevent Australians from stopping them.

The government's decision-making processes around FoFA over the past two years were confusing. There were lurches and changes that came from nowhere to the proposed regulatory arrangements under FoFA right up until the introduction of the current legislation. Knowing this government's track record, naturally this was done without proper appreciation or assessment of the costs involved of any unintended consequences or other implications flowing from the proposed alterations.

The reason I am so passionate about this is that in my electorate of Hasluck there are 16 financial service providers serving hundreds of my constituents. They provide an essential service to the community, especially in the Western Australian economy where many people are taking advantage of the mining industry and taking home increased pay packets. Conversely, there are many people in Hasluck who have not been able to take advantage of the mining boom or who work in a different industry.

With all the new taxes heading their way, financial advisers are actually reporting an increase in people looking to make their money work as hard as possible for them. Financial advisers help Australians to increase their financial opportunities and better manage their financial risk. Peter Stewart, of Benchmark Consultants, and David Goode, of Westate Finance are two that come to mind in Hasluck who provide this essential service to the local community. They work hard to provide these opportunities to their clients. They should be supported rather than being faced with increased costs, increased red tape and increasingly unclear and unnecessarily complex legislation.

This is not to say that the industry should not be regulated. Let me be very clear once again and say that, because financial advisers deal with other people's money, they should have a robust regulatory framework to protect the consumer. However, this bill does more harm than good. We need parliament to make things better, not more complex and costly for everyone. Other speakers have gone into the history of this legislation, so I do not intend to linger much on this. I want to spend most of my time expressing my dismay at the content of this bill and representing the views of my constituency—because they are the ones that will be hurt the most. When I was elected as member for Hasluck in 2010, I promised to stand up and fight for the residents of Hasluck on the issues that are important to them. This is one of those issues that I will take up for them.

Financial advisers in Hasluck face job uncertainty and increased costs which will ultimately be passed on to consumers. The Financial Services Council stated that this legislation will cost the industry $700 million to implement upfront and $350 million a year thereafter. Additionally, job losses are expected to be in the tens of thousands across the industry. Government is supposed to facilitate growth by providing the infrastructure and services that the private sector cannot and then getting out of the way.

How is this fiscally and socially responsible, to introduce legislation that Minister Shorten and Prime Minister Gillard know will cost jobs? This is baffling to us on this side of the chamber. Just in Hasluck, in addition to the firms mentioned before, we have Adviser Investment Services in Thornlie, NC Bruining and Associates in Midland, Golden West Financial Services in Midland, Grange Financial Management in Forrestfield, Clarity Wealth Management in Wattle Grove, Howarth Financial in High Wycombe and many more. Can the Minister for Financial Services and Superannuation tell me how many of these firms will expand or shrink, and which individuals will face unemployment, as a result of this bill?. How about the real increased costs faced by each firm? Just like the carbon tax legislation, this bill lacks detail, it lacks proper thought and it increases the costs to everyday Australians.

The residents of Hasluck deserve the opportunity to plan for their future. This bill will adversely affect the ability of people to retire comfortably. This government clearly does not understand the current needs of the community. This government does not respect the right of an individual to make it for themselves. The government should be providing every opportunity for residents to save effectively for their future and impact positively upon their future livelihoods. I know younger members of the local community who are working in the mines, in both the north and the south of Western Australia, and are working extremely hard to earn their money. Younger people are more financially aware than ever before and should be encouraged to seek financial advice, rather than be faced with increased costs to access it and reduced choice and competition in the industry. We should be not only providing people with the opportunity to access this advice now so as to reap the reward for their hard work in the future but also providing the industry with more support and fewer obstacles.

The coalition's amendments will significantly improve this bill. These are the most important of the amendments: that the government be required by parliament to table a regulatory impact statement on FoFA that is assessed as compliant by the Office of Best Practice Regulation; that opt-in be removed from the bill and the retrospective application of the additional annual fee disclosure requirement also be removed; that the drafting of the best interests duty be improved; that the ban on commissions and risk insurance inside super be further refined; and that the implementation of this bill be delayed until 1 July 2013 to align it with MySuper.

The coalition also believes that one way of ensuring that clients are able to access affordable and appropriate financial advice would be to allow advisers and their clients to limit the scope of advice to a series of discrete areas identified by the client, rather than to mandate a full financial plan in every case. This concept of focusing advice to areas specifically identified by a client has become widely known as scalable advice. Numerous submissions to the committee expressed concern that the wording of the best interests provision in the proposed legislation does not allow for scaled advice to be provided. The legislation should allow the provision of scalable advice where the request for such limited or scaled advice is instigated by the client. This would allow many people to access advice more frequently and would be a very good starting point for clients seeking financial advice for the first time as it would not require them to undertake a costly and sometimes unnecessary complete financial plan.

I think the biggest joke of this bill is that the government proposes to have it come into effect on 1 July 2012. When has this government ever been known to implement something effectively in such a short time frame? What is the rush? The proposed commencement date is four months away. It would it make sense to implement this bill simultaneously with MySuper, as they both require significant changes to the financial service provider IT systems; not to do so is indicative of this government's lack of understanding of the practical business realities faced by these companies. This legislation is a disgrace and the epitome of this bad Labor government.

Minister Shorten needs to consider the coalition amendments to save this struggling industry. However, the minister has shown his true colours once again on this legislation—he has completely disregarded his government's own process requirements. On 8 August 2011 the Office of Best Practice Regulation noted that an adequate regulatory impact statement was for only one part of the proposed changes. The other parts, which have the most impact on business and consumers, did not have an adequate regulatory impact statement prepared. Yes, they were drafted, but they were definitely not within the government's own standards. The government's own Office of Best Practice Regulation confirmed this in Senate estimates. It is no secret that this minister has no regard for the financial services industry and obviously no regard for following processes set by his own government.

The coalition supports sensible reforms which increase trust and confidence in Australia's financial advice and financial services industry by increasing transparency, choice and competition. However, any reforms in this area need to strike the right balance between appropriate levels of consumer protection and ensuring the availability, accessibility and affordability of high-quality financial advice. The government has been unable to point to another example in the world where a government has sought to impose a mandatory requirement on consumers to re-sign contracts with their financial advisers on a regular basis. Coalition committee members do not support government attempts through this legislation to make Australia world champions in financial services red tape. The FoFA red tape envisaged in this legislation will increase the cost of financial advice for millions of Australians with no or very little commensurate consumer protection benefit. A government seeking to lead the world in imposing additional financial services red tape should at least submit those proposals to a proper cost-benefit assessment.

If you think this is just the coalition forecasting doom with this legislation, listen to the words of Craig Meller, managing director of AMP Financial Services. His words have no doubt been quoted by my colleagues previously but they need to be repeated and repeated until this government understands that real people will be hurt by this and almost every other piece of legislation it has introduced in this parliament. Mr Craig Meller said there would be job losses of up to 25,000 in the next few years as a result of Minister Shorten's bungling and added that one of AMP's overriding concerns is that the bill has been rushed through in its drafting and that if enacted in its present form it would have a deleterious impact on customers, financial advisers and the broader community. We believe there are so many problems with this bill that a rigorous stocktake is necessary and substantial additional work needs to be undertaken to get the drafting right. It needs to be recognised that this additional regulatory cost of the legislation will ultimately be borne by customers, who will pay more and not obtain the advice they need. But the initial impact will be on financial planners, and even the explanatory memorandum to the bill forecasts a halving of planner numbers in the next few years. We believe this could lead to job losses in the industry of up to that 25,000 figure over that period. We also fail to see how this would improve advice access.

I once again would like to reiterate my opposition to this bill and call on Minister Shorten and the Prime Minister to swallow their pride and at least entertain some of the coalition's amendments to this bill. If they do, it would help keep people across this country in a job. Just one job loss hurts the community of Hasluck. One job loss creates pressure on a family, bills become bigger overnight, children's extracurricular activities get cut, holidays become non-existent and discretionary spending is halted with the heavy strain placed upon them. When we place this legislation next to the mining tax, the carbon tax and the private health rebate, this really does show where the Gillard-Greens' thought process is. They are an alliance driven by ideological means committed to punishing those that strive to better themselves and Australia's forgotten families and our seniors that the Prime Minister once described as not important. This is why I oppose the legislation.

Dan Tehan (Wannon, Liberal Party) Share this | Link to this | Hansard source

I rise to support the member for Hasluck and to congratulate him on an excellent speech where he detailed, I believe beyond doubt, the reason why if the passage of this future of financial advice legislation is to go ahead we definitely deserve to see the government cooperate and put through the coalition amendments. If they do not, we will be forced to oppose it because the bills as they stand at the moment cannot be supported. Before I detail the reasons why the bill in its current form cannot be supported I would like to go back a step, and start by thanking Senator Matthias Cormann, our shadow Assistant Treasurer, for the excellent job he has done in prosecuting the case as to why this bill needs serious amending. Senator Cormann very kindly came down to the electorate of Wannon—it was about six months ago now—to talk to small businesses, to talk to the financial services sector, in the electorate of Wannon, to go through this bill and to get an idea of what their concerns were. It was very interesting and informing. We had 60 people at the forum. It was very well attended because in Wannon we have a lot of small regional and rural towns, and there are lots of financial services businesses which give financial advice, especially to surrounding agricultural producers or people who work in local manufacturing et cetera. So, at a very well attended forum on this subject matter, Senator Cormann spoke very objectively about the Ripoll inquiry and what we were intending to occur as a result of the Ripoll inquiry and the making of some regulatory change in this area.

Senator Cormann pointed out very clearly that what we in the coalition were looking for was regulatory change where the parliament would focus on making things better, not just more complex and more costly for everyone. This was a message which was overwhelmingly well received within the forum. Senator Cormann then asked for questions, and the very first question that was asked by one of our financial services providers was: 'Senator Cormann, do you think that this bill that is going to come before the House, given who is taking it there, will favour the big super funds rather than all the small business providers of financial service advice?' That was the first question which came from the audience; that is what they were worried about. They understood who the relevant minister was who was putting this bill forward. They understood that he is very much beholden to and at the behest of the trade union movement and that, as a matter of fact, he is a former big union boss, so not only is he likely to prosecute on behalf of them, he understands their requirements and their needs. He also understands that as he wants to step further in this place he is going to need their factional support to deliver the numbers for him.

That was the question which came from the floor: do you think that it is going to be that connection to the big trade unions and to their industry funds that will in the end determine what this bill looks like? Senator Cormann said that he hoped not but he feared that would be the case. The fact that we are standing here tonight debating this bill and the way it has been presented in its original form shows that that question was, sadly, absolutely spot-on. It is a pity that the minister could not have been more objective, because the Ripoll inquiry was, and it set very clear guidelines as to how this legislation could look and how we could get bipartisan support for this legislation in this place. Yet this government could not put the legislation together in a form whereby it just said: 'Okay, we have agreement across parties on what the regulatory burden should look like when we make the changes here. We can do it in such a way that we reduce costs, simplify it and change the nature of the regulation but do so in a way which actually helps the industry to flourish rather than to help one part of it flourish and the rest of it to decline.'

So that is where we are today, and this is why the coalition really wants to make four points about this bill in its current form. Firstly, it is unnecessarily complex and, in large parts, unclear. Secondly, it is expected to cause increased unemployment. Sadly, that increased unemployment will occur in those smaller businesses in this sector. It will not be the big industry funds tied to the trade union movement; it will be the mum and dad businesses, especially out in the regional and rural areas and the suburbs. They are the ones which, sadly, are going to suffer and that is where the unemployment is most likely to occur.

Thirdly, it is legislating to enshrine an unlevel playing field amongst advice providers inappropriately favouring a government-friendly business model. That really draws on the second point. This bill will mean that those mum and dad family businesses will suffer. It changes the playing field and it does so in a way favourable to those bigger organisations that I have already mentioned. Fourthly, it is likely to cost about $700 million to implement and a further $350 million per annum to comply with, according to conservative industry estimates. That is the regulatory burden that this bill in its current form will place on this industry. That is a very important fact to remember—and I am going to come back to this point. When you look at how the government went about examining the regulatory burden that this legislation would have on the sector, it did not follow due process. I will come back to that because Senate estimates has been very enlightening when it comes to that point.

As I mentioned earlier, on our side we think that when you pursue regulatory change you have to focus on making things better, not more complex and more costly for everyone. Yet that is what this bill does. What we need to hear from the government is: why, when we had the Joint Committee on Corporations and Financial Services conduct a comprehensive inquiry and make a number of well-considered and reasonable reform recommendations, did the government not sensibly adopt those recommendations and take them forward? Why has it gone beyond that? Why has it sought to favour one part of the industry over another? That is the one question I would like to leave with the government tonight. That is what we need an explanation on. I think it is beholden on the minister especially to give that explanation as to why he is serving the interests of a narrow base in this sector rather than putting forward legislation which would provide the whole industry a secure future going forward.

There are a few points that we need to touch on about the legislation. The bills do not meet the government's own standards. This is a very important point. I would like to read into the Hansard part of the transcript from Senate estimates because I think it is enlightening when it comes to this point. Jason McNamara is the executive director of OBPR. When he came before Senate estimates, he had this to say:

Mr McNamara: Treasury provided a number of RISs—

regulatory impact statements—

in that area. I think that there were six separate RISs in that area. But we found those RISs not yet adequate. They had not met the best practice requirements.

Senator CORMANN: … My question is: why?

Mr McNamara: In regard to those RISs, essentially the impact analysis was not at a standard that we would pass.

Senator CORMANN: You say 'the impact analysis'. Can you be a bit more specific?

Mr McNamara: The impact analysis of a regulation impact statement is generally the area of the RIS that refers to the costs and benefits associated with the policy. It is the detail—the impact on business, consumers or the government. It is that sort of analysis—'this change is meant to do particular things in the economy; it is likely to have these costs and these benefits'.

Senator CORMANN: Are you saying that the government did not even have in front of it adequate information to assess the cost benefit of the FoFA regulation changes?

Mr McNamara: The government did not have an adequate RIS in front of it when it made those changes. That is true.

…   …   …

Senator CORMANN: … the government's proposal to introduce the mandatory opt-in requirement and the annual fee disclosure, are they the sorts of things that were not properly assessed?

Mr McNamara: Yes. There were six elements.

Senator CORMANN: Can you list those six elements for us please?

And it goes on. I could read the whole transcript into the Hansard. It is there in Senate estimates for everyone to see. Basically, the government decided that it was going to pursue an agenda to favour a select few and impose huge regulatory cost burdens on the rest of the industry. I will again repeat what the regulatory cost is. That regulatory cost is about $700 million to implement and a further $350 million per annum to comply with, according to conservative industry estimates. No wonder the government did everything it could to make sure that there was no proper regulatory impact statement done on this legislation. No wonder it wanted to hide the true burden of this legislation on the sector.

The coalition will be moving a series of amendments, the most important of which are that the government be required by parliament to table a regulatory impact statement on FoFA assessed as compliant by the government's Office of Best Practice Regulation; the opt-in be removed from FoFA; the retrospective application of the additional annual fee disclosure requirement be removed; the drafting of the best interest duty be improved; the ban of commissions on risk insurance inside super be further refined; and the implementation of FoFA be delayed to 1 July 2013 to align it with MySuper.

These are straightforward amendments. They will improve this piece of legislation beyond doubt. They will immediately take away, in particular, the regulatory burden—that $700 million start-up burden and then the $350 million per annum compliance cost. These are sensible, straightforward amendments which are true to the Ripoll inquiry. As we know, the Ripoll inquiry had broad support in this parliament. It is the basis on which this legislation should have been built. It was not, and sadly that is why on this side we are saying that we will oppose this legislation for what it will do in particular to all those mum and dad family businesses in the suburbs, in the regions, in the rural areas, who will be severely impacted by this draconian legislation.

Sussan Ley (Farrer, Liberal Party, Shadow Minister for Childcare and Early Childhood Learning) Share this | Link to this | Hansard source

I reiterate that the coalition do not support the Corporations Amendment (Future of Financial Advice) Bill 2011 and cognate bill in their current form. We believe that the financial services industry requires a robust framework. However, as is typical of those opposite, they have proposed a framework overburdened with red tape. This legislation is particularly complex. It demonstrates the regulatory overreach that is now defining the Gillard government, a government so obsessed with regulation and red tape that they fail to recognise the damage they cause to business. Time and again, members in this place stand up and talk about the deadweight loss of compliance, of regulation, of red tape. As a member who has been in this place for 10 years I find it extremely frustrating that over time that burden never seems to reduce, but I am delighted that right here right now the coalition is deadly serious about reducing red tape, and that is one of the problems we have with these bills.

With employment participation as one of my portfolio responsibilities, I have grave concerns regarding the likely job losses that will result from the legislation. Under this government we have seen thousands of Australians lose their jobs since the beginning of this year. Labor's mismanagement of this legislation will further lengthen the unemployment queues, with financial advisers set to join the line. This will result in not only job losses but also a likely increase in the cost of service provision. It is likely to cost about $700 million to implement the government's proposals and a further $350 million per annum to comply with them, according to conservative industry estimates.

I do accept that in the wake of the global financial crisis there were a few high-profile cases of financial service providers collapsing, causing serious economic hardship to thousands of Australians. For this very reason parliament undertook an inquiry into the financial services and products on offer in Australia. The resulting Ripoll inquiry reported back to the parliament in November 2009, which is more than two years ago. The inquiry made some pertinent and timely observations. The coalition was supportive of the key recommendations from this inquiry. Regrettably, the government has decided instead to quiver, shake and run a mile from sensible change. The coalition, on the other hand, is supportive of introducing elements that foster greater trust and confidence in our financial services industry. Australians want to know that their hard-earned dollars are being carefully minded by those they do trust to provide their financial advice. Yet looking after taxpayers' money is something this government has failed to do.

This bill is anti consumer, anti adviser and anti small business, and for that reason we will be moving a series of amendments, which are that the government be required by parliament to table a regulatory impact statement on FoFA, assessed as compliant by the government's Office of Best Practice Regulation. I am preparing to speak on a bill about equal opportunity for women in the workplace. It is unrelated to this legislation and it is a pile of bureaucratic nonsense, again burdening employers with extraordinary reporting requirements. The point is that it has a regulation impact statement, and I do not understand why such a trivial bill—I will call it that, and when I talk about it in the House people will see why—has a regulatory impact statement and this legislation does not. We will also propose that the opt-in amendment be removed. That was never proposed by the Ripoll inquiry. We will propose that the retrospective application of the additional annual fee disclosure requirement be removed, that the drafting of the best-interest duty be improved, that the ban of commissions on risk insurance inside super be further refined and that the implementation of these bills be delayed until 1 July 2013 to align with MySuper. That makes perfect sense. Most of the subject matter financial advisers deal with concerns payments and superannuation.

Just to reinforce the opposition that we have to aspects of this bill, and the fact that we are not being entirely negative and we are making sensible proposals, I would like to run through the recommendations made by the dissenting coalition members of the Joint Committee on Corporations and Financial Services and draw from their report. The first recommendation is:

That the Parliament defer consideration of the FoFA legislation until the government has submitted a full Regulatory Impact Statement in relation to the legislation currently before the Parliament which is compliant with the requirements of the government's own Office of Best Practice Regulation.

Recommendation 2 states:

That the commencement date of this legislation be timed to coincide with the commencement date of the government's proposed My Super changes, which are currently scheduled to commence on 1 July 2013. The commencement date should provide at least a 12 month period from the date of finalisation of all legislation and associated regulations to enable an orderly transition and implementation period.

It is not fair to financial advisers, many operating in the small business space, to dump this stuff here and expect them to understand it and to operate perfectly in concert with it in a very short time. The third recommendation is:

That the Opt-in arrangements contained in the Corporations Amendment (Future of Financial Advice) Bill 2011 be removed from the Bill.

As I said, the Ripoll inquiry made no recommendation to introduce an additional annual fee disclosure statement over and above the current regular statements provided by financial service product providers to their clients already. And the committee received a lot of evidence that, based on the various consultation sessions, it was the industry's clear understanding that the government's proposal to impose an additional annual fee disclosure statement would be prospective—that is, it would only apply to new and not existing clients. The committee received evidence that, after more than two years of this long consultation process, the introduction of a retrospective annual fee disclosure statement was something that came completely out of left field when it first popped up in this legislation. Therefore, we really need to remove those opt-in arrangements.

Recommendation 4 states:

That the annual fee disclosure statements contained in the Corporations Amendment (Future of Financial Advice) Bill 2011 be prospective only as per the government's long standing commitment and that they should not apply retrospectively to existing clients on the basis that the increased costs – ultimately borne by consumers – far outweigh the questionable additional consumer protection benefits.

Recommendation 5 states:

That the annual fee disclosure statement requirements be amended from "detailed" prescriptive information and inflexible issue rules to "summary" information only "given" at least annually to the client.

Recommendation 6 states:

That section 961B(2)(g) be removed from the proposed Best Interests Duty to remove uncertainty about the practical operation of the Duty.

Recommendation 7 states:

That the best interests duty in the proposed legislation be amended to explicitly permit clients and advisers to agree to limit the subject matter of advice provided in order to facilitate the provision of ‘scalable advice’.

There are a couple more recommendations, which I do not believe I need to read into the Hansard of the Federation Chamber because I and other speakers on this bill have given a clear indication of the coalition's approach and our dislike of the direction in which this is going.

Debate adjourned.

Federation Chamber adjourned at 19:27.