Steve Irons (Swan, Liberal Party) Share this | Link to this | Hansard source

I welcome this opportunity to speak on the Corporations Amendment (Future of Financial Advice) Bill 2011 and the Corporations Amendment (Further Future of Financial Advice Measures) Bill 2011. I welcome in particular the opportunity to represent the financial advisers in my electorate of Swan, many of whom have serious concerns about this bill and the process that the government has undertaken to this point. There are a lot of people employed as financial advisers across the electorate of Swan, and I quite often get approached by people from this sector at events I attend. I have held a meeting with a representative group in my office, and it is important that the House realises how concerned these organisations are with the direction the government is taking with this legislation. It is unbelievable how many groups this government has managed to put offside simply through its management and processes.

In this chamber on 23 June 2011 I raised concerns with the way the government was proceeding with this legislation and spoke about some of the concerns that have been raised by financial advisers in my electorate of Swan. They were extremely unhappy with the way the government was proceeding with legislation. Unfortunately, nine months later the government has failed to take on-board points raised by the industry and coalition, and that has led to the situation where we cannot support these bills in their current form.

This behaviour of ignoring advice is typical of this government, which has taken to ignoring good advice from the coalition and from industry on not only this legislation but also multiple pieces of legislation that have gone through this place since 2007.

After a consultation with industry, and careful consideration, the coalition will be moving a series of amendments to these bills, and we ask that Minister Shorten and crossbench members consider them seriously and support them. The amendments can be summarised as follows: the government be required by parliament to table a regulatory impact statement on FoFA assessed as compliant by the government Office of Best Practice Regulation; opt-in be removed from FoFA; the retrospective application of the additional annual fee disclosure requirement also be removed; the drafting of the best interest duty be improved; the ban on commissions on risk insurance inside super be further refined; and implementation of FoFA be delayed to 1 July 2013 to align it with MySuper.

I will talk in more detail on these amendments later, but it is first worth considering the background to this legislation and the background to the industry. The financial sector industry is a vital industry not only to the wellbeing of the Australian economy but also to many small- to medium-sized investors in Australia. The role the industry plays is to give the best possible advice to investors and of course up-to-date advice that will enable the investor to improve their financial positions. Areas that advisers might assist with include life insurance, superannuation, mortgages, pension planning and so on. These are important areas and in the Liberal Party we see it as a real positive when people choose to organise their financial affairs—their pensions, the superannuation and their mortgages—because this takes pressure off the government and the public service. This is why this legislation is so important today. The last thing we want to be doing as a parliament is making it more difficult for people to access local financial advisers in the community. However, this is what this bill is going to do.

It is worth going back to understand the history of the legislation and the implementation of it. As the shadow minister said, in the wake of the global financial crisis, there were a number of high-profile collapses of financial service providers across Australia in particular the collapses of Storm Financial, Trio and Westpoint. The federal government felt that it had to do something and commissioned an inquiry into financial services, which became known as the Ripoll inquiry named after the chair of that committee, the member for Oxley. As I have said before, I have some sympathy for the member for Oxley because he put some effort into his inquiry only for the government to completely ignore his recommendations. It is a shame because the Ripoll inquiry provided a blueprint that the government could have adopted with bipartisan support.

One of the key observations of the Ripoll inquiry was that:

… the committee is of the general view that the 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.

The reforms referred to were the 2001 legislative changes which provided a strong regulatory foundation for the financial services industry. It would have been ideal to move in a bipartisan manner based on the Ripoll inquiry not just between the parties in the parliament but also between those in the financial services industry. The inquiry reported back in November 2009. Think of the progress that could have been made since that time. However, instead the government embarked on a different path that has led to this legislation today, 22 March 2012, in which it managed to put offside just about every financial adviser in the country. Even at this point though there was an opportunity for the government to see sense, start listening, and produce some good legislation through an inquiry by the Parliamentary Joint Committee on Corporations and Financial Services into the bills. However, they did not listen, which was disappointing for many who have made submissions to the inquiry. I received an email from one of my constituents, who is an authorised representative of a financial group, who wanted to bring the response from the industry to my attention as soon as possible. The press statement he sent to us said:

Industry bodies have expressed their disappointment at the findings of the Parliamentary Joint Committee's (PJC) review into the Future of Financial Advice (FoFA) Bills.

A report outlining findings of the review was tabled in Parliament today. However, the PJC was unable to reach a consensus in relation to the proposed legislation, with the Coalition Committee members issuing a dissenting report.

…   …   …

The Financial Planning Association (FPA) said the PJC had missed an opportunity to deliver the benefits that FoFA was originally intended to bring.

I will also read out some comments that my constituent brought to my attention. These are comments that were posted on a financial blog after the news of the committee report came through. One comment said:

It has been quite clear from the beginning that this government pretends to consult and then does what it wants to do pandering to vested interests. Labor MPs have no say in the matter. Nothing will happen unless the government is changed.

In another comment from that particular website Alistair said:

The PJC fails in delivery is not really a surprise given this governments approach in ALL it has so called achieved to date. This government whose ministers are nothing short of self interest incompetants who cannot run a canteen let alone a country have once again demonstrated that they are only willing to support the cause of self interest for themselves and their union mates. Enough is enough. As members of this industry, we should rally to a call not only to save this industry but also the nations by asking clients to petition the coalition to block supply and call an election. Its time for this bunch of arrogant morons to go. They do not deserve to be in office.

That is an indication of how much passion there is around this particular bill, particularly from the industry. Another comment posted by Steve said:

One of the most glaring examples of the government pandering to the unions is the acknowledgement by Swan and Shorten that while they will stop volume rebates payments from platforms to independant advisers, they will not stop union super funds’ secretly subsidising their advisers because it’s too hard!

I want to use the time that I have left to make a couple of specific points on the legislation as it stands and in particular the amendments that the coalition are putting up.

Over the past two years there have been constant and completely unexpected changes to the proposed regulatory arrangements under FoFA right up until the introduction of the current legislation. Invariably, this was done without proper appreciation or assessment of the costs involved of any unintended consequences or other implications flowing from the proposed changes. Important financial advice reforms have been delayed by more than two years so that the government can press ahead with a number of contentious issues.

In my speech of 23 June 2011 I raised, on behalf of my constituent, an issue related to the opt-in proposal, which is now a component of this legislation. Opt-in imposes a mandatory requirement on consumers to keep re-signing contracts with their financial advisers on a regular basis. This imposes an additional level of red tape on the industry. Last week I spoke about red tape in business and the 12,835 new regulations the government has introduced in comparison to the 58 it has repealed, despite the Kevin 07 one-in one-out promise. This legislation would surely add to this tally. As the shadow minister said, it would make Australia world champions in financial services red tape.

During the Senate estimates process it was revealed that the average small business financial advisory firm would face additional costs of $50,000 per annum. It is interesting—this week particularly—to see how the government has portrayed itself as a friend of small business. I, for one, who have run a small business for 25 years and employed 16 people, understand what it means to run a small business. I have experienced the cost of compliance and red tape implemented by government. Unfortunately, yesterday on the doors we saw a poor effort by a so-called small business woman who is now in parliament. The member for Canberra was trying to explain the new superannuation situation and who would pay. We all know—all business knows—that businesses will pay. It will not be as a result of the MRRT; small business will pay the new three per cent levy. This cost will easily wipe out the so-called benefit to small business of the one per cent tax cut.

It is surprising that the government is pursuing the opt-in proposal, not least because there was only one submission to the Ripoll inquiry arguing in favour of opt-in. The measures in place—which already include best interest duty, appropriate transparency of fees charged and an ongoing capacity for financial advisers to opt out of any advice relationship at any stage—provide for consumer protection without the need to impose additional costs and red tape on both businesses and consumers. The coalition has a clear position on this—that is, opt-in should be removed altogether.

On a logistical and operational point, I make a few comments on the time frame for implementation of this legislation. The current implementation date of 1 July 2012 is completely unrealistic given that it is only four months away. Considering the red tape concerns I have just spoken about, four months is not sufficient time to prepare for these changes. The fact that the government thinks that this is possible shows, again, the government's lack of understanding of business realities. I repeat: it is disappointing that there is virtually no-one on the Labor side with any real experience of running small business. As such, the coalition will move an amendment for the opt-in to be removed from FoFA. I hope that this attracts the support of the Independents.

In my speech of 23 June last year I mentioned that the proposed ban on commissions on risk insurance was perhaps the most controversial aspect of the legislation among industry. The government's position on this matter has been confusing and ever-changing. Banning commissions on risk insurance will increase costs for consumers, remove choice and leave many people worse off, particularly the small business people who self-manage their future. There is already a problem of underinsurance in Australia. A ban would exacerbate this. What is more, recent experience in the UK showed that a ban does not work, which is why the UK reversed its decision.

The coalition's position is clear: we agree that 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 their super fund, should have the same opportunity to choose the most appropriate remuneration arrangement for them.

In conclusion, as the member for Swan and someone who has had some experience dealing with small business, I cannot support this legislation in its current form. It is a result of a messy process, it has no support in the community and it puts the financial services industry at risk. The Ripoll review could have taken us forward in a bipartisan way in 2009. But now, three years on, we have been presented with this poor piece of legislation. I support the coalition amendments, which will be moved at the conclusion of this debate.

Rowan Ramsey (Grey, Liberal Party) Share this | Link to this | Hansard source

I rise to address these two bills. Retirement investment has become very, very important in Australia, and I think it is something to do with our age grouping. Many of us are classified as baby boomers and, as the baby boomer generation has come through, they have benefitted from a great growth in Australia's economic fortunes in that time. Over that period they have been able to designate, in many cases, shorter working lives and be able to make decisions for their future, where slowly the emphasis on providing for our retirement has shifted from government to the individual.

In many cases some of these individuals will be retired for a very long time—possibly 30 years and in some cases 35 years. That means great care has to be taken in one's working life to make sure we have those nest eggs available to us to sustain us in the manner to which we have become accustomed.

In that light, successive governments have made a number of legislative changes which have encouraged people to put money into superannuation type products. Even at the moment we have the ability not only to take the superannuation paid by employers but to top up, even though I was disappointed in the last parliament when the government actually reduced the amount that people could put voluntarily into super.

This general reorganisation of our lives has led to a great escalation in the financial services sector. There is of course general investing, where people buy shares and invest in bank type products, long-term bonds and property. But then there has been a great growth in superannuation type products, both fully managed and self-managed. In the light of some occurrences in the last three years, which actually brought about the Ripoll inquiry, it is this great growth in self-managed superannuation funds that I think will give people pause to have a bit of a think about the way they do business because they have proven to be the most at-risk product and the one with no fall back.

Investors generally place their trust in financial advisers, and this is a good thing. Even though they generally are thorough, honest and professional in the advice they give, there are always those who are not and there are those who make genuine mistakes—in fact, we all make genuine mistakes in life. Financial advisers place a great deal of trust in the organisations that regulate them, including ASIC.

One of ASIC's jobs is to register companies, and register and manage investment schemes. I think there are a number of financial advisers out there, and many people out there, who place a great deal of trust in this registration process and believe that those companies offering services that are registered under ASIC's approval will be robust and be able to meet their commitments as they go forward. Unfortunately, the events of the last few years when we saw the collapse of Storm, Trio and Westpoint provide that this is not sufficient protection and people cannot be fully confident in ASIC's ability to register those companies that have true integrity.

While we are right to focus on the role of local advisers, we should also be having an objective look at the way ASIC license companies into this arena and allow them to operate and offer products. The government commissioned the Ripoll inquiry as a reaction to the collapse of those three companies, and quite rightly. They have done the right thing. I have had private meetings with Bernie Ripoll and I believe that that committee attacked their chore with great vigour and a clear focus on what they needed to achieve. That is why it is important that the government and all of us be careful with the recommendations—the results—that came out of the Ripoll inquiry. The first rule of government, in my humble opinion, let me say, should be to cause as little harm as possible. These bills vary in a number of ways from the unanimous recommendations of the Ripoll inquiry and that is why the opposition will be moving amendments, and that is why we are somewhat wary of what is being proposed here. It is why I am somewhat wary.

I have had an enormous amount of contact on this issue. My friends who are accountants and financial advisers are not normally the most demonstrative of people within our community. But in this particular case they have been properly fired up, and I have had an enormous amount of contact. I have met with a number of financial advisers. I must place on the record that the electorate of Grey was one of the two most affected electorates by the collapse of the Trio Group. There was over $100 million invested in the Trio Group from within my electorate. That came from one medium to large financial advisers group that had recommended their clients invest in this area. Over that period I have had many contacts with constituents who are extremely concerned about their life savings. Not only were they worried about their security but they were worried about the fact that their funds were locked up for a period of almost three years. The ability to run their lives without a secure form of income coming in became very stressful for them. In the end, they were enormously grateful and relieved that the insurance, that is, the levy on the industry, underwrote the risk that they had, and they received their money back. But some still lost significantly, and they were those who were in the self-managed super funds I first mentioned. I believe the loss from Trio Group capital is around $60 million in self-managed super investment funds Australia wide.

To return to the contact that I have had from financial advisers in the industry, the biggest concern without a doubt is the opt-in package that has been brought forward in these bills. That means that once every 12 months the financial adviser has to sit down with their client and reassess the suitability of the package for them and in many cases just collect a signature. That is going to be quite an impost for anybody within the industry to achieve—to have to bring their clients in once every 12 months. You have to make time in your working day. That will require weekend work to try to work around people's schedules. But in the country, it is always different. In the country things are done differently. With insurance agents and financial services deliverers, many of their contacts are made on a personal basis. If you live in a rural setting that means a visit to the farm. In any given day you might get to four or six clients. If you have a couple of hundred clients on your books, that is going to take around 40 days of your time. There is no way that these financial services deliverers will not have to pass those costs onto the people. It takes a bit of time to visit someone in their house. It is all very well to have someone into your office for 20 minutes. But in the rural and regional way we have of doing business, a visit involves time to sit down and have a cup of tea and talk about how the children are going. A little bit of time evaporates. So that is where a large amount of this extra cost will be. The industry estimates it will be $700 million to implement and then a further $350 million per annum to operate. Opt-in was not one of the Ripoll committee's recommendations. That is why I said at the outset that governments should always cause the least harm possible. I am not sure—in fact I am far from convinced on these bills—that that is the government's underwriting guide at all.

You have to ask yourself why; why is the government so intent on thrusting this extra cost on? I understand the argument that they want more security for the consumers. I understand that. But it is far from clear that many of these changes are going to give extra security. It is interesting to note in the evidence that the one group that asked for opt-in were the industry super funds.

This is a recurring theme in this parliament: this alliance, this close relationship, between the government and the Australian Labor Party and industry super funds, which are controlled by their partners in politics, the Australian union movement.

Mr Husic interjecting—

The reason is that we only have to look at the payments from the unions to support the ALP in their electoral quest to understand why the relationship is so close. There has been a lot of noise made in the last few days about some prominent individuals in the Australian community who choose to support the Liberal Party. It is this behind-the-scenes manoeuvring which underwrites the future of the ALP. It was not part—

Ed Husic (Chifley, Australian Labor Party) Share this | Link to this | Hansard source

That's rubbish!

Rowan Ramsey (Grey, Liberal Party) Share this | Link to this | Hansard source

I am in the Federation Chamber, Mr Deputy Speaker, and I would ask that you would ask the member to remain silent.

Ed Husic (Chifley, Australian Labor Party) Share this | Link to this | Hansard source

He is making an outrageous accusation!

Tony Windsor (New England, Independent) Share this | Link to this | Hansard source

Order!

Rowan Ramsey (Grey, Liberal Party) Share this | Link to this | Hansard source

If it was not part of the recommendations, in that light, it should be eschewed. The time frame is a concern; the industry is very worried about the time frame. It took three months and 10 days to get this enormous change, this enormous new raft of financial regulation, into the Australian financial services sector. It is far too short. In fact, the government has shown in the last few years that they cannot organise a piece of legislation to get through this place in under about two years, and they expect the financial services industry to adapt to these changes which are not yet through parliament in less than three months. That is far too short; it should not be allowed.

As I draw towards the close I would like to focus on some of the words that came from the Ripoll inquiry. This is a quote:

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.

That is an amazing statement. The committee that the government set up, dominated by government members, has said that the framework is not too bad, but what is happening here is that it is not properly enforced. But they have come back now and presented a pair of bills which are about laying a whole new layer of regulation over this industry. This is a recurring theme with the government.

Last week we had new regulation in the transport industry. We are having new regulation, obviously, in the carbon area where companies are going to have to actually invent new accounting methods to those they have used traditionally. Red tape is the number one issue that my constituents come to me about. They say, 'We are drowning in it'—and here we have just another raft of red tape which is going to tie the industry up. Even the government Office of Best Practice Regulation says that the government did not have adequate information before it to assess the impact of these bills.

On the balance we cannot possibly support these bills. We will be moving some amendments which will be more in line with what the Ripoll inquiry recommended. That was the point of the inquiry and it was the point of the announced decision, and now we are being asked to support something which is entirely different. I will be opposing these bills unless, of course, the government is to take on our amendments and allow us to achieve good quantitative change.

Tony Smith (Casey, Liberal Party, Deputy Chairman , Coalition Policy Development Committee) Share this | Link to this | Hansard source

I join with my colleagues in speaking on the Corporations Amendment (Future of Financial Advice) Bill 2011, being debated cognately with the Corporations Amendment (Further Future of Financial Advice Measures) Bill 2011, and in opposing the bills in their present form. I start by pointing out to the House that what we are witnessing here today from the government, amazingly, is yet another episode in legislative rush, which we have seen has led to grief in so many other portfolio areas over their period in government. This shines a light on this government's incompetent legislative processes. The way they go about trying to legislate in this area is so similar to what we have seen in other areas where there has been policy failure and policy catastrophe.

As speakers on our side of the House have outlined over the past 24 hours, the legislation in its present form cannot be supported. A range of reasons for that have been articulated throughout the course of the debate, but also over many weeks and months. Despite this, the government will stubbornly press ahead. They will do so while many on their back bench know full well that this is flawed legislation and that, as my colleague who spoke before me pointed out, it will cost jobs and choice. If this legislation succeeds it will make Australia the world champions of red tape in the financial services industry.

It is a shame because, despite the incompetence of the ministers bringing this legislation forward, those on Labor's back bench in their party room—or their caucus, as they call it—would know that this is damaging legislation. Yet they are prepared to support it. It is not just a reflection on the failure of senior ministers—and what a failure it has been, as speakers on our side of the House have outlined—but it is also a massive reflection on the failure of those in the caucus. Some have been very involved, for a number of years, in the parliamentary inquiry that I have been on. They have seen this legislation evolve in the past few weeks and they would know full well, as the previous speaker pointed out, that it will cost jobs, that it will cost choice, that it will increase red tape and that it will be bad legislation.

Our side of the House has outlined that we will move a number of amendments. If these amendments were to be supported, this legislation would be what it should be. But, at present, as we have outlined, it is unnecessarily complex. It will, as I have just said, cost jobs. It will enshrine an unlevel playing field amongst providers and favour a government-friendly business model. As just pointed out, it will cost $700 million to implement and $350 million a year to comply with—and those are conservative industry estimates. I point out at the outset that the criticisms the coalition brings forward are echoed right throughout the industry by so many of those within it. That is why the coalition has put forward its views on amendments. Those views have not just been put forward throughout the course of this debate. Importantly, what these amendments embody has been very much part of the public discussion throughout the course of inquiries, including the inquiry by the joint committee of which I am a member. Unfortunately the government has done what it has done on so many occasions when it is seeking to bring in a change: it has refused to listen and it is stubbornly pressing ahead.

I want to briefly take some of the House's time to outline the areas in which we are seeking critical amendment on this legislation. Firstly—and you would think it would be an uncontested fact—the government should be required by parliament to table a regulatory impact statement on these reforms as compiled by the government's own Office of Best Practice Regulation. That is contestable. It in itself says so much about the government's approach. According to the government's own office the government did not have adequate information before it to assess the impact of these changes on business and consumers and to assess the cost-benefit of any proposed changes. That is not an assessment that coalition members and senators made; that is an assessment that the government's own Office of Best Practice Regulation has made.

Secondly, the government's proposal for an opt-in is an illustration of the chaotic policymaking on that side. Back in 2009, I think it was—and Mr Deputy Speaker Windsor, you would recall this, because I know you follow these issues—we had the Ripoll inquiry. It was a significant inquiry into financial services. If this legislation passes, the proposal for opt-in imposes a mandatory requirement on consumers to re-sign contracts with their financial advisers on a regular basis.

Rowan Ramsey (Grey, Liberal Party) Share this | Link to this | Hansard source

You can get your drivers licence for 10 years.

Tony Smith (Casey, Liberal Party, Deputy Chairman , Coalition Policy Development Committee) Share this | Link to this | Hansard source

That is right. And they have to go through that process each year—having to sign a form every single year. You would think that after the government had had the Ripoll inquiry they would take notice of that proposal in this legislation. It was never part of the initial Ripoll inquiry recommendations, and here it is in this legislation.

Thirdly, we have here a retrospective application of additional annual fee disclosure requirements. We think that should be removed. We think the drafting of the best-interest test should be improved, and speakers on our side have outlined that in some detail. This legislation's treatment of the issue of risk insurance inside superannuation has been a confused and ever-changing position on the part of the government that again reflects their chaotic decision making in so many ways. We think that needs to be refined. Again, the Ripoll inquiry did not make any recommendations to ban commissions paid for risk insurance products. Coalition committee members support the banning of conflicted remuneration structures—I was one of those—such as product commissions et cetera. But again, the fact that they had the Ripoll inquiry, the fact they have ignored and gone down another route, you have to ask yourself why? I think the previous speaker on our side, the member for Grey, hit the nail on the head and it was a sensitive point with the member opposite, point which is why it needs to be hammered home: the opt-in provision which I spoke of earlier. The opt-in was not part of the initial Ripoll inquiry recommendations, and in this context it is important to note that the industry super network provided the only submission to the original Ripoll inquiry arguing in favour of opt-in.

Each of these areas I have run through is illustrative of the government's change of position in so many respects and it leads to the final area of proposed amendment and that is the simple proposition, you would think for those who are rushing: that the timetable for implementation is clearly unrealistic in the legislation. Members have argued on this side of the House that the government should have at least aligned the implementation of any changes it proposes to make. We would still hope, as faded a hope it is, that just once after so many policy catastrophes in so many areas on that side of the House, just once, common sense might prevail. If this happens, you would think government backbenchers would say, 'Hey, we are rushing into another policy train wreck here and what we should do is'—and hopefully they would accept our amendments. If you are going to implement major change, and our amendments would improve that, have a realistic time frame and align it with the proposed MySuper changes and implement it in July next year, rather than this year.

What I predict is that the government, after stubbornly ignoring every argument that has been put forward, at the last minute will propose some of their own amendments. That seems to be the way. My colleague the member for Cowper next to me has experienced this so many times. Here we are on that last day of sitting before budget day. The House will sit until 5 pm today, and the government is madly rushing to ram through significant changes that it has not thought through properly—and we will assume the minister responsible is ignorant; but I would not make the claim. I would never make the claim that every single member of the Labor caucus is ignorant. Let me just state for the record that the member opposite said he is ignorant. But, even to help him out, I will disagree with him.

I would not say that every single member of the Labor caucus is ignorant, and they are culpable. Today they will vote for something many of them know will be bad legislation. They will vote for it today and rush it through before budget day. They will do so in the full knowledge that they are following in the footsteps of so many other bad decisions by this government. But we have hope, slight hope, that one thing might happen inside the Labor caucus and that is that someone stands up and says, 'Let's get a policy right'.

Luke Hartsuyker (Cowper, National Party, Deputy Manager of Opposition Business in the House) Share this | Link to this | Hansard source

I commend the contribution of the member for Casey on the Corporations Amendment (Future of Financial Advice) Bill 2011 and the Corporations Amendment (Further Future of Financial Advice Measures) Bill 2011. I also rise to make a contribution on these bills. This legislation is just another example of this government being out of touch with an industry which is so important to the Australian economy. Instead of proposing legislative changes that will make the industry more transparent and improve the service provided to clients, the government has tabled changes which could have a devastating impact on the financial services and advice sector. As some of my coalition colleagues have already noted, the future of financial advice bills in their current form will, firstly, create huge layers of additional complexity; secondly, cause increased unemployment within the industry; thirdly, create an unlevel playing field among advice providers by favouring those businesses which are more government friendly; and, fourthly, cost somewhere around $700 million to implement and a further $350 million per year to comply with. They are really huge numbers.

A good government would never seek to impose such extreme changes on such an important sector in our economy, but then again this government has a very strong record of wreaking as much damage as possible on Australian businesses and the millions of people that they employ. We all know that manufacturers and small businesses will be hit hard by the carbon tax. We all know our miners will soon be subjected to a mining tax, and here today we are discussing legislation which will hit the financial services sector hard. It is important to note that this legislation has been introduced at a time when there is a low level of personal and investor confidence in the Australian economy. It is the failings of this government that have led to a low level of confidence. This government has made a difficult situation worse through economic mismanagement and punitive legislation. The Australian business community is crying out for certainty from their national government. Australian consumers are seeking stability. They are seeking job security, yet at every turn they have a government which is undermining the confidence of investors, and that is flowing through to all sectors of the economy.

It is with this in mind that I raise my concerns about the proposed changes to the industry that provides financial advice to Australians. The industry exists to assist Australians better manage their financial risks and maximise their financial returns. An appropriately robust regulatory framework must be in place, as financial services providers deal with other people's money on a day-to-day basis. The industry is especially important in my electorate of Cowper, where a number of constituents are either in or approaching retirement and need reliable and transparent financial advice. Decisions made on the recommendations of professionals in this industry will mean large variations in their standard of living, particularly in retirement years.

As we look back on the global financial crisis, I recognise that the financial services industry generally performed well, although I shall discuss some of the exceptions later. Some of this success can be linked to the reforms which were legislated by the Howard government in 2001. That said, like other industries, the financial services industry is constantly changing, and regulations surrounding it need to reflect that change.

It is not hard to support the general principle of having more transparency in this important industry, especially when there is a large information asymmetry between the providers of financial advice and their clients. But, as with most changes this government implements, the devil is in the detail—and what a devil it is. Changes should not be made simply for the sake of change. In seeking to make regulatory change, the government should be focusing on doing things better and not in a more complex and more expensive way. These changes are coming from a government that promised a 'one in, one out' policy—one regulation drawn up and one taken away. Let us look at their record. How has the 'one in, one out' policy gone? I am afraid it is not a very good scorecard, because we have had 16,000 new regulations and less than 100 repealed. With this record, I have very little confidence that these changes will ease the regulatory burden on the financial advice industry.

During the financial crisis there were a number of high-profile collapses in financial service providers across Australia, with the notable examples of Westpoint, Storm Financial and Trio. With the hindsight of these collapses, it is important to assess what went wrong and what could be changed in order to minimise the risk of and hopefully prevent future collapses. Every member in this place will be aware of the devastation that occurred in many families as they suffered and, in some cases, lost their homes when they were advised to use those homes as security for the purchase of investments.

So, in February 2009, the parliament asked the Parliamentary Joint Committee on Corporations and Financial Services to conduct a comprehensive inquiry into Australian financial products and services. That inquiry, referred to as the Ripoll inquiry, reported back in November 2009 and made a number of sensible recommendations to reform the industry. The main recommendation was to introduce a fiduciary duty for financial advisers requiring them to place their clients' interests ahead of their own. The recommendations provided a blueprint that the government could have adopted with bipartisan support. It was noted in the Ripoll inquiry in 2009:

… 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—

and I stress that: 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.

Unfortunately, this was not considered in this reform package, and it has been hijacked by this government succumbing to vested interests. Reforms that are important to the financial advice industry have been delayed by over two years while this government made various changes without consideration of the costs involved or of other consequences.

I now want to raise specific concerns that the coalition have with these regulations. The bills fail the government's own standards, and certainly they represent another broken election promise. As previously mentioned, this government came to office with a promise to reduce regulation and red tape, which is a good aim for government. In fact, the coalition have a deregulation task force that has been specifically established to reduce the regulatory burden on business. A regulatory impact statement is a tool that government has available to review the proposed legislation so that it can assess it for unintended consequences. This will also give a clear picture of the costs for the increased red tape that might be borne by businesses and consumers. According to the government's own Office of Best Practice Regulation, the government did not have adequate information before it to assess the impact of FoFA on businesses and consumers or to assess the costs and benefits of the proposed changes. In an industry as complex as financial services and relied upon by so many, this is not acceptable, especially with the contentious parts of the proposed FoFA reforms.

The drafting and tabling of this legislation epitomises how this government tends to manage major reform. Instead of investing the time and the resources to get the detail right, it leaves everything to the last minute and then produces legislation that fails to address the key issues. Such poor management of the legislation has now led the government to try and rush it through the parliament. It is an absolute disgrace that this legislation will not even be considered by the Senate before May, with only six weeks before the proposed start date. What type of government would seek to manage such a reform when there is simply not enough time for the changes to be implemented by the financial services industry?

Given that the MySuper start date is proposed for 1 July 2013, it simply makes sense to implement FoFA and MySuper at the same time. Not only would this give industry sufficient time to make the significant changes that are required; it would also allow participants to make the required changes to their IT systems for both reforms at the same time. It is also well known that a large number of people approach their advisers for financial advice at the end of the financial year. The advisers that are attempting to implement these huge changes will at the same time be coping with their busiest time of the year. Well considered reforms of the financial services industry would consider the conditions of the industry and not thrust change upon them when they are least able to implement it.

The changes proposed by the government are also draconian because they are retrospective. These changes will add an additional annual fee disclosure statement over and above the current regular statements provided by financial service product providers to their clients. As I have previously said, I welcome changes that increase transparency in the industry; however, this measure was not in the Ripoll inquiry and was only included by the government at the last minute. It has been estimated by the Financial Services Council that the implementation of the fee disclosure requirements will cost approximately $53 per client for new clients and $98 per existing client. The additional costs borne by retrospective fee disclosure will add absolutely no additional consumer protection benefits. Yet the additional cost will either have to come from the financial adviser or by way of reduced returns to the consumer.

The government made a commitment during the consultation period that the additional annual fee disclosure requirements would apply prospectively only. This is another example of the Gillard government promising one thing only to renege on that promise when it comes to the implementation. Not everyone would want to go to a financial adviser to receive a full financial plan. Many want to receive advice on only a specific need that they have, be it a specific type of insurance or savings product. Scalable advice is the concept of focusing advice on areas specifically identified by the client. The provision of scalable advice would allow many people to access advice more frequently for specific matters. The changes would allow the provision of scalable advice where the request for such limited or scaled advice is instigated by the client. This would ensure that clients are able to access affordable and appropriate financial advice as and when it is required and not when the client is able to afford a full financial plan.

I welcome the amendments that the coalition is proposing. They are sensible amendments that include: the government would be required by parliament to table a regulatory impact statement on the FoFA changes; the changes be assessed as compliant by the government Office of Best Practice Regulation; the opt-in be removed from FoFA; the retrospective application of the additional annual fee disclosure requirements be removed; the drafting of the best interest duty be improved; a ban of commissions on risk insurance inside super be further refined; and the implementation of FoFA to be delayed until 1 July 2013 to align it with the MySuper.

The rushed nature of this legislation certainly is of concern. But the overwhelming concern for most Australians with this new legislation is that they have no faith in this government's ability to deliver change. They have seen the government bungle reform at every turn, they have seen the government bungle programs. The Australian people have lost faith in this government. When you are looking at an area as complex as the FoFA reforms, as detailed as the FoFA reforms, how can the Australian people have faith in a government that could not put pink batt in roofs, and could not build school halls without massive cost overruns? How could the Australian people have faith in a government that is incapable of implementing the simplest program? How could they have faith in this government implementing changes as complex as those that are proposed under FoFA? We see Australians very concerned about the implications of the carbon tax for the same reasons. They have seen the government's failure in program implementation. They can see the complexity of the carbon tax, as massive as it is, and the massive burden that the carbon tax will place on the Australian economy and on Australian business. They do not trust this government to implement matters of such complexity.

So I say this to the government: take note of the amendments prepared by the coalition. The coalition has a track record when in government of implementing sound policy. The coalition has a track record in government of ensuring that government is conducted on a competent basis. The coalition can be trusted with government whereas the current government is certainly under a cloud of distrust with regard to the Australian people. The current government certainly is not considered by the Australian people capable of implementing complex reforms such as those proposed in these bills.

Bill Shorten (Maribyrnong, Australian Labor Party, Minister for Financial Services and Superannuation) Share this | Link to this | Hansard source

I would like to thank all the members who have contributed to this important debate. Financial advice is an important step in the wealth management industry in our community. Therefore I value the participation of all members on this legislative package, which represents the most comprehensive set of reforms relating to financial advice in the last decade. This debate has been about the Corporations Amendment (Future of Financial Advice) Bill 2011 and the Corporations Amendment (Further Future of Financial Advice Measures) Bill 2011.

I shall address some of the specific issues that have been raised by members, but first I would like to make some brief remarks about the measures contained in the bills. These two bills implement the government's future of financial advice reforms, the government's response to the Parliamentary Joint Committee on Corporations and Financial Services inquiry into financial products and services in Australia. This inquiry was commissioned in the wake of the high-profile collapses of Storm Financial and Opes Prime. In combination, these bills contain a number of vital measures to restore trust and confidence in the financial advice sector.

Firstly, the bill sets in place arrangements requiring financial advisers to obtain their retail clients' agreement in order to charge them ongoing fees for financial advice. That is the opt-in requirement. This measure promotes the active renewal by the client to ongoing fees for advice with the opportunity to consider whether they are receiving value for money. This very basic requirement is that advisers must obtain their clients' agreement to renew at least once every two years as well as giving clients a fee disclosure statement at least once every 12 months. If the client does not respond to the renewal notice, they are assumed to have terminated the advice relationship and no further fees can be charged by the adviser. That said, if advisers charge on a per piece of advice basis rather than on an ongoing basis then the opt-in requirement will not apply to them. Overall, we want financial advice to focus on the client and what is in the client's best interest. Advisers should be in regular contact with their clients if they are charging them regular fees and I know many financial advisers already are.

In addition, today I can announce that the government will be moving an amendment that offers financial advisers an alternative to the opt-in requirement. This amendment will allow ASIC to provide class order relief from the opt-in requirement to licensees and representatives who are signatories to an ASIC approved professional code of conduct by 1 July 2015. Importantly, such an ASIC approved code would need to include practices and conduct requirements that obviate the need for the opt-in requirement. This amendment ensures that the opt-in requirement is linked in legislation to the class order relief for licensees and representatives.

Further, under this proposal, the government will introduce legislation into parliament by 1 July 2013 that will enshrine the term 'financial planner' or 'financial adviser' in law. I am grateful to the members for New England and Lyne in developing these propositions. The government will conduct consultation with organisations, such as the Financial Planners Association and Choice, to ensure that these measures are implemented in the most effective way possible.

Returning to the measures in the bill, the second measure enhances the capacity of ASIC to supervise the financial services industry and boosts its ability to protect investors by restricting or removing unscrupulous operators from the industry. The changes will implement the PJC recommendations in this area and will strengthen ASIC's administrative powers, as they apply to licensees and representatives, to strengthen the gatekeeping function of the licensing regime and extend ASIC's powers to remove unsatisfactory persons from the industry.

Third, the bills impose a statutory best interest duty on financial advisers. This will be a legislative requirement to ensure that financial advisers are focused on what is best for their clients. While this will ultimately lead to better advice in many cases, it is about regulating conflicts. It is not about regulating for the best investment return. As I have said previously in the House, the best interest duty does not require that advisers give the best advice. It does not require perfection in statements of advice by applying the benefit of hindsight. The duty strikes a balance between certainty and flexibility for the financial adviser. The duty requires the provider of the advice to take steps that would be reasonably regarded as being in the best interests of the client given the client's relevant circumstances. For most advisers, this is business as usual. For some advisers, who perhaps have not always put their clients' interests first or are otherwise driven by conflicts, the duty will require them to adapt their practices. The government makes no apology for legislating to change behaviour in any industry to ensure Australian consumers are better off and can retire more comfortably.

Finally, the bill implements a key aspect of the government's response to the Ripoll report—a ban on the receipt of conflicted remuneration by financial advisers including product commissions. It is so important that ordinary mums and dads can engage a financial adviser without having to worry about whether the adviser is a professional or really just a product salesman. These measures ensure that advisers are working for the consumer, not the product provider. In short, advisers will not be able to receive remuneration from product issuers or anyone else which could reasonably be expected to influence financial advice provided to a retail client. On previous occasions I have congratulated many in the industry that have already moved away from product commissions towards a fee-for-service model. These industry leaders will be well-placed to embrace the new opportunities that the reforms present.

The government recognises the significance of these reforms for the financial services industry. I have already announced—to reassure the member for Cowper—smoother application arrangements to assist people to transition into the post-FoFA world.

Honourable members interjecting

We remain optimistic. Under these arrangements, application of the reforms will not be mandatory until 1 July 2013. The government will introduce amendments to give effect to this in the winter sittings.

This brings me to some of the specific issues raised by members. There has been a lot of comment about the fact that opt-in was never recommended by the original Ripoll inquiry. That is true, but it was recommended by another inquiry; and that is the Cooper review of superannuation. It was recommendation 1.12 on page 26 of the final report of the Cooper review. It said:

Members of MySuper products should only be provided with advice about superannuation (other than intra-fund advice) under arrangements that require the member to renew the advice service each year on a renewal notice from the adviser.

There has also been a lot of comment that these reforms will cost jobs. These claims about job losses have not been substantiated and have been rebutted and dismissed as 'silly' by senior officials of our national Department of Treasury. I believe the greatest threat to financial services jobs is the coalition, which voted against the increase in superannuation. Our government is lifting superannuation from nine to 12 per cent and adding hundreds of billions of dollars to the pool of funds to be managed by the wealth management industry. With more money to manage, this will create more jobs for people to manage the money. This is good for jobs in financial advice, life insurance, funds management and fund administration. The government is also opening up new markets for financial advice by making it easier to provide limited or scaled advice. This will make it easier for the industry to provide advice to the 60 to 80 per cent of Australians who currently do not take financial advice.

There has certainly been a lot of strong leadership by the government, the industry and consumer movement to get to this point today. Firstly, I would like to acknowledge the hard work and determination of my ministerial predecessors. I would also like to acknowledge the leadership displayed by the Financial Planning Association of Australia and its CEO, Mr Mark Rantall. Whilst he has never supported opt-in, he recognises that this latest proposition will ultimately improve the professionalism of the industry. I also acknowledge the work of Choice and Jenni Mack. I acknowledge the work of the Industry Super Network, with Ms Robbie Campo and Mr David Whiteley. I indeed appreciate the contributions from the large retail and financial institutions who provided me with constant advice and allowed us, in our latest set of amendments, to update to reflect the pragmatic knowledge of industry.

In conclusion, advice—that is, any advice, whether from an engineer, a solicitor or a doctor—can be good advice only if you have trust and confidence in it. If people do not have trust or confidence that it is quality advice and cannot trust that the advice is in their interests, it will always be difficult to convince them that they need financial advice, which I believe Australians do. It will certainly be very hard to convince people that they should pay for advice if there is a cloud over the merits or the motivations of the advice that you are receiving from a financial planner. I know many financial planners—they are dedicated and hardworking. Many financial planners have already arrived at the point that this legislation is taking us too. I also believe, however, that ordinary Australians should be able to expect that a licensed financial planner will be able to provide them with the advice of a certain quality and, most importantly, that they can trust the adviser is working in their interests.

The need for people to get the help they need to manage their financial affairs and to ensure that they have adequate requirement savings is simply too important, particularly in the context of an ageing population concerned about making sure they have an adequate income in retirement. It is for this reason: if we are going to create a compulsory stream of wealth in Australia and compulsory savings of superannuation, we must ensure that the financial transactions in the back office are provided in the most efficient way and the best interests of consumers. These reforms will enhance the quality of and access to professional and impartial financial planning advice.

Tony Windsor (New England, Independent) Share this | Link to this | Hansard source

The immediate question is that the amendment be agreed to.

Ordered that this bill be reported to the House with an unresolved question.

Ed Husic (Chifley, Australian Labor Party) Share this | Link to this | Hansard source

I move:

That further proceedings on the bill be conducted in the House.

Question agreed to.