Mrs Bronwyn Bishop (Speaker) Share this | Link to this | Hansard source

I have received a letter from the honourable member for McMahon proposing that a definite matter of public importance be submitted to the House for discussion, namely:

The government’s attempts to wind back investor protections for consumers seeking financial advice.

I call upon those honourable members who approve of the proposed discussion to rise in their places.

More than the number of members required by the standing orders having risen in their places—

Chris Bowen (McMahon, Australian Labor Party, Shadow Treasurer) Share this | Link to this | Hansard source

Of all the policy mistakes of this new government it is hard to find a worse example of policy dysfunction, of policy on the run and of policy that will put ordinary Australians in danger of grave financial loss than the debacle that is this government's changes to financial advice. These changes are the brainchild of the now departed Assistant Treasurer—the Assistant Treasurer who has been stood aside. He is responsible for their design and for their implementation.

There was a glimmer of hope last week, when the Assistant Treasurer stood aside, that maybe sanity would prevail. We thought that maybe a new minister might step in and undo the Assistant Treasurer's changes. But yesterday we saw an article, in the Financial Review, which said that the government was going to 'aggressively defend' its financial advice changes. The article was entitled:

Cormann grabs his FoFA laws from fallen Sinodinos.

It gets better. There is a very large opinion piece on the inside-back page defending the changes to financial advice. You can see it in the copy I am holding. I thought—

Opposition Member:

An opposition member interjecting—

Chris Bowen (McMahon, Australian Labor Party, Shadow Treasurer) Share this | Link to this | Hansard source

They are still on there! This was yesterday. That policy position did not last the day, because around five o'clock the Minister for Finance announced that he was freezing the changes. What a difference a day makes!

Bruce Scott (Maranoa, Deputy-Speaker) Share this | Link to this | Hansard source

Order! The member for McMahon will not use props. He knows it is disorderly. I will have to deal with him if he does not desist from using props.

Chris Bowen (McMahon, Australian Labor Party, Shadow Treasurer) Share this | Link to this | Hansard source

I was just ensuring that the House was aware of Senator Cormann's statements, Mr Deputy Speaker. We need to establish what actually went on yesterday. I think we know what went on. It was that during the day the Minister for Finance actually started to understand his own policy. I think he actually started to get what was going on. He certainly did not understand it in the morning, because he took to Twitter, the old finance minister, and said:

Our FOFA reforms do not re-introduce commissions.

He also said:

You should read my piece in AFR. Decision to pause regs taken last Friday.

I will deal with the last part first. It is a very strange media management strategy to take a decision on Friday to pause a government policy, be out defending it on the front page of the Financial Review and writing op-eds in its defence on Monday. It is a very strange media strategy, indeed.

I will turn to the substance. He said:

Our FoFA reforms do not reintroduce commissions.

That is pretty clear. I would have thought it pretty clear that commissions were being reintroduced, but maybe I misunderstood. We will go to what other people think. What does Alan Kohler think? He says:

… Minister, you are reintroducing sales commissions for general advice. The proposed amendment, and Coalition policy, is perfectly clear on that score.

Mr Kohler is correct. But it is not just Mr Kohler who thinks that. The people who actually know something about financial planning—that would be the financial planners—think commissions are being under government policy. And they do not like it. They do not support the reintroduction of commissions. On 19 March, the chair of the Financial Planning Association put out a bulletin to his members. He said, 'There is one glaring change which has been heavily lobbied for that we cannot support—the so-called general advice exemption. The Financial Planning Association strongly opposes the payment of commissions under general exemption. This is a retrograde policy that would allow remuneration by commission on the sale of investment and superannuation products to Australian consumers and to open the door to a bygone era of mis-selling and inappropriate advice.

Bert Van Manen (Forde, Liberal Party) Share this | Link to this | Hansard source

Rubbish!

Chris Bowen (McMahon, Australian Labor Party, Shadow Treasurer) Share this | Link to this | Hansard source

Rubbish, says the member for Forde. The financial planners do not know about financial planning, says the member for Forde! They do not understand what this policy does. The member for Forde should get his facts straight, as should the Minister for Finance. Very clearly this policy reintroduces commissions, and very clearly this is a retrograde step.

It is not just about general advice; it is about personal advice. Their changes reintroduce commissions on personal advice. The Minister for Finance says, 'Well, no, they could introduce bonuses if you happen to sell a lot of products. That is not a commission.' Apparently that is not a commission. If it walks like a commission and talks like a commission, guess what? It is a commission. The Minister for Finance slowly worked this out during the course of yesterday. It slowly dawned on him what his policy actually was. By five o'clock he had decided that he could not proceed with this policy at this point.

This would be amusing if it wasn't so serious. But there is a lot at stake here. These reforms were introduced in response to a catastrophe for Australia's investors, a catastrophe for normal investors who were following the advice of financial planners. Tomorrow is the fifth anniversary of the collapse of Storm Financial. What an arrogant sense of irony it takes for this government to rip up changes to financial laws that provide protection to ordinary investors right across the country on the fifth anniversary of the collapse of Storm Financial. It was not just Storm Financial that led the previous government to make these changes. There was Trio. The member for Cunningham and the member for Throsby, in particular, remember the damage caused to their communities by the collapse of Trio. The Minister for Finance indicated before the election that he would consider compensation for those people.

Ms Bird interjecting—

In fact, they are going the other way, as the member for Cunningham correctly points out. We had the collapse of Westpoint, based in Western Australia, in which 4,300 investors, primarily Western Australians lost $310 million. Why were they investing, by and large, in Westpoint? Because their financial advisers told them it was a good investment—they advised them to invest in Westpoint.

Why would anybody advise that an investment in what was in effect a Ponzi scheme was a good idea? The commissions being paid for the advice to invest in Westpoint amounted, on average, to 10 per cent of the amount invested. This government thinks that is just fine. This government wants to bring back laws which will enable that to happen, and that is nothing short of a disgrace. In the Westpoint case, ASIC concluded that advisers had 'negligently advised Group Members to invest in certain Westpoint products and engaged in misleading and deceptive conduct.' The vast majority of Australia's financial planners are very professional people who give very good advice. But, Australian consumers deserve protection from those who are not. The Prime Minister, in response, said on 17 March:

It is a given of ethical practice if you are a professional that you are taking the best interests of your client, your patient, your customer into account and regulatory burdens around what are ethical givens are, I think, a classic case of regulatory overkill.

Well, the Prime Minister should face the victims of Trio, the victims of Westpoint and the victims of Storm and tell them that this is regulatory overreach; tell them that these reforms go too far. They know, more than anybody else, why these reforms were introduced and they know why this government is wrong. When you have a government which has got it so wrong that the Financial Planning Association, Choice and National Seniors have all said they have gone too far, then they know that they have a problem. Choice CEO Alan Kirkland said:

It’s important to remember that the need for widespread reform followed the catastrophic effects of major financial advice scandals … These are the problems that FoFA was designed to fix, and we urge the Government to reconsider its changes.

Michael O'Neill, National Seniors Australia CEO, said:

If cutting red tape means creating a murky environment in which the hard-earned savings of working Australians end up in the hands of financial advisers, you can leave it

People are onto this government. What is particularly galling about this government's approach is the dodgy and sneaky way they have gone about doing it. There is a way you can change the law in Australia and it is called the parliament—you introduce legislation, you go through a parliamentary process and you put the legislation before a committee. What did the former Assistant Treasurer seek to do? He tried to introduce these changes by regulation and, what is worse, he was proposing to introduce the regulation on a Thursday afternoon, after the House had risen, and the parliament could not disallow it for six weeks. What a dodgy and sneaky way to go about the administration of this nation.

It is just as well that the Minister for Finance has stepped back and paused these reforms. If the Minister for Finance thinks that he can get away with putting off these reforms off until 5 April and continue their dodgy and sneaky approach and mislead the people of Western Australia, he is wrong. (Time expired)

Michael McCormack (Riverina, National Party, Parliamentary Secretary to the Minister for Finance) Share this | Link to this | Hansard source

I rise to speak on this matter of public importance about investor protections for consumers seeking financial advice. Our Future of Financial Advice reforms will make financial advice more accessible and more affordable. Let us be clear about exactly what the coalition is doing and why things have been put on hold for now. But, first, we can take on board some of things the experts have to say about this delay. The Financial Services Council, which represents wealth managers, says that the break will help the government better communicate the changes. Its chief executive, John Brogden—a good man—supports the delay and says he will use it to lobby for a better outcome. Industry Super Australia chief executive David Whiteley also welcomes the delay, and the seniors' consumer group, the Council on the Ageing, also welcome the decision. Ian Yates, chief executive of COTA Australia, says 'retirees cannot afford poor financial advice.' Frankly, there was a lot of hysteria about what people thought was in the legislation but here we have industry experts saying that the delay is a good thing. We heard the member for McMahon raving on about the government being dodgy and sneaky. We are not dodgy and sneaky. We consult and we take on board what stakeholders tell us. That is one of the reasons why these reforms have been put on hold for now.

We are not proposing to water down important protections. Reducing the compliance and regulatory burden for the financial advice sector, as for all sectors, has always been a top priority for the coalition. All these reforms to FoFA were clearly outlined prior to the last election. We released our detail and our comprehensive plan to boost productivity and reduce red tape in July last year, more than three months before the election. The coalition's concerns with the current laws go back to 2012 when these laws were first introduced. The coalition participated in the Senate inquiry and wrote a dissenting report. There was nothing dodgy and sneaky there. We committed to implementing all 16 recommendations of the dissenting report, if we won government. It might be news to those opposite that we did win government on 7 September. They seem to deny it, but it was us who won. The FoFA bill before the parliament, which is currently being considered by a Senate committee, was put out for consultation in the form of an exposure draft, and the bill reflects this. Particularly in relation to this policy we have been as accountable, transparent, open and consultative as any government could be.

We have been clear that a better balance needs to be struck. Some of the specific measures outlined in our FoFA changes included clarifying and not removing the catch-all best interests duty. The catch-all best interests duty as proposed by Labor led to uncertainty and confusion amongst advisers. Advisers would not know, under Labor's rules, whether or not their advice satisfied the best interests duty. The coalition is simply looking to remove the catch-all requirement in order to give the adviser confidence that their advice is compliant and will be in the best interests of their clients. We are removing the opt-in requirement, which forces clients to complete unnecessary paperwork—Labor loves paperwork—every two years simply to continue their arrangements with their financial advisers. The government will also streamline the current requirement so that fee disclosure statements need to be provided only to new clients. Under Labor's proposals, advisers were required to provide such statements for all of their clients, going back indefinitely—more paperwork which would undoubtedly put a significant financial burden on financial advisers.

We are cutting through the regulation; cutting through the red tape. A good regulatory regime is one in which those being regulated know what compliance looks like. You should not need a law degree or a tome on regulation to know your requirements and you should not need to look over your shoulder every time you sit down to conduct legitimate business. But those opposite do not understand business—they do not get it. The changes we are proposing—which were well-known and flagged well before the last election—are very pragmatic and well considered. Labor did not want to do a cost-benefit analysis because it knew it would not add up—I do not think that Labor knows what a cost-benefit analysis actually is.

Former Prime Minister Gillard gave the Leader of the Opposition, then Assistant Treasurer, an exemption from having to rigorously assess the costs and benefits of Labor's FoFA reforms. No scrutiny, no accountability, just full steam ahead—wham, bam, in you go. It is just like with the National Broadband Network, and we are now cleaning up the mess of that monumental disaster and trying to deliver the NBN sensibly and sustainably. It is just like the recent capability review of the National Disability Insurance Scheme, which revealed that Labor stubbornly pressed ahead, ignoring the recommendations of the Productivity Commission.

We have a number of very valid concerns with FoFA which we are seeking to address. The changes that we have flagged will certainly do just that. Under Labor's FoFA reforms, the up-front implementation costs to industry are conservatively estimated to be well in excess of $1 billion, with ongoing annual costs of at least $350 million. This is simply ludicrous. The current FoFA laws simply go too far, imposing excessive regulatory burdens on advisers, at huge cost to clients but for limited benefit to everyone.

It is worth noting that these laws would have never prevented a Storm Financial collapse. So, not only do these changes fail to achieve one of their main objectives; they also impose significant red tape and costs, which will hurt the industry and ultimately prohibit ordinary mum and dad investors or retirees from accessing affordable financial advice.

The government acknowledges that there is inherent risk involved in investing in financial markets and in financial products. Of course, we are committed to maintaining confidence in the sector and ensuring that consumers are adequately protected. However, Labor's FoFA laws just went too far. They do not strike a balance; they tip the scales. Consumers and the industry are equally the losers, and they know it. They are wise to this Labor opposition.

The government is quite sensible in drawing breath on the planned FoFA regulations. The minister has taken the right approach in postponing these reforms. Minister Cormann is precisely right to do just what he did yesterday. Given the complexity and the level of detail contained in the regulations, and the ongoing confusion and uncertainty by many in our community in relation to these reforms, this pause will give Minister Cormann the opportunity to undertake consultations with relevant stakeholders in good faith. Labor could never locate the pause button; they could only ever locate fast forward in relation to any legislation that they introduced over the last six years. That is why it is so important that we as a government are doing things pragmatically, methodically and sensibly.

During the last six years, those opposite just rushed everything through without any thought about its possible implications. Labor lurched from one policy disaster to another: between pink batts and overpriced school halls, between boat arrivals and the broken carbon tax promise. The coalition is actually committed to methodically and calmly implementing the agenda that we took to the people last September and is delivering on our commitments to the Australian people.

The coalition is absolutely committed to delivering these FoFA reforms, but we want to bring the people with us. We do not want to have policy by social media or to have policy by knee-jerk reactions—like those opposite did whilst they were in government under Rudd, then Gillard and then Rudd again. We do not change government policies in response to a television show, as with the live cattle fiasco, or to a Facebook post—we can only think of the supertrawler fiasco. We do not switch leaders. We do not haphazardly switch leaders in response to opinion polls. There is one opinion poll that matters and it was taken on 7 September last year. The voters voted overwhelmingly to put the coalition—the sensible people in politics—back into power. As I say, there is one opinion poll which Labor should listen to and that was the result of last year's election. The people spoke and the people now want the mandate that they gave to the coalition to be enacted. They want the Senate to get out of the way and remove the mining tax and the carbon tax, which are destroying Western Australia. The people in Western Australia can certainly get on board on 5 April and vote in the Nationals through Shane Van Styn and certainly the Liberals.

We will not be lectured by those opposite about financial management or financial priorities. Those opposite left us with $123 billion in deficits and, if left unchecked, $667 billion in debt, so they cannot lecture us about financial reforms. The International Monetary Fund survey found that Australia topped the list of 17 countries, with the largest increase in expenditure. How dare those opposite lecture us on financial performance. The IMF also reported that Australia has the third-highest growth in debt of any nation in the top 17 countries. What a disgrace Labor has left us. What an absolute mess we have inherited, but we will fix it up. You can laugh all you like, member for Fraser, but we will fix it up because we are the mature, sensible and methodical people in this parliament.

These reforms came on the back of Labor imposing a job-destroying carbon tax and a farcical mining tax which raised hardly a dollar, yet which Labor precommitted $16 billion worth of spending against. What a disgrace! When these FoFA reforms are ready, after we have taken due consultation with the people, they will certainly be brought in, but not until they are properly planned and properly thought out. Those opposite should take a lesson from how we do things.

Bernie Ripoll (Oxley, Australian Labor Party, Shadow Minister Assisting the Leader for Small Business) Share this | Link to this | Hansard source

Tomorrow is the fifth anniversary of the collapse of Storm Financial. It is the fifth anniversary of thousands of ordinary investors losing their life savings, many of them left with no opportunity to start again. It is important to keep this in mind as we consider the government's extraordinary and shambolic attempts at dismantling Labor's Future of Financial Advice laws. When it comes to financial advice, it is the classic story of David and Goliath: the consumers and retirees versus the big banks and institutions in the race to access the growing pile of $1.8 trillion in retirement savings and the many billions of dollars in fees and charges that brings in. It is a lot of money straight out of the accounts of ordinary retail clients who can least afford it, but it is never enough for the big end of town, who want more. To make matters worse, it is not just the fees and charges up for the taking; it is the culture it breeds of selling products instead of the more honourable task of actually providing quality advice and the impact that may have over a lifetime of saving for retirement.

No matter how hard they press the pause button, the government and the new minister replacing the former Assistant Treasurer Arthur Sinodinos will not alter the fear and uncertainty created by the proposals to roll back the FoFA laws—laws that only came into full effect nine months ago and have barely had time to be fully appreciated by the sector or the consumer. This comes after business models have changed and systems have been updated and modernised. Given either the complete misunderstanding by the minister of his own legislation and new regulations, or the minister's hope that no-one will read what the proposed legislation actually states in black and white, let us clear up a few details. Commissions are squarely back on the table, best interest survives in name only and a sales focus on financial products is the new push, with costs foisted onto retirees while the sector gets to pocket a few extra dollars in cost reductions as well as reaping hundreds of millions in extra charges.

Claims by the minister that this is all about efficiency, transparency and competition are laughable. Paragraph 2.27 of their proposed changes to fee disclosure statements explicitly details that a change to the existing fees charged, the terms of the agreement, or if the provider changes ownership, will not constitute a new arrangement and therefore no disclosure is required. That is a lot of change right there that blows a hole in the minister's transparency argument and in the pockets of retirees and consumers, and here the central problem remains that none of us get a choice.

When we consider commissions, page 28 of the explanatory memorandum of the bill sets out that commissions can be paid for general advice and provides the clarity the minister refers to on how it is done. Unfortunately for investors, the goal posts are set so wide you could drive a truck through them literally sideways. The minister claims that conflicted remuneration for personal advice is still banned. But this is not correct at all, because the proposed changes alter the definition of what is not considered conflicted remuneration on personal advice to include volume-based sales bonuses when they are part of a balanced scorecard approach. The minister can try all the tricks or call it what you will but it just does not pass the pub test. Providing quality personal advice and getting paid a sales volume bonus or a commission are incompatible.

One of the most important parts of FoFA are the best interest obligations through the safe harbour provisions in section 961B that provide a range of tests to ensure a balanced approach, with best interest part G being the catch-all provision that ties it all together and makes sense of going beyond the flick-through, simple, tick-a-box compliance cop out. This provision, perhaps more than any other, is driving a cultural change in the industry and lifting the standard of quality advice—something the sector wants and something the sector has been asking for for perhaps more than a decade. It is hard to explain why the minister thinks it is acceptable to remove a provision that a provider should take 'any other step that would reasonably be regarded as being in the best interest of the client'—and yet it is specifically removed by the minister. It might be fair to say that every once in a while the little guy gets a small win, even if only a temporary pause, while the question remains as to what caused the minister to stumble and rethink.

The government's FoFA roll-back process has been in shambles from the beginning and is now in disarray, with no-one sure of what happens next, not even the minister. The answer is clear, though. When you realise that you are travelling down a one-way street the wrong way, the best policy is to pause, think, and then turn around. This government has absolutely got it wrong on dismantling FoFA and the consumer protections that it provides, and there is no-one left that supports the government on these changes. Whether it is that over the weekend that changed the minister's mind or the Western Australian elections, I do not care.

Angus Taylor (Hume, Liberal Party) Share this | Link to this | Hansard source

Only the Labor Party could believe that they know how to define professionalism, and only Labor could think it wise to legislate every aspect of a professional's behaviour. Perhaps this is because of their own failures of professionalism which are so widespread. Indeed the failures of professionalism amongst union officials have been truly extraordinary. But I have bad news for those on the other side of the House: the character and conduct of a professional cannot be defined by legislation that regulates every aspect of their behaviour.

The overriding requirement for all professionals is that they act in the best interest of their clients. I have spent 20 years working in management consulting and I know this. Every professional knows that conflicts of interest emerge almost every day, and no set of rules will ever resolve those conflicts. Whether it is the temptation to sell unnecessary time to clients or to try to sell them the wrong product or service, there are myriad reasons to do wrong. Professionalism takes common sense and a mindset which puts the clients' interests above all else.

Those of us—particularly on this side of the House—who have worked as professionals over long periods of time have learnt those skills and that mindset, but the truth is that you cannot legislate for every circumstance. It is no secret that financial planners have a less-than-ideal reputation in the public eye at times—they could take a little advice themselves and work on their PR. That said, the government is not about legislating to try and abolish all poor advice—you simply a cannot do it. The very whiff of an adviser taking a commission for a sale that goes against sound financial advice is wrong on anyone's ledger, but similar issues exist in all professions and you cannot—I repeat, cannot—legislate against all bad behaviour because there are too many ways to behave badly if you have built trust with a client.

Time and time again we see that Labor thinks it can legislate its way to nirvana, whether it is 18C, FoFA reforms or the 50,000 pages of legislation we have been left to repeal, but their attempt to control, you, me and every other Australian will never cease. From this starting point, the government is making amendments to existing FoFA laws.

In recent weeks, there has been either deliberate or misguided smearing of the government's objectives in reference to the reforms. It is worth restating what we are not doing. We are not repealing the FoFA laws; we are improving them. We are not getting rid of the best-interest duty, the most important part of this legislation; we are ensuring there is certainty about the obligations facing financial advisers to act in the best interests of their clients. That is sacrosanct. We are not reintroducing product specific sales commissions for financial advisers; that is totally misleading. The government is not reintroducing sales commissions, as I said; incentives for volume sales that do not conflict with sound advice from a financial adviser should be permissible. That is all we are saying.

The government is wholly committed to protecting consumers, but we do not need Labor's legislation to do this. In principle, we support the underlying goals of the FoFA reforms, but Labor's FoFA laws were bad for consumers. They went too far and they will cost too much. Do not just take our word for it. Listen to the Chief Executive of the AMP, Craig Meller. He says:

Some of the issues with the legislation as it went through first time added an awful lot of bureaucracy to the system and made it difficult for providers to work out exactly whether something was in someone's best interests or not.

He goes on to say:

We think the policy adjustments proposed by the new government significantly reduce red tape and make it much clearer to Australians and their advisers that the advice being given is absolutely in their best interests. We're very much supportive and in agreement with the changes that the government is proposing.

Thank you, Mr Meller. We agree.

What this country needs now, what our consumers need now, is more freedom to move, not more regulation. The government has undertaken extensive consultation on the FoFA bill, and the bill reflects the feedback we have received. In the interests of consumers, the government is committed to amending the FoFA legislation to reduce costs and to make financial advice more affordable for all Australians. These are fine goals, and I support them wholeheartedly.

Alannah Mactiernan (Perth, Australian Labor Party) Share this | Link to this | Hansard source

I do not think anyone should be surprised that we see the Liberal government trying to unwind these important consumer protections in the finance area, because the Liberal Party has extraordinary form in betraying small investors while protecting their mates. And West Australians, of all people, are acutely aware of that, having been on the receiving end of unscrupulous conduct from finance scammers and having witnessed the blatant refusal of Liberal governments—both state and federal—to take action. And now we see that the Liberal government is trying to undo the good work that was done by a Labor government.

I want to take you back to something that is still very present in the minds of Western Australians—the finance brokers' scandal of the late 1990s. I first alerted the WA parliament to this systematic abuse of the pooled mortgage schemes in Western Australia in, I think, around 1999. Week after week for two years we were explaining and exposing in parliament and through the media the profound consequences that were occurring from the failure of the then-Court government to regulate what was going on with a range of finance professionals engaged in what can only be described as a great fraud. It was a fraud that saw many, many thousands of Western Australians—self-funded retirees, families—lose almost their entire life savings. And day after day we would get the same response that we have got here—that people need the freedom, that it is 'buyer beware', that we do not need to do anything about that. The finance broking industry in Western Australia had very powerful friends in the Court government, and they simply refused to act.

What we finally saw with the state election in 2001 was the minister who was leading the charge lose his seat and indeed the Court government lose the election. So scandalous was that behaviour, so scandalous was their refusal and failure to act that this ended up in a royal commission. The taxpayers of Western Australia ended up paying tens of millions of dollars in compensation. Quite clearly there was a major regulatory failure.

In Western Australia we had a heightened sensitivity to this, so when we saw a new scheme developing in 2002 we were very concerned. This was a mezzanine finance scheme—one that has been described here today as something of a Ponzi scheme. The first company to be involved in this was Westminster Finance. Basically investors thought they had an investment secured by property. They did not. In August 2002, the consumer protection department wrote to ASIC, and it also raised it at ministerial meetings. It was trying to get action. But nothing happened. They could not get the federal government or federal agencies to act. So in May 2003, the then minister for consumer protection, John Kobelke, wrote to his counterpart, Senator Ian Campbell, who was Parliamentary Secretary to the Treasurer, alerting him to this particular problem. I will just quote John here, because it really goes to the heart of it:

I expressed concern at the level of risk posed to inexperienced investors, many of whom are self-funded retirees who were approached by the company. The fact that the company was soliciting people to invest in it was a new element

that I will expand upon in a moment.

Accordingly, he went and raised with Senator Campbell the need for urgent action. Nothing happened. So in June he wrote again and said, 'We have received your letter, but this requires urgent attention.' And over the following years the department of consumer protection continued to take this matter up, and nothing happened. Then in 2006, lo and behold, the whole scheme collapsed. You must take responsibility for it—you have form on this matter. (Time expired)

Bert Van Manen (Forde, Liberal Party) Share this | Link to this | Hansard source

It is interesting when we have been talking about the financial planning industry today that there have been all sorts of references to finance brokers and others who are not even covered by this legislation, so it is wonderful to see that, again, Labor is on the job and actually knows what it is talking about—not!

Let us have a look at the proposed changes and some of the history of FoFA, because I think it is important to reflect on that. In its original form, FoFA was designed to improve the trust and confidence of Australian retail investors in the financial advice industry, which I think is a very noble goal, and we support that fully on this side of the House. That goal was to be achieved by specifically tackling conflicts of interest that were seen to pervade the financial planning industry at that point in time. The government supports the principles of FoFA but has concerns about the regulatory burden imposed on the financial planning industry. And we have seen from feedback from the industry that they were looking at costs of some $90 million per year in implementation costs and another $190 million in further savings. When speaking to local financial planners, they have assured me that these cost savings will be passed on to their customers. I was speaking to one of our local planners this afternoon, and he made the point to me that one of the by-products of the current FoFA regime is that some 10 per cent of potential clients are declining advice because of cost. In an area like Beenleigh this is a significant concern as many of these people actually need assistance and advice.

The sad thing about this is that it is the very thing the FoFA regulations promoted by the previous government were supposed to deal with. They were supposed to make it more cost effective for people. As usual with what the previous government has put in place, the reality ends up being far from what was originally envisaged.

I also took the opportunity to speak to others in the financial planning industry to seek feedback on their views on these proposed changed. One of the key points they make with respect to these proposals is that they will provide clarity in regard to the provisions relating to the best interests of clients. We as a government see no reason whatsoever to water those down, but we do see great value in ensuring clarity so that both planners and clients understand what they are being protected for. In their view, the objective of these changes will place the financial planning profession on an equal footing with other professions, such as solicitors, doctors and accountants.

There are also claims by some that the proposed changes will result in another Storm Financial type of collapse. There is nothing in FoFA, or these proposed changes, that would result in the protection of another Storm Financial collapse. That is ASIC's responsibility, and ASIC needs to shoulder some of the responsibility for what has happened in this industry due to their not enforcing regulations that are already in place.

I have also had feedback from industry that the present FoFA laws have also created confusion. For example, advisors report that when they send out the fee disclosure statements some clients see that as a bill and have actually sent in a cheque, without realising it was just a statement for fees and services that have already been paid. Further, some of the over-the-top negativity from certain stakeholders with vested interests in this sector has certainly not helped with this confusion and uncertainty.

As we sit down to look at the shambles left by those opposite, we see that it is only this government that can start to sort out this mess. Only we can provide clarity for the long-term future of not only the financial planning industry but more importantly for the millions of Australians who will require that advice as their superannuation and other investment balances continue to grow, thanks to our wonderful superannuation system. I fully support the changes that we are bringing to provide that clarity and certainty to everyone in our community.

Tim Watts (Gellibrand, Australian Labor Party) Share this | Link to this | Hansard source

A core role of government is to protect the vulnerable members of our community. It is to ensure that people placed in a vulnerable situation are not exploited by those they seek advice from. A key example of one of these vulnerable situations is the provision of financial services. Most Australians seeking to invest their money are not used to the ups and downs of the financial market. They need independent, impartial advice on where their money is best placed so they can enjoy a secure future.

When advisers are incentivised through targets and commissions to recommend a certain financial product, despite the product's quality, it is hard for this independent advice to occur. In these circumstances there is a considerable risk of exploitation of these vulnerable investors. We saw this occur recently with the collapse of Storm Financial and other investment companies, where the savings of thousands of Australians around the country was lost as the questionable financial instruments they had invested in collapsed.

After the global financial crisis it was recognised that protections needed to be put in place for these vulnerable investors, so the previous Labor government initiated a parliamentary inquiry into financial advice, products and services. This inquiry produced the Future of Financial Advice Act to strengthen the protections for inexperienced investors. FoFA required that advisers providing personal financial advice must act in the best interest of their client. It required advisers to ask their clients to 'opt in' if they wished to receive ongoing service every two years. Most importantly it put a ban on conflicted remuneration. This meant that advisers selling a certain financial product were not able to receive a commission for the sale of that product to the investor. This ensured that financial investors would provide the impartial advice that retail investors so badly needed.

The Abbott government has wasted no time in attempting to role back these crucial protections for consumers who are seeking financial advice. Their attempts so far have been a classic example of how not to execute legislative change. This demonstrates to the Australian people once again the inability of the Abbott government to switch from opposition to government.

Firstly, they announced in the last few days before Christmas that they would make changes to the legislation. Like many Abbott government policy moves, this was done without any consultation with interested stakeholders. They did it without talking about the changes with consumer groups, or industry groups, or seniors groups. Clearly, former Assistant Treasurer Arthur Sinodinos pled that consulting his previous colleagues in the banking world was sufficient. Nothing else was needed to strip protections away from a vulnerable group of investors.

The Abbott government pulled out the usual tactic in relation to this legislation, which was to not talk about it in the hope nobody would notice it until it was passed. They did not count on the community backlash from industry experts, consumer advocates, seniors groups, and previous victims of dodgy financial practises, who all condemned the governments actions. Even those within their own party disowned the reforms.

Peter Collins, the former leader of the New South Wales Liberal Party, and now the head of Industry Super Australia, was unequivocal in condemning these proposed changes. As pressure from the community mounted we saw the response of the Abbott government shift back and forth, from supporting the changes to abandoning them, with the schizophrenic attitude of a government that just does not know how to govern.

The former Assistant Treasurer Arthur Sinodinos was asked to resign, as his failure to answer questions in the Senate became a thorn in the Abbott government's side.

Government Members:

Government members interjecting—

Honourable Member:

An honourable member interjecting—He was asked to resign.

Tim Watts (Gellibrand, Australian Labor Party) Share this | Link to this | Hansard source

Feel free to clarify: has he resigned or not? The Abbott government took this as an opportunity to use Minister Mathias Cormann to push the changes once more. It was reported to the Australian Financial Review only yesterday that the Abbott government would:

… aggressively defend its ambitious unwinding of Labor's future of financial advice (FoFA) laws …

Minister Cormann even wrote an editorial in the Financial Review expanding the merits of its recent reforms. The next day the attitude of the Abbott government had changed completely. The Financial Review reported this morning that the Abbott government:

… has frozen plans to immediately implement changes to laws banning commissions for financial advisers …

This was in direct contrast to Minister Cormann's statement on Twitter yesterday, when he claimed that this freeze had been in the work since Friday of last week. I find it unlikely that nobody in his office could get to the article before Monday to prevent his valiant defence of the FoFA reforms being printed. This is if we are charitable, and assume the op-ed was not written after he had allegedly 'changed his mind'.

The Abbott government's eleventh-hour decision to freeze the changes in the FoFA act shows that they are a government that do not know how to govern. They think a three-word slogan, not stakeholder consultation, is what is needed to form government policy. When these policies do not hold up in the harsh light of day, the cohesion of the Abbott government crumbles under pressure. The Prime Minister needs to take responsibility for the botched way this policy has been handled. He needs to acknowledge to the Australian people that these reforms are both unwelcome and have been badly run. The Abbott government should not just freeze these reforms; they should throw them on the same bonfire that they claim to be throwing red tape onto in Australia and put an end to them once and for all.

Michael Sukkar (Deakin, Liberal Party) Share this | Link to this | Hansard source

It is disappointing to see members opposite engaging in this overblown rhetoric and hyperbole. We saw it from the member for McMahon at the beginning of the MPI. I can understand that the member for McMahon would have been very embarrassed by his two very ordinary questions in question time and probably sought to atone for that, but I think we just need to settle the debate and talk about the facts.

We are not proposing to repeal protections here. We are improving these rules in line with our election commitments, and 2014 is the year when the coalition government will deliver on each of those commitments that we made prior to the election. We are not proposing to get rid of the requirement that financial advisers act in the best interest of their clients—quite the contrary. As members on this side have said earlier today, we are focusing on the fiduciary duty that financial advisers owe their clients. It is very heroic for any government to assume that they can look into a crystal ball and see what each possible problem may be between a financial adviser and their client. But if we focus on the fiduciary duty that applies, and that is that the financial adviser always acts in the best interests of their client, then that is a good place to start.

We are not proposing to reintroduce commissions or other conflicted remuneration structures. That is just wrong, so the overblown rhetoric of those opposite is going to blow up in their faces, because when the facts come to light, as the review will ensure happens, all of the inaccuracies propagated by those opposite will come to light. Instead, we are restoring a level playing field across the whole financial services market, ensuring that everyday consumers of financial advice can continue to access robust financial advice, personal to their own circumstances and in their best interests. We agree there is a significant public interest in ensuring that financial advice laws are transparent and competitive in a financial services system, but we are also concerned that consumers actually have access to that advice. If we create a regulatory system around the access to financial advice that disenfranchises one consumer from getting personal advice for themselves, then we have done a disservice to them.

In ensuring that we provide that access to all consumers, we want to ensure that people who are saving for their retirement have certainty in the advice that they are receiving. We are not seeking to throw the baby out with the bathwater in that sense, but a balance has to be reached, and that is what the coalition's version of these rules will ensure. Do not take our word for it. Listen to some eminent people in the markets. Those opposite, who mostly have never worked in the private sector, should listen to this. Ian Narev, the CEO of the Commonwealth Bank, said that Australia's financial planning industry is too heavily regulated and customers will be better served with fewer regulations. Steve Munchenberg, the chief executive of the Australian Bankers' Association, described the changes as sensible and claimed that their opponents—that is, the members opposite—had been circulating disinformation about their impact. These are eminent people in the financial services industry.

In my electorate of Deakin, I have spoken to many consumers and providers of financial advice, and, in these discussions, two prevailing themes have come through. For everyday investors, there was justifiable anxiety that the additional cost that they would face in accessing financial advice would mean that they were unable to afford it. The view of financial advice providers has been that FoFA is unworkable. One provider sent me an email this morning that said, 'I don't think any AFSL holder is ready for it'—being FoFA—'and we are meant to be compliant already.' This observation is confirmed by the fact that the costs and disincentives of Labor's FoFA mean it just is not workable, and our changes are extremely important.

Melissa Parke (Fremantle, Australian Labor Party, Shadow Assistant Minister for Health) Share this | Link to this | Hansard source

Timing is everything, and it has been no surprise to see the coalition government throw the car into reverse when it comes to their plans to weaken investor protection on the eve of the Western Australian Senate re-run. The Labor government introduced the Future of Financial Advice reforms to ensure transparency and fairness, to ensure best practice and to ban conflicted remuneration. It was a step taken in response to clear evidence of established practices in the financial advice sector which were risky, harmful, improper and misleading. It included requirements that ordinary investors be provided with basic information about the fees attached to the advice they were receiving and a requirement that clients' consent be obtained rather than presumed in relation to ongoing fees. That is what sensible regulation in this space exists to do; it is what good government exists to do; and it is precisely what the wider community expects.

The government was clearly hoping that the weakening and watering-down of these long-needed protections could be done quietly, under the cover of the government's bizarre 'war on red tape'. The Senate re-run election in WA has spoiled those plans, and so now, out of the blue, we hear that the weakening and watering-down of financial protections is being delayed because suddenly it is all very complicated and technical. Let me tell you, there is nothing very complicated about it. Financial advisers are not, in essence, salespeople. Their expertise—for which each and every client is paying—goes to the quality of their financial advice, which in turn depends entirely on it being in the best interest of the client, with no interfering consideration such as a separate financial reward that an adviser might receive from the owner of a financial or investment product. Such a scenario presents the very definition of a conflict of interest. The financial self-interest of the adviser is in conflict with the financial interest of the person they are obliged to serve, and that cannot be tolerated as part of what should be a safe, fair and transparent financial services environment.

You can walk the streets in any community in this country and ask people whether they think financial advisers should be required to act in their client's best interest, and the only way you will find anyone who disagrees is if you happen to run into a dodgy financial adviser or else a member of this government's economic team. I assure you that in Western Australia there is a good understanding of what happens when the so-called red tape, the regulations that exist to protect all of us in areas of life like investment where we are vulnerable, is ineffective.

Tony Pasin (Barker, Liberal Party) Share this | Link to this | Hansard source

I think they are more interested in the carbon tax.

Rob Mitchell (McEwen, Australian Labor Party) Share this | Link to this | Hansard source

Order! The member for Barker will be silent.

Melissa Parke (Fremantle, Australian Labor Party, Shadow Assistant Minister for Health) Share this | Link to this | Hansard source

We have seen in the Westpoint collapse precisely what happens to ordinary investors when corporate fraud and inadequate financial regulation mix. Indeed, the Westpoint fiasco is a perfect and terrible example of the need for the reforms that Labor introduced. Individuals were encouraged to invest in the Westpoint Group, a Western Australian property development outfit, on the basis of advice that was negligently given and as a result of large commissions paid to financial advisers by Westpoint. There were more than 4,000 people who invested in the company, including many Western Australians. Together their losses have been estimated in excess of $300 million. It is no good to simply say that the relevant advisers have been banned as a result of the Westpoint collapse. It is no good to say, as the Prime Minister has said, that you should not regulate for 'ethical givens', when there has been a steady flow of savage and large-scale losses as a result of shonky corporate and financial industry operators who are completely impervious to basic ethical considerations.

The whole rationale for effective regulation, for Labor's carefully designed and consulted financial advice reforms, is the need to prevent disasters from happening in the first place. It is so much easier and better to have a system that works to keep the frauds out and to resist the creep of self-interested advisory negligence than to come along afterwards when millions and millions of dollars have disappeared and thousands of people have suffered severe financial loss.

Today, the Prime Minister talked about the need for decency. It is not decent for this government to remove sensible protections for consumers and investors—many of whom are elderly, vulnerable people. It is not decent for this government to abolish the charities commission, which protects donors and acts as a watchdog against scammers and dodgy charities. The treatment by this government of consumers, patients, orphans of war veterans, asylum seekers, low-paid workers, unemployed people and people with disabilities is simply not decent. So please do not talk to us about decency, Prime Minister. If saving senior Australians from losing their life savings to financial spivs is what the government calls red tape, then we say, 'Bring it on.' It is only those barriers and disincentives to improper conduct in an industry with serious inherent risks that keep ordinary Australians and their investments safe. This government wants to throw away those protections and wants to leave investors in the dark. What is worse, it wants to do so without scrutiny by Western Australians as they approach the ballot box.

Ann Sudmalis (Gilmore, Liberal Party) Share this | Link to this | Hansard source

This government has always supported the need to protect the financial stability and investment for Australians. The underlying principles were established so that workers and families who have worked hard all their lives know that what they have saved—what is commonly referred to as their 'nest egg', or the funding for their well-deserved retirement years—is secure. It is at this point that I wish to digress in order to publicly compliment those amazing people who have done exactly this. So many of our wise Australians have become self-sufficient and are grouped together under the heading of self-funded retirees. They are fully deserving of our respect and compliments for being such important role models for the next generation. These people come to me on my village visits and ask, with tears in their eyes, what they did wrong. They have worked hard and saved hard, and they are not taking benefits from the government. They ask that we help them to protect their investments. The crux of their issue at this point is that financial advice is becoming too expensive and that you need to be a solicitor to understand all the fine print in the booklets that they get sent in the post, not to mention needing a magnifying glass to read the font.

They know that we are not repealing the Future of Financial Advice laws, but, in line with the commitments that we made to so many groups, we are going to improve these laws, simplify them and ensure that investors are protected and that the legislation is less complicated. Most important is the introduction of best-interest duty to complement the common-law protections.

Let me take another moment to cite an occasion that has left an indelible impression. In the past, a licensed financial adviser during a time of world financial crisis—in fact, it was just prior to the recession in 1987—advised his clients that they should move their investments to safer portfolios, saving them from significant financial losses. You might wonder, apart from having a clear conscience, what other consequences occurred. That individual had his position declared vacant. But he was acting in their best interests. This introduction of best-practice duty is an honourable and well-overdue change. There is no intention of introducing landmine aspects, of financial advisers gaining commissions, or convoluted and difficult methods for seeing how they work and what the real costs to the investor are.

The most important proposals in the changes are to make sure investment advice is competitive, fair, efficient and transparent. The previous suite of legislative changes, which were aimed at protection, were complicated at best and anti-competitive at worst. Increased investment options means that different avenues can give a different range of benefits to the investors to suit their different needs. There are estimates surrounding the existing implementation regime that include a cost burden of around $350 million. Ultimately, this will be borne by the investor. The proposals being put forward have been assessed by the independent Office of Best Practice Regulation.

The previous parliament had bipartisan support to change this industry after the debacle of Storm Financial. Sustainable reform was the overall theme at that time, as recommended by the Ripoll inquiry. There were three key recommendations: the best-interest duty; that clients were fully aware of the conditions of their investments; and that difficult financial advice was made a whole lot clearer. However, there were unintended consequences for investors. They had to re-sign with their advisers, and this cost was part of their fee structure. Out of 400 submissions to the Storm Financial inquiry, only one—the industry super fund—recommended this step. Perhaps I am a cynic, but one wonders why only one from this source is supposed to be representing the best interest of the industry members, or, more simply, the workers they say they represent, when in effect they are gaining repetitive repayments at the disadvantage of the workers.

The best-practice duty requirement is an essential step for sound financial investment. It will provide security for those people who come to me and proudly—deservedly so—say, 'I am a self-funded retiree.' The proposed legislation does not reintroduce commissions. At the moment, investors are not ever able to opt out of a fund where they actually have no investments. This is such a complicated industry, with most of us finding it difficult to navigate. Also, determining a trusted adviser is very concerning, as there are many perceptions around the commissions of the past, which, I emphasise again, are not being introduced with these amendments.

There is to be a $90 million saving on the current implementation costs, and who would have been sustaining these costs? Why, the investors of course. The Financial Services Council has estimated that the burden on this industry is in the order of $700 million. Those opposite have once again demonstrated a complete lack of economic depth or ability to analyse financial impacts on the very people they have endeavoured to assist—yet another Labor mess to be cleaned up. Our aim is to make financial advice more affordable and more effective. The window of opportunity here allows time for more consultation— (Time expired)

Rob Mitchell (McEwen, Australian Labor Party) Share this | Link to this | Hansard source

Order! The discussion is now concluded.