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

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

The Government’s failure to protect Australians seeking financial advice for their hard earned savings.

I call upon those 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—

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

Every day we see more and more evidence of just how unfair this government really is—unfair in terms of the budget and what it is doing to ordinary people, and unfair in terms of what it is doing to protect consumers, to protect pensioners and to protect families. We have no more evidence of that than having a look at the changes they want to make to the Future of Financial Advice laws, laws that are specifically designed to protect consumers—to protect pensioners, to protect families—and, most importantly, to protect their life savings and retirement savings.

It is not as if we haven't seen enough horror stories in this space out in the community. There are the stories of the collapse of Storm Financial, Trio and Westpoint. It is a list too long to detail here. They are names that just slip off the tongue, but consider the very real people that those collapses impact on. In Storm's collapse alone 14,000 different people lost some of their life savings or all their life savings. Some were left in a position so destitute that they will owe for the rest of their lives money to banks and other lenders. These were people who were very financially sound before being involved.

What Labor did was put in place some good, sound, solid protections to protect those people. What this Liberal government is doing—very, very tragically—is ripping away at all of those protections. Let me make it absolutely clear: the Liberals have got it wrong, just plainly got it wrong. You cannot argue your way out of this one. You cannot demonstrate your way out of this one. Your own Senate report, your own Senate inquiry into FoFA changes, clearly states it. Your own senators tell you you are wrong, your own report says you are wrong. It says: 'Go back to the drawing board. Have another look.' There is evidence of that everywhere we look.

Let me go back and just explain to people why it is so important that we not only keep FoFA protections but we improve on them and we enhance them. If we do anything, we need to do that; not wreck them, not pull them apart. If only this Liberal government would understand that in opposition people might accept you swing the wrecking ball, but when you get to government, stop wrecking. You are in government now. It is not your job to wreck everything anymore. Don't wreck people's life savings. Don't be part of that. Help us clean it up, help the regulator clean it up. Listen to the voices out there—not just the voice of Labor but of National Seniors, of the Council of the Ageing, of Choice, of Industry Super Australia. There is a list of them—and I will come to that list, because I think there might be one or two of your friends on that list who are telling you you are wrong as well.

These were significant reforms. These were reforms that went to the heart of what needs to happen, because this is not easy to fix. You have got to change behaviour and you have got to change culture. If you are going to do that you have to somehow put in words in law and through regulation something significant enough that actually helps and enables the sector. The financial services sector, which is good, sound, very necessary—and from Labor's perspective needs to grow itself, needs to professionalise. That is what sector wants and that is what we want, because we understand it is essential for people to not only get more advice but get good quality advice.

It is just not good enough to come in here and rip away and destroy what is basically five years of really hard work. It is hard work not just by us, not just by Labor, but by the sector itself. It is the hard work of the community. We have just seen too many horror stories. The horror stories do not stop They are still coming out of Senate inquiries and other inquiries, out of the things that we see in current affairs programs about consumers who have lost all of their life savings. When you sit down with them and look them in the eye and see the tears and hear the catastrophes that have happened to them through no fault of their own but because they were defrauded, robbed or the victims of really poor advice, you have to question yourself and say, 'Why do we stand up so much for FoFA and protecting consumers?' But then I ask myself, 'Why is this Liberal government so determined to pull it apart, so determined to get rid of the best interest duty?' I will not take for a minute what this government and some of its cronies says about best interest being safe because they are going to write it in there. You can write it on every page at the top of the page and at the bottom of the page but your changes to the law still take it away and diminish it. You cannot argue that.

When it comes to opt in, it is one of the few mechanisms that is available to us if you believe in standards, if you believe in changing culture and best interests. It is one of the few ways that you can actually help the sector. The majority of them actually contact their clients on a regular basis, not once every two years, but on a regular basis: once a month, once every three months, once every six months. We think it is quite reasonable to say at least once every two years make contact. At least do something for the clients, because—you know what?—it is not for free; you are actually charging people fees. If you are going to do that we say do it and do it properly.

On annual disclosure it is not just about disclosure. Yes, there is some disclosure, but it is about meaningful disclosure—disclosure for everybody in the financial services sector not just for new clients from some day forward. It is about disclosure for everybody. That is not retrospective. It just says that it applies from this day forward but it applies to everyone equally and fairly, not just a few lucky people who for the first time get some advice now. What about the people about to retire? What about their life savings? What about the need for them to know? I do not think it is stretching it too far to say to everybody in this chamber: 'If you pay for something, would you like to know exactly what you are paying for and what you are getting in return?' Because that is our expectation and I am sure it is everybody's expectation.

When it comes to conflicted remuneration and banning commissions, let us just get it right. The minister now has had a sudden revelation. Something has just sort of descended upon him—the fog, the confusion. He says that they are going to re-ban commissions. I just say to him: 'Minister, you don't have to toy or play with words. We have already banned commissions. You cannot ban them twice. What we are saying is don't take the ban away.'

What is at stake here is significant. It is the national retirement pool of savings worth $1.84 trillion—that is right, 'trillion'. Let me tell you: never stand between a pot of gold that big and a whole heap of people who would love to just keep pulling more fees and charges out. But they want to do it quietly. They do not want you to know. They do not want the opt-in every two years, just in case you find out. They do not want you to tell them how much you can or cannot, or whether you even agree. And you do not have to take my word for it. I would just say to you: read the explanatory memorandum from the government and read the regulation, because it actually says it in there.

I love talking to people from right across the sector, because I think that they are doing a great job, on the whole. Individual financial advisers go out there with the best interests of their clients and their customers at heart, and the problem is that they do not always get to choose. Under these laws, they will be pushed and directed more to sales than to advice. It should always be the consumer that comes first. We wrote in for the first time that an adviser has to put their clients' interests ahead of their own. Does that sound outrageous—that, if you are paying someone to give you advice, they should put your interests ahead of their own? I do not think it is. I think it is one of the cornerstones—best interests, opt-in.

For me, there is some real clarity around all of this. It is not just if you take each of these issues that the government is wrecking—absolutely destroying and taking out; it is if you take them combined. If you take each one of these combined, as a package, what impact do they have? Let me tell you what that impact is. It destroys the best interests, it destroys opt-in and it destroys proper disclosure. It destroys all those things. If you turn to the technical elements of what is in this bill, it is there in black and white for anyone to read. The minister does not have to ban commissions twice. They are already banned. Leave them the way they are.

So who benefits? I just say: follow the money and have a look at who is involved and who benefits. The four major banks, and AMP, control 80 per cent of the finance advice business in Australia. Good luck to them. But they should not, at the same time, be in concert with the government trying to diminish the good protection measures for consumers. I reckon there is an easy choice. It is a choice that we can make every single day, and we do, when it comes to a whole range of issues. We get a choice in this place. Just in case you are confused or you are not sure, I will just put it to you very simply: if it is a choice for me and for Labor between siding with the banks, AMP, those who charge fees, those who would argue till they are blue in the face and say, 'It doesn't do that much anyway, so you can get rid of it,' and siding with consumers and their life savings and their potential to have a better retirement because of good, sound, decent protections, then I will always side with the consumer, and Labor will always side with the consumer. So to the Liberal Party, I would just say this: you choose; are you with the banks and big money or are you with consumers and ordinary people and people who are in retirement? Who are you with? We know who we are with.

Steven Ciobo (Moncrieff, Liberal Party, Parliamentary Secretary to the Treasurer) Share this | Link to this | Hansard source

It was interesting to listen the contribution made by the member for Oxley, in particular as he railed against financial advisers. We will come to the point about whether he supports financial advisers. He said that what financial advisers were interested in, I think, was secret commissions and that they did not want their customers to find out, and that was the reason why financial advisers would be opposed to the two-year opt-in provisions. He went to great lengths to explain how those that invest their hard-earned savings were at great risk from shonky advice, conflicted advice, from financial advisers. But then, in true and typical Labor style, he turned around and said: 'But I support financial advisers. I think they're doing a great job.' He spoke at length about how people should effectively be fearful of the advice that they would receive from the financial planning industry in this country if it were not for Labor's big whopping red tape of FoFA and how consumers should recognise that if, in any way, shape or form, Labor's FoFA—

Mr Thistlethwaite interjecting—

Now they are being called 'shonks' by Labor members. They are calling financial planners shonks. So we see and we understand the exact way that Labor looks at the financial planning industry in this country.

Mr Thistlethwaite interjecting—

We understand that it might be well and good for the Labor Party and for their shadow minister in the area to stand up and to talk about how people are going to be exploited by financial advisers, and now we have the member for Kingsford Smith labelling financial advisers 'shonks'. We on this side of the House do not think that is appropriate. Granted, there is probably a very small percentage of people that do the wrong thing. We do not, for one moment, in the coalition think that everybody does the right thing all the time. But you know what: it is one thing to acknowledge that there is a very small percentage of people that have historically done the wrong thing and then a separate thing to label them 'shonks', as the member for Kingsford Smith has just done, or to say, as the member for Oxley said, that people that are investing money are going to be subject to investment advisers and financial planners that are giving them shonky advice, misleading them and are conflicted because all they actually want is a commission. That is not the coalition's approach and it has never been the coalition's approach.

When FoFA was first announced in April 2011, the coalition could not have been more clear in our response to it. We were broadly supportive of reform in the sector. However, we were concerned that Labor's reforms, if implemented in full, were going to lead to a massively increased regulatory burden, and that increased regulatory burden would result in fewer people having access to quality financial advice. Even more concerning, those people least able to afford to have access to financial advice—in other words those who might have a smaller lump sum of money to invest, those that might be lower in terms of demographics, struggling income earners et cetera—would be priced out of the market, effectively, as a result of Labor's FoFA reforms. From day one, the coalition made it clear that we believed that there was scope for there to be reform but that we thought that that reform needed to strike the right balance. Guess what: Labor also knew that their approach did not strike the right balance. I would suggest to all coalition members that the proof in that respect was the fact that the then minister, the now Leader of the Opposition, Bill Shorten, refused to subject the FoFA laws to a cost-benefit analysis and refused to subject the FoFA laws to a regulatory impact statement.

Why would the minister at the time have refused to subject the laws to a cost-benefit analysis or to a regulatory impact statement? I put it to you, Mr Deputy Speaker, that Labor did that because they knew full well that their laws implied a crushing, punishing, red-tape compliance burden on all of those in this sector. Labor had reached the point where they were unwilling to take any backward steps in the face of criticism from the industry and from a number of consumer groups that, as a consequence of Labor's proposal, we were going to see people effectively priced out of the market. As a consequence of Labor's reforms, we were going to see financial planners in a position where they had to incur significant charges and had to pass those charges on to consumers in order to comply with Labor's laws.

That is the exact reason why the coalition outlined our policy in very clear terms years ago. We made it clear that we would seek to address a number of aspects of Labor's FoFA legislation that imposed too much of a regulatory burden. At no stage have we watered down what is perhaps the single most important aspect—and often one of the most debated aspects—of FoFA, which is the duty to act in a client's best interests.

I heard just now the Labor shadow minister talking and railing once again about the best-interest duty. And do you know what, Mr Deputy Speaker? We have heard the shadow Treasurer scaremongering—I use that word advisedly, and I will explain why—about the best-interest duty. The shadow Treasurer does it. The shadow minister at the dispatch box just did it. They deliberately go out of their way to say to Australians, 'You should be fearful because the best-interest duty is being swept away by the coalition, and you're going to be left vulnerable.'

We have argued consistently that Labor is doing nothing more than scaremongering on this, but I think it is important that people do not just take the coalition's word for it. ABC News, in their ABC Fact Check service, made it crystal clear with the big word 'scaremongering' and a photo of the shadow Treasurer. The ABC Fact Check unit made it crystal clear that Labor was 'scaremongering'—the ABC's words, not my words. Those of us in the coalition know that from time to time perhaps the ABC and the coalition do not always get a perfect alignment, but in this particular case ABC Fact Check makes it very clear that the shadow Treasurer, just like the shadow minister at the dispatch box, is doing nothing more than scaremongering, because the very straightforward facts with respect to the best-interest duty are that the best-interest duty remains. The requirement for a financial adviser to act in the best interest of his or her client is enshrined in section 961B(1) of the Corporations Act. That stays in place. It remains unchanged. There is no amendment to that requirement at all.

As a consequence of the reforms that the coalition are making to FoFA, we want to bring about a series of modest reforms that reduce the amount of compliance that is required in order to meet the obligations of financial planners under FoFA. By doing so, the coalition will achieve an enshrinement of all the protections necessary for consumers but a reduction in the amount of red tape associated with FoFA—for example, the opt-in provisions, which the coalition outlined that we would abolish. The reason is—in fact, to some extent the shadow minister touched upon it—that financial planners are in regular touch with their clients regardless. The requirement to have financial planners writing every two years to all their clients, saying, 'Once again, can you please show that you intend to keep using us?' is a complete waste of time, a compliance exercise with no upside benefit whatsoever. Why would you impose that requirement on the industry when there is no upside for consumers?

Likewise, there have been allegations made by the Labor Party in relation to conflicted remuneration. Let us be clear: the government has supported the ban on conflicted remuneration and on commissions for financial advisers since it was first legislated, and that continues to be the case. At no point have we as a government sought to reintroduce commissions or conflicted remuneration for financial advisers. Once again, ABC Fact Check found that the Labor Party was scaremongering in relation to those claims as well.

I think it is important that in this debate we have proper, rational discussion about what has been taking place. Labor can whip up fear. Labor can whip up hysteria in the community. Labor can slander an entire financial-planning industry and say that it is only motivated by greed. But the simple facts are that the coalition recognises that the industry does an outstanding job, that the industry is motivated by the best interests of its clients, that the best-interest protections remain in place and that the ban on conflicted remuneration and commissions remains in place. The coalition's reforms simply seek to reduce the amount of red tape and compliance for the industry, which is good news for consumers and good news for financial planners.

Shayne Neumann (Blair, Australian Labor Party, Shadow Minister for Indigenous Affairs) Share this | Link to this | Hansard source

This is not about red tape, transparency or accountability; this is simply siding with the banks, the AMP and other big providers in relation to this. If the parliamentary secretary had listened to the people in rural communities in my electorate who came to see me having lost their savings in the Storm crisis, he would not be making speeches like that. This is a serious matter. There are thousands of Australians who lost their life savings and had to return to work, who lost their homes, who lost their investment properties and whose financial security in the future was trashed by Storm.

There was a parliamentary inquiry in relation to this. We responded. The parliamentary inquiry was actually chaired by the member for Oxley, the shadow minister in relation to this issue. The parliamentary inquiry was held by the Parliamentary Joint Committee on Corporations and Financial Services, which inquired into Storm. It inquired into what happened—how people lost their savings, their investments and their property. As a result of that, the then federal Labor government came up with the Future of Financial Advice bills that went through this place. They were important pieces of reform that made a difference. They were supported by CPA Australia, by National Seniors, by the Council of the Ageing, by the insurance industry and by the superannuation industry, but those opposite have not listened. They did not listen to the parliamentary inquiry. They did not listen to the players and the consumers. They did not listen to CHOICE. They have sided not with the consumers but with the big players.

It is a $1.8 trillion industry. We on this side of the chamber had a part in the creation of that with superannuation not just for the powerful but for teachers, cleaners, farmers and small business operators. We created the superannuation system in this country. Those opposite never saw a superannuation bill that they would not vote against. They vote against them every single time. The superannuation guarantee has gone up under a Labor government every time. As a result of that, people had opportunities to secure their financial future and it was trashed.

This legislation, together with the regulations that those opposite want to bring in, is not even supported by Alan Jones. Even Alan Jones, who is no friend of the Labor Party, does not support what the coalition government is trying to do here. They are not siding with their constituents. Last night they did not side with their constituents in the votes they cast in favour of not just hurting the income they receive but affecting their cost of living in the future.

This legislation and the stuff that the coalition is trying to do are not in the best interests of this country. Let us have a look at what we did and contrast it with what the coalition is proposing. We brought in a best-interest test requiring advisers to act in their clients' best interests. How revolutionary is that? Why would those opposite be afraid of, and worry about, the requirement for advisers to act in their clients' best interests? We also had a provision that required advisers to get their clients to opt-in to receive ongoing service—not every week, not every month, but every two years. How hard is that? We also had a provision in relation to annual disclosure. Statements were to be sent to a client annually disclosing fees and details of services performed. That is not revolutionary or radical in any way, shape or form.

We had a ban on conflicted remuneration—commissions paid by financial product providers to financial advisers. On 20 December last year they announced 'reforms' to change it. It was paused because Senator Sinodinos had problems and opted out of that role. Now we have the Assistant Treasurer, Senator Cormann, involved in this role, but they have not really changed their position.

Let me tell those people who might be interested what they are doing. They are removing the catch-all provision in best interests. This adds a loophole for advisers that means that best-interest will become ineffective. That is what they are doing. They are scrapping opt in, allowing an adviser to continue to charge fees—sometimes without having actively worked on a client's file and definitely without receiving consent from the client. They are amending the annual disclosure provision so that advisers will have to provide annual disclosure only to clients who commenced with them after 1 July 2013. There is a partial lifting of the ban on conflicted remuneration. The ban on conflicted remuneration will apply only to commissions on general advice. This opens the door for a sales push culture of products over advice. That is what is happening here. They should be ashamed of themselves.

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

It is interesting to listen to the opposition talk about the MPI on FoFA. I realise that, whilst this is indeed an important issue, the reality is that it is a discussion about rent seeking. That is the story of the FoFA reforms. Yes, people did lose money with Storm, Westpoint and Trio, but many of the changes in FoFA will do nothing to prevent those things happening again. If ASIC had actually done their job in relation to Storm we would not be having this discussion.

At the end of the day this is a battle between the super funds and the banks to gain control of a portion of the compulsory acquisition from Australian salaries of the superannuation guarantee charge. The union managed industry super funds have lobbied hard and sought to dirty up advisers at every opportunity—and I think they have done a very good job—and sought to achieve a crackdown on avenues of revenue for financial advice outside the superannuation system. I think it is a disgrace that those opposite aided and abetted that and in the process destroyed the reputation and the good name of many good, independent financial advisers in the marketplace.

The very thing that they complain about about the big banks is actually a direct result of their actions under this legislation, because they have created the incentive for the big banks to buy up the small financial planning businesses because they have not had the resources to cope with this tsunami of red tape and regulation that had everything to do with backing their union mates in the industry super funds. I am sad to say that with FoFA they got what they wanted. Now they are crying over spilt milk.

This is where this MPI falls short, as most other things those opposite do. The very same industry super funds are increasingly being caught out, failing the very people that they so adamantly claim to protect. I would like to quote a few recent media articles to highlight this issue. In The Australian on 25 June, Hedley Thomas wrote about the meat industry super fund:

Audits of a union super fund for meatworkers have uncovered alleged corporate governance failures, conflicts of interest and an alleged failure by a union stalwart … to disclose six-figure "consultancy fees" …

In the Cooper review there are 17 recommendations under the heading 'trustee governance'. This is the standard those opposite hold up for the industry, but how many recommendations did those opposite implement in their time in government? Zero. That is what goes to the heart of this issue. APRA, finally, has got around to doing some of its work and has been examining—again in relation to the meatworkers' super fund—the justification for the number of poor investments by the meatworkers' fund in companies that have in turn paid significant fees, for personal benefit, to people directly connected with the fund—one of the key issues in the trustee governance recommendations that the Cooper review talked about. If you want to talk about the effect on local employers, I have 800 employees in a local abattoir that are in the meat industry super fund. I wonder how they feel knowing that their hard-earned superannuation money is being trashed by the industry super fund.

How about we also look at the alleged union super fund leak of members' details to the CFMEU in New South Wales? The CFMEU used those to ring members to put pressure on them because they want to railroad the company they work for. That was another breach of governance principles. They can sit over there and talk about governance and protecting consumer interests all they like, but some of their biggest supporters are failing to do exactly that because they failed to include in their legislation, last time when they were in government, those trustee governance provisions which go to the very heart of some of the major issues that we are talking about here today. It is only this side that is going to generally protect the superannuation holders in this country. (Time expired)

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

I like the member for Forde, but really if he is going to come into this chamber and sit there and use the protection of saying things are facts, when they are allegations, that is pretty poor form. He is better than that. I know some of the Star Wars scene around him is a little bit different, but he is actually better than that. He should not come in here with allegations and make them claims.

These reforms, which the government is bringing in, are nothing but an attack on everyday Australians who have little savings. The purpose of what we brought in was to ensure that financial advisers act in the best interests of their clients—put simply: to make sure that the client is getting the best possible advice for their needs and objectives without being caught up by the adviser. To those of us with strong convictions—which counts out the other side of the House—morals and ethics, to Labor, and to many people, this seems ethical. It seems ethical to make sure that when you go and see a financial planner they are working in your best interests and not their own hip pocket.

The Abbott government is seeking to change this by adding a loophole so that advisers do not have to look after the best interests of their client. I will just state that again to be clear: financial advisers do not have to look after their clients' best interests. And this is considered really good by those opposite. It is absolutely appalling. This means that the average person will visit a financial adviser to seek help on planning for their retirement. But, under Labor, the financial adviser would be required to genuinely determine what is affordable and what is suitable for the client's needs. Under this government, the financial adviser can basically sell the client whatever product he wants to sell and he can pick up the biggest commission he likes, without thinking twice about how that is going to impact on people and their savings.

Speaking of commissions, another reform Labor introduced was a conflicted remuneration This reform banned commissions from being paid to financial advisers by the financial product providers. Again, put simply, it means that financial advisers could no longer be persuaded to spruik a particular financial product, because they knew that they would receive a very healthy commission from it. Removing this temptation to sell a product because of the juicy commission means that financial advisers would offer the most suitable product for their client. But, alas, the Abbott government is removing that. It opens the door to allow the financial advice sector to become a sales push, as opposed to being a life-long, important financial decision-making process affecting those who need assistance.

For example, Joe wants to speak to an adviser about taking out a life insurance policy to look after his family in the event of something unfortunate happening to him. Instead of the financial adviser listing the options best suited to his needs, affordable in his budget, and flexible to his life changes, advisers can simply push for a product that will give them the most sales commission.

Another change Tony Abbott seeks to remove is the opt-in. This reform was introduced by Labor to ensure that clients have to physically opt-in to receive ongoing advice every two years. That means that any fees that the financial adviser is charging to work with the client will need to be mutually agreed to every two years. This prevents advisers from sticking a lifetime of fees onto a client's portfolio, without the person even knowing that it is happening. The Abbott government scrapping this means that most people will pay fees for services they do not get, and some will pay fees without knowing because there is no disclosure, no best interests and no opt-in.

These are examples of how the Abbott government is completely disregarding the needs of everyday Australians, but the Prime Minister is making sure he is looking after his own mates in the big banks. As one of our members mentioned just before, even that great doyen of the Labor Party, the great voice of the socialist left, Alan Jones, got out and said that what this government is doing is wrong. So, being the puppet master, maybe he should pull a couple of strings and get little Pinocchio-Tony to actually back off on this.

In closing, I heard the parliamentary secretary talk about the ABC's Fact Checkand how important it is. So I had a quick look at the ABC's Fact Check. It says: 'Is the government paying a billion dollars a month on Labor's debt?' Fact Check says: 'Exaggerated'. 'Christopher Pyne has claimed that graduates earn more.' Fact Checksays: 'Overblown'. 'Will Australia have the biggest medical research fund?' All overblown, all lies, all puff and all bluff. (Time expired)

Order! The honourable member's time has expired. The member will withdraw the reflection on the minister as lying.

I did not say that he lies. I said 'all lies'. That is what that says there.

An opposition member: They are not lies. They are just—

But I am happy to withdraw for you, Deputy Speaker, just to keep 'Precious' over there happy.

Thank you very much.

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

Labor's future of financial advice reforms equals more red tape, higher costs and less choice. As we said at the time, reforms in this area need to strike the correct balance, the right balance. We were concerned at the time that Labor's reforms would lessen the affordability and availability of advice. There has been debate, much of it ill-informed, such as the contribution just then by the member for McEwen.

The best-interests duty remains in place. We are not watering it down; we are making it work in practice. What we are introducing is a comprehensive set of steps that will provide greater certainty, better certainty, about what the duty requires of financial advisers. Surely the hallmark of well-designed regulation is that the regulated know what is expected of them and the community knows what they have a right to expect. That is so crucial. Our changes will provide that certain incentive payments can be made where they do not conflict with advice. This legislation is not and never was designed to bring back commissions. The legislation will explicitly prohibit payments made solely because of a financial product, in relation to which general advice was provided, has been sold.

The legislation will explicitly prohibit, stop—call it what you like—a recurring payment made because someone has been given general advice. As Minister for Finance and Acting Assistant Treasurer, Senator Cormann is doing an outstanding job, an absolutely wonderful job. Not many people would have the drive and the energy necessary to take on such a task, but he certainly has. The government's FoFA amendments are about ensuring more affordable, better and improved quality advice. It delivers on our election commitment to reduce the unnecessary regulatory burdens on business and consumers and to promote greater access to high-quality financial advice. But do not just take my word for it.

Whilst I was out of the chamber for an hour I actually put in a call to Trevor Ion, who is a 28-year veteran of financial advice in Wagga Wagga. He runs a small adviser's firm, in conjunction with his wife, Sue. And he said his biggest problem is that he spends so much time on compliance. Labor love red tape. That is why they introduced all these reforms, because they love red tape. He said that it just adds to more cost which, as he admitted, gets passed on to the consumers. And he does not want to do that.

He talked about FoFA reforms, FoFA legislation having common sense and efficiency. He said, 'That's what is needed here; not more red tape, bureaucracy and compliance.' He said that, under Labor, his practice was going to be less productive and less profitable. 'We're out there,' he said, 'trying to do our best for the people that we serve, trying to do our best for our customers.' He has customers and clients in Wagga Wagga. He also has a practice in Deniliquin and he services a lot of people in Griffith. He actually said that, when Labor brought in their reforms, companies spent millions of dollars getting product disclosure statements et cetera organised, training people and changing systems just to become compliant with what Labor requested, what Labor wanted. As I say, Labor love red tape.

He said the amount of compliance that has crept in over the years is just 'huge'—that was the word he used to describe it. He said it does not provide better outcomes for his clients; it just provides an 'onerous' burden—that was another word he used—on his small company. His is a small company. He is out there, doing his best, paying his taxes, trying to get a better outcome for the people he serves.

All the important consumer protections in FoFA will remain. I note that the member for McEwen is leaving the chamber, but he should stay. Only the unnecessary and costly red tape will go. Advice will have to be given in the best interests of the client. We all want that. Advice must be appropriate. An adviser must prioritise their client's interests ahead of their own—and Trevor Ion certainly does that. Conflicted remuneration structures, including commissions that have the ability to influence advice, will continue to be banned.

The government propose to keep important consumer protections, such as the requirement for advisers to act in the best interests of their clients, and also the ban on conflicted remuneration, while putting downward pressure on the cost of advice. That is the important thing here. We promised at the last election that we would restore the balance between important and appropriate levels of consumer protection and ensure that access to high-quality financial advice remains available and affordable for all Australians, particularly those in regional areas and particularly for companies such as Trevor Ion Financial Services. (Time expired)

Matt Thistlethwaite (Kingsford Smith, Australian Labor Party, Shadow Parliamentary Secretary for Foreign Affairs) Share this | Link to this | Hansard source

In 2012, along with the member for Oxley, I travelled to Wollongong as a member of the Joint Committee on Corporations and Financial Services. At that public hearing in Wollongong we listened to the stories of hundreds of mum and dad investors who had lost their life savings in the collapse of Trio Capital. They were harrowing stories of people pleading with the government to do something about what had occurred in their circumstance. There were certain characteristics of those individuals and their plight with respect to Trio. The characteristics are as follows. Most of these people were nearing retirement. They had worked all of their lives, predominantly in the mines or steelworks around Wollongong. They had been targeted by shonky people who were out to steal money.

They had been advised by their local financial planner or their accountant to invest their superannuation savings in Trio Capital. They had been advised to do it. Many of them had also been advised to establish a self- managed super fund as the vehicle to make the investment in Trio Capital. Most of these people were telling us at the inquiry that they signed forms establishing self-managed super funds, but they did not even know that they had their own self-managed super fund. They did not know that the forms they were signing were actually establishing a self-managed super fund, that they had got out of their industry fund, out of the protection of the Superannuation Industry (Supervision) Act—they swam outside the flags, if you like—and had lost the protection of that act when the collapse occurred.

Some of these people had to remortgage their houses. They were in their 60s, they had worked all their lives and they had remortgaged their house to invest more into Trio Capital. So not only did they lose their life savings but they lost their kids inheritance as well. These people were pleading, begging the committee to do something to ensure that this situation could not happen again.

What would a good government do in that circumstance? Would you just ignore the concerns of those people and what had happened to them at the whim of shonky financial advice? This was not an isolated incident. Unfortunately, it had occurred in the past in respect of Storm Financial, Opus Prime and Westpoint. These were not isolated incidents. Hundreds of Australians, thousands of Australians, had lost their life savings because the financial laws in this country were inadequate. So the previous Labor government did something about it.

We did not sit on our backsides, we did not ignore the pleas of these people; we did something about it. We instituted the Future of Financial Advice reforms. They are not groundbreaking reforms; they are simply reforms that avoid the situation that many of those people got themselves into where they did not know that they had established a self-managed superannuation fund.

How can it possibly be under Australian law that you could establish a self-managed superannuation fund and not know about it? That is what occurred in the case of Trio Capital because the law did not protect them. The law did not say that their financial adviser had an obligation to act in their best interests. The law did not say that their financial adviser had an obligation to tell those people where the commissions that they were receiving on providing that advice were going. That is what Labor did with the Future of Financial Advice reforms. That is what a good government does: it protects the vulnerable in our community from the advice of shonks, the advice of people who are out to steal their money. That is what we did with the Future of Financial Advice.

What would a bad government do? A bad government would repeal those reforms. A bad government would repeal those protections that were put in place to protect the vulnerable, and that is exactly what has occurred with the Future of Financial Advice reforms in the repeal of some of those important annual disclosure provisions which simply require a financial adviser to disclose the fees and commissions that they are receiving on behalf of product sellers and their obligation to act in the best interests of the client. This is not groundbreaking stuff; these are basic protections for people.

What is the view of Choice? What is the view of the organisation that is established in Australia to protect consumers? This is their view. They say:

The proposed Bill—

that is, the bill to repeal the FoFA—

would substantially weaken consumer protections and undermine the original goals of the FoFA reforms: to improve the quality of financial advice and build trust in the financial planning industry.

This was in the wake of a series of high-profile scandals that saw consumers lose hundreds of millions of dollars. That is the view of the independent protector of consumers in this country. (Time expired)

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

It gives me pleasure, I suppose, to speak in relation to the coalition's FoFA reforms, although it has not been a pleasurable experience listening to members opposite conflate issues and deliberately scare consumers. I have got no doubt that the intentions behind the original FoFA reforms were honourable. They were seeking to deal with situations that had arisen where consumers of financial advice had been poorly treated, whether it be Storm Financial, Westpoint and others, and other speakers have mentioned those in detail. But I think it is dangerous for members opposite, by conflating those issues, to create a false sense of security that FoFA means that no rogue financial advisers in future could do the same thing to consumers again. That is effectively what you were saying, and lots of people have argued—and I think argued very well—that the FoFA reforms that Labor introduced are not foolproof and in the circumstances where you do have financial advisers acting unlawfully, consumers will be at risk.

But the problem with Labor's FoFA rules is that they have imposed unnecessary red tape, regulation and additional burdens particularly on small financial advisers who cannot meet those requirements. In that sense, the Labor Party, unsurprisingly, was hijacked by the union-dominated industry super funds. We went from a situation where intentions started off pretty well but with poor advice and obviously the vested interests of the unions which control the Labor Party, the FoFA reforms were hijacked and now we see ourselves in a situation where members opposite are, in effect, trying to conflate issues and argue that this is a situation of the big four banks fighting against industry super funds. No, it is not.

Our changes to the FoFA rules seek to enshrine the most basic and important protections for consumers of financial advice without creating circumstances that disenfranchise particularly low-income people or people with low asset bases from being able to access good-quality financial advice. In my electorate of Deakin I have got a number of small financial advisers. I do not have big institutions situated in my electorate. In each of the conversations I have had with the financial advisers in my electorate, there has been concern with Labor's FoFA rules and actually very enthusiastic applause for the coalition's changes to the FoFA.

There are two main reasons. The first is that when you run a small financial advising business, often you are advising people with low asset bases, so when you increase the fixed costs that that financial adviser has to meet in relation to each additional client for people with the small asset bases that is a big proportion of the cost that then has to be passed on to that particular customer. Here we have situations where financial advisers have said to me that they will be forced to reorientate their practice to take on more customers with larger asset bases, disenfranchising those people who have had low incomes and may not have the large asset bases that they are seeking financial advice about. Perversely, while members opposite are protesting that these reforms are there to protect these people, they are actually disenfranchising them, because the people that need the best financial advice are those with the lower asset bases. They are the people who need the best advice and, if there are customers out there that cannot any longer afford to obtain good-quality financial advice because the regulatory burdens placed on their financial adviser are so high that they have had to be passed on to them and they can no longer seek that advice, then they are the people that are hurt the most.

Unfortunately, the Labor Party has picked the wrong fight here. We are trying to maintain absolute protections to consumers while at the same time ensuring that financial advisers are able to continue doing the good work that they are doing and that particularly customers who do not have large asset bases are not disenfranchised from getting that financial advice in the first place, because those are the customers who need it the most. So I would suggest that the members opposite should get on board and support the coalition's FoFA changes.

Sharon Claydon (Newcastle, Australian Labor Party) Share this | Link to this | Hansard source

I rise to join with my Labor colleagues, the member for Oxley, the member for Blair, the member for McEwen and the member for Kingsford Smith, on today's matter of public importance, namely, the government's failure to protect Australians seeking financial advice for their hard earned savings.

Across the globe and here in Australia, we have seen the massive damage that can be caused when financial service providers take advantage of their clients

I have listened carefully to arguments put by members opposite. No matter how they might like to dress this little package up, there is no mistake that the government's proposals are, indeed, those that were lobbied for by the big banks and the financial planners. The big banks and AMP together control some 70 per cent of the financial planning market in Australia. The government has lost sight of the very reason for Labor's future of financial advice, FoFA, reforms, which were introduced following a big series of financial collapses that occurred here and abroad and the subsequent parliamentary inquiry into financial advice products and services.

I think it is really worth reminding ourselves why those Labor reforms were introduced in the first place, because who could forget the devastation that emerged when Storm Financial collapsed? The lives of thousands of mostly elderly Australians were ruined. The reckless advice given by Storm cost more than 3,000 investors around $3 billion. I recall members opposite arguing: 'We're introducing these reforms, because it's just a small number of people that have been doing the wrong thing. That's why we can strip away consumer protections now, throw them to one side and give the financial planning market increased opportunities to do as it sees fit.' This would again expose a situation where you could have 3,000 investors like the mostly elderly Australians who were set to, and did, lose $3 billion.

As reported in the Monthly, Barry and Deanna Doyle from Townsville are one case in point. I note the member for Herbert sitting in the chamber. I am sure he will be very interested in this case. The Doyles double-geared into the stock market by borrowing against their home and using the cash to raise yet more money to invest. Barry worked as a part-time librarian, earning $17½ thousand per year. Deanna was retired and received about $7,000 per year from Centrelink. Yet, thanks to Storm, they ended up owning a share portfolio costing $2.26 million, with debts to match on which their annual interest payments eventually rose to $191,800. Two-and-a half years after first engaging Storm, the Doyle's super had gone, the share portfolio had been sold and they had racked up a debt of $456,000 on their home, with insufficient income to make the repayments. They had been wiped out, with Storm charging them more than $150,000 for the privilege.

The Labor reforms, which many of my colleagues have gone into in detail, were put in place to ensure the best possible protection for people like the Doyles and the many other mum-and-dad investors around Australia. Regrettably, under the process that the government has chosen to undertake, we are not even seeing these proposals from the government as legislation that can be debated in the House; they are sneaking it through the back door as regulations not legislation, and this means that we do not even get to have this discussion in parliament in the way that we should be.

In closing, I would like to echo the words of Alan Kirkland, the Chief Executive Officer of Choice, who said:

Conflicted and poor financial advice has cost consumers billions and in too many cases led to people losing their homes and life savings. This is why consumer protections were originally needed and exactly why they should not be removed.

Kevin Hogan (Page, National Party) Share this | Link to this | Hansard source

I think with most things that happen in this House there is good intention on both sides for a position that you may hold, and I certainly understand the opposition's concerns with this legislation when you look at it from a certain perspective. They are raising issues and concerns about Storm Financial and other examples. They happened, and no-one likes that. In almost every industry in whatever field you want to look at there is a shark or two, and that is never good, especially when we are talking about people's finances. It is very easy to pick out an example and say: this has cost this person this much money and we have to regulate to fix it.

I will say a couple of things. One is that the regulations that we are talking about today did not protect those investors anyway, and would not have. It is very difficult to regulate against criminals. They will do what they do and they will flout the regulations. The other side of this, which has been completely ignored by the other side, is the regulation and the red tape that they want to keep is a cost and a burden that is not worn by the financial adviser; it is worn by the investor. They can come up with examples which are very true where investors have been ripped off by a shark, which is not good. But the regulation would not have protected them anyway. But the bigger picture is—and the opposition have acknowledged this—that the vast majority of financial planners in this country are good people. They have the best interests of their clients at heart and they have the best interests to get good returns for their clients.

We acknowledge that a shark is a shark, and it is very hard to regulate to protect you from them. People, at the end of the day, have to take some personal responsibility as well in those situations and be clear about what they are doing. But what we are proposing is going to increase the return for mum-and-dad investors. It was very well raised by a previous member that a lot of balances for a lot of investors are quite small, and when you put on extra red-tape burdens and extra costs they are the ones that are hurt. It might not be as emotional as the $150,000 lost to Storm Financial, which is a very small section of the market and very unusual, but what we are talking about is hundreds of millions of dollars over time of money being taken out. That is what is happening. It is being taken out of people savings accounts because of overregulation.

We do not even need to be talking about financial services; it could be any aspect of our community, not just your money but agriculture, occupational health and safety or anything. It is almost like the other side thinks, 'If there is a thought on something, regulate it. If there's a perceived problem on something, let's regulate it. If there's a shark there, let's try and regulate the whole industry because of that one shark, which is going to add extra red tape and cost to it.'

This legislation is all about achieving the balance. Everything is about a balance. It is a balance that says, 'Yes, we have to provide adequate consumer protection.' No-one here is saying that the consumer does not need protection; they do. So it is adequate protection, again, without burdens. This country—and I know that you, Mr Deputy Speaker, know this—is in some ways the most expensive country to do business in lots of things. This is just another example of a section of the economy where we are making it exceptionally expensive for us to do business, and penalising our mum and dad investors and their superannuation. The protections that we are going to maintain here, and the regulations, ensure a commitment from the providers, from the financial planners, to lift their professional, ethical and educational standards. Again, the balance is in the red tape, not penalising.

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

Order! The time allocated for this discussion has concluded.