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

I rise in continuation on this important legislation, the Corporations Amendment (Streamlining of Future of Financial Advice) Bill 2014, which is before us today. As I was discussing earlier, there is a big difference between the approach of the previous government and the approach of this one. This government wants an orderly system of regulation in the financial advice space, but we do not want to regulate in such a way as to smash the industry and make the provision of financial advice so difficult and so onerous that fewer people do it. If fewer people are able to provide financial advice because of the regulatory burden, the price of that advice will go up. We have already seem the situation where financial advice is getting more and more expensive, and it is critical that we ensure that ordinary families can afford to get access to that advice.

That is why we do not support the previous government's 'boil the ocean' catch-all provision in relation to the best interests test. We have six very detailed steps that advisers are required to take under the Corporations Act. They need to conduct reasonable investigations; they need to ensure that they have the right expertise; they need to ensure that they get the right information from clients; they need to identify their client's objectives; they need to base all judgements on the client's circumstances; and they need to always act in the best interests of the client. But, after you have done all of that and followed that very onerous checklist, it is not appropriate to go on some sort of broad fishing expenditure to think about anything else at all that might be relevant in addition to the extensive list which you have just covered. That does not make sense and it will only lead to fewer people getting advice. Every time you make it harder to provide a service and every time you increase the cost of complying with regulation, costs go up—and who pays? Average families pay. That is not what we want.

The previous government was seeking to require people every two years to proactively opt back into their arrangement with their financial adviser. You can imagine that that is a very onerous requirement. We all have lots of relationships with service providers and business providers, and we are not required to go through a paperwork exercise every two years to reaffirm that relationship. If we had to do so, that would obviously lead to a lot of difficulty for those industries, a lot of unnecessary toing and froing and a lot of letters that sit in the mailbox unanswered. That is not good for the smooth operation of this sector. So we do not support that. Clients can of course opt out at any time. If you are not happy with the advice that your adviser is providing, get rid of them. Get rid of them anytime. But to require in this very centrally planned fashion for you to sign up every two years is not the way that markets work best and we do not support it.

It is also important that people can get general advice, often in the context of a bank or other financial services organisation, where the bank is not holding out that it will represent every single product in the market. If you walk into bank X there is a good chance that that bank is going to seek to offer you its products. People understand that. We have ensured that there is no conflicted remuneration. So people who do work in that situation cannot get commissions for the products that they make sell but, nonetheless, they can as employees be incentivised and receive bonuses—just as people can in pretty much any industry.

So the key message here whether it is scaled advice, the best interests test or the opt-in rule is very consistent. This is an important sector and it is important that it is well regulated and it is very important that it is not badly regulated and that we do not in the process of regulating it make it very difficult for the industry to succeed.

Stephen Jones (Throsby, Australian Labor Party, Shadow Parliamentary Secretary for Regional Development and Infrastructure) Share this | Link to this | Hansard source

I am happy to make a few observations in the debate on the Corporations Amendment (Streamlining of Future of Financial Advice) Bill 2014, because it is topical but it is also a matter that has had, in the absence of decent regulation and protections—what I prefer to call guardrails and not red tape—a devastating impact on hundreds and hundreds of investors within my electorate of Throsby.

It is worth recounting some of the background to this legislation. You would be aware that through the global financial crisis we saw a range of large investment vehicles, which may have not been sound at the get-go, come under enormous pressure and ultimately fail. What we saw as a result of that was a whole heap of—ordinarily what we like to call, sometimes pejoratively—mum and dad investors left high and dry and exposed to the collapse of some of those investment vehicles. What we also saw exposed were people who had become the victims of less-than-optimum financial advice. Regrettably, I saw a lot of that in relation to the collapse of Trio Capital, an investment vehicle to which a number of constituents in my electorate were exposed.

In government, we took the opportunity, after extensive inquiry in consultation, to introduce the Future of Financial Advice laws known now through the shorthand of FoFA laws. In short, we sought to ban the kickbacks that were being received by many financial advisers for attracting, advising, luring investors into certain investment products. In addition to that, we also put in place a requirement that financial advisers act in the best interests of their clients and not in their own pecuniary best interest. The laws also included stricter requirements to provide information on so-called trailing commissions. These are different from the kickbacks. These are commissions that are paid over the life of, perhaps, an insurance bond or some other form of investment which provide the agents or the salesperson with a regular commission over many years. Some research has been done on this. We found that some investors were paying tens if not hundreds of thousands of dollars in commissions. Had they been completely transparent or had they known about them, they probably would have opted for alternate investments and would have structured their finances in a completely different way. In a nutshell, we sought to rebalance the pendulum in this area. We thought it was absolutely essential that we put in place some consumer protections—what we see as a guardrail not as red tape.

It is increasingly important that we get this right. The self-managed funds sector is the largest sector of the Australian superannuation industry and one of the fastest-growing parts of the superannuation industry. The enormous pile of self-managed super money is currently being used in the retirement phase resting at about $296 billion. It has tipped to almost double by 2023 to over $560 billion. It is lightly regulated and has different arrangements in place on the assumption that, if people opt for self-managed superannuation funds, then they are active and engaged investors. That assumption is not always sound. I know that from my own experience of talking to constituents in their dozens who thought their superannuation was no different from the superannuation that they were contributing to when they were a part of an employment based scheme.

We saw this as a problem that needed to be addressed. We saw this as an issue which, if not dealt with, would create more victims of financial collapse, financial fraud and mismanagement down the track. If we did not get it right, at some point down the track people were going to point the finger at government and say, 'Why did you not get the regulatory framework set straight when you had the opportunity?'

I have mentioned the investment vehicle known as Trio Capital which, in my research, was probably the largest superannuation fraud in Australian history—about $176 million of superannuation funds were lost and they are unlikely to ever be recovered. Hundreds of victims of this financial fraud were from my electorate of Throsby. If you look at the pattern of the victims of the collapse of Trio Capital, you see there was one common characteristic—that is, they were all clients of a handful of financial advisers who recommended clients take their money out of whatever investment vehicles it was already in and invest in what appeared to be wildly attractive returns available through Trio Capital investments. Of course we now know that those returns were never sustainable, that they were a part of an elaborate fraud to attract investors and financial advisers to coerce them into investing in that vehicle.

In my own electorate the largest number of clients who have had their money invested in Trio Capital were encouraged to do so at the advice of one particular financial advising company, Tarrants. It is regrettable that the decisions of those advisers encouraged hundreds of investors to put their money in unwise investments. We can only speculate the reasons for which they were encouraged to do that, but it is quite clear that the advisers in this case were not acting in the best interest of the clients.

Indeed, the Administrative Appeals Tribunal upheld the decision of ASIC to ensure that Mr Tarrant had his licence to act as a financial adviser revoked for seven years. The AAT found that Mr Tarrant failed to have a reasonable basis for the advice he provided to at least eight of his clients and probably many more. This particular adviser continues to protest his innocence—as is his right—but the finding of the AAT still stands. Trio stands as an example of why we need to get this legislation right.

The victims of Trio organised themselves in the lead-up to the last federal election, as is entirely their right. They sought assurances from the then shadow finance minister, Senator Mathias Cormann, as to what the then alternative government of the country would do if they were successful at the next federal election. Undertakings and understandings were given via Senator Cormann to the victims of Trio. He said, 'There would be some justification for a level of compensation for the victims of Trio.'

It has been almost one year since the election of the Abbott government. These victims are still out of pocket. These victims were encouraged to vote for the coalition government because the coalition government was going to do something about the losses they had suffered through the Trio fraud. They were encouraged vigorously throughout the course of the 2013 election—particularly in my electorate—to vote for the Liberal candidate and to vote for other candidates who were directing preferences to the Liberal candidate, because the Liberal Party was going to honour its promise in providing some level of compensation for those victims.

I hate to think that those people were somehow misled in the course of the 2013 election. We have heard very little about their claims since that election, so I now use the opportunity in this debate to ask the finance minister and the government what they are doing about the commitments they made to the victims of the Trio collapse in the 2013 election. It is about time they made good on those promises; otherwise, the people of Australia and the victims of Trio will be entitled to conclude that it was nothing more than a ruse to attract votes, during the course of the 2013 election, and that there was absolutely no intention of providing some form of compensation to the victims of this fraud.

I would like to make a few observations that go to the recent Senate inquiry into the Commonwealth Bank investment scandal and some of the observations that have been made by the Senate committee. In my view, many of them should have been picked up before relevant legislation came before the House. This is the first opportunity the government has had to respond to the recommendations of that Senate inquiry, which made a number of pertinent findings about professionalism and the need for enhanced professional standards within the financial-advice industry.

A certain National Party senator has been quite outspoken on this and some of his observations warrant close examination. This legislation would have been an opportunity for the government to do something about the recommendations. Regrettably, they have not done that. Regrettably, they have removed the essential catch-all provisions in the best-interest test, which adds a loophole for advisers. It means Labor's best-interest clause could become less effective than it was.

There is the removal of the opt-in provision. This provision requires financial advisers to seek the permission of their clients to continue to charge them an annual fee. It would be very attractive if you were running a business to have a set-and-forget revenue stream. If I were running a business, I would find that incredibly attractive—a set-income stream that would enable me to focus on other areas of the business, because I know it is coming, in year after year, on the basis of my customer base. It is not necessarily in the best interests of the client, however.

It would be, we say, in the best interests of the client for there to be full transparency. The existing legislative provisions, which require the clients to be advised—for the financial adviser to seek re-approval for ongoing charging of fees—are nothing less than reasonable. We think the annual disclosure arrangements for clients is a backward step. The lifting of the ban on some conflicted remuneration—that will only apply to personal advice and general advice—creates another avenue for unscrupulous advisers, the extreme minority, to do what they otherwise would not.

Natasha Griggs (Solomon, Country Liberal Party) Share this | Link to this | Hansard source

I rise to give my support to the Corporations Amendment (Streamlining of Future of Financial Advice) Bill 2014. Once again, the government has moved to cut red tape and improve consumer confidence, Australia-wide. These commonsense amendments to FoFA regulations will deliver more affordable access to quality financial advice by removing unnecessary and costly red tape, while still maintaining all of the important consumer protections that matter for consumers.

After Labor's changes to financial advice laws it became apparent that the protections for consumers were too far-reaching and, instead, inhibited financial advisers' ability to provide sound and cost-effective financial advice. The previous Labor government imposed unnecessary and costly red tape on the industry—which goes against the ethos of the coalition government and our plan for a prosperous economy and a return to higher consumer confidence levels.

Without higher consumer confidence levels, we will have low business confidence and low investor confidence. Consumer confidence can be a vicious cycle. The effect these changes will have on the confidence of financial advisers will see a flow-on effect right through to rising consumer confidence. The previous government's changes to the best-interest duty unnecessarily pushed up the costs of quality financial advice for investors and reduced competition, meaning less choice for consumers and, ultimately, less confidence. The changes, like forcing consumers to re-sign contracts every two years, are costly, unnecessary and, actually, do not provide any higher level of protection for the consumer.

The changes in this bill mean a client will still have the option to get out of their financial advice contract at any time they wish. If the coalition left these requirements in the legislation we would be allowing high quality financial advice to remain out of reach of the average Australian. And this is not good. Quite frankly, it is not good enough. The coalition wants every Australian to be able to access financial advice if they require it. Currently, financial advice is unattainable for most Australians, because the Labor government pushed up the price of quality advice.

The coalition is focused on lifting professional, ethical and educational standards, rather than overregulating an industry, to keep them honest. Financial advisers do a very important job in our society, and encouraging advisers to continue to educate themselves and value their ethical standards is far more effective than Labor's attempt to regulate, regulate and regulate.

Our changes provide the right balance for consumers and advisers, and have been backed up by the Senate Economics Reference Committee. Overall, the committee found that this bill achieves a proper balance between providing adequate consumer protection and sound professional and affordable financial advice. The coalition promised at the last election that we would restore the balance between important and appropriate levels of consumer protections, and make sure that access to higher-quality advice remained available and affordable for all Australians. We are now delivering on those commitments.

The coalition's commonsense changes to the FoFA legislation can be summarised like this: we are removing the requirement for an investor to keep re-signing contracts with their adviser every two years; we are simplifying and streamlining the additional fees disclosure requirements; we are improving the operation of the best-interest duty; and we are providing certainty around the provision and availability of scaled advice.

FoFA currently requires all new clients to renew their ongoing contract with their advisers every two years. This is known as the opt-in requirement. For advisers, having to obtain the client's agreement at least every two years adds an unnecessary and costly layer of red tape that the consumer has to pay for. That is something that the Labor Party is choosing to ignore, or they think that it is okay to push up the cost of financial advice to Australians.

The opt-in requirement actually offers very little consumer protection beyond what is already provided by the advisers. New clients will still continue to receive the fee disclosure statements which contain the same information that they need in order to decide whether they would like to continue receiving their adviser's services or not. I make this clear: clients can still opt out of a contract with a financial adviser at any time. I will say it again: clients can opt out of financial advice at any time they choose. Despite Labor's scaremongering, consumers are still able, at any time, to end their contract if they are unhappy with the service being provided to them or if they simply just want to change advisers.

All financial advisers' clients currently receive, and will continue to receive, a number of disclosure statements that show the fees paid to their advisers. However, making a hard-and-fast rule about providing fee disclosure statements to all clients will place an incredible cost on providing services for pre-FoFA clients. From feedback provided by stakeholders it has become apparent that it would cost almost twice as much to prepare a fee disclosure statement for a pre-FoFA client than for a post-FoFA client. Also, for pre-FoFA clients, little additional information will be provided on a fee disclosure statement due to the nature of payments of fees to their financial adviser. It is anticipated that, as time goes on, an increasing proportion of clients will be receiving a fee disclosure statement.

The coalition are also making changes to the best interests duty. These amendments will remove the catch-all provision in the best interests duty. Financial advisers are still absolutely required to act in the best interests of their clients. The unnecessary and costly red tape provisions, however, will be removed.

The best interests duty and related obligations will still require financial planners or advisers to act in the best interests of their clients, provide appropriate advice, warn the client if advice is based on incomplete or inaccurate information and prioritise the client's interests ahead of their own. Without the catch-all provisions, the best interests duty will continue to be sufficiently robust to ensure that advisers are still taking the necessary steps to properly consider the client's circumstances, conduct reasonable investigations into products that would meet the client's objectives and needs, and also exercise judgement in formulating the advice for the client.

The Abbott government has been open to suggestions from industry and consumers as to how further specific requirements could be included to improve the operation of the best interests duty. However, even the harshest critics of the change have not been able to provide any advice as to how to strengthen the provision—not even the Labor Party. This further cements the coalition's decision to proceed with the best interest duty as outlined in the lead-up to last year's election.

The coalition are also removing the catch-all provision from the best interests duty and facilitating scaled advice. Scaled advice can generally be interpreted as a form of targeted personal advice. For example, scaled advice may be provided when a client approaches a financial adviser for information on superannuation for themselves. Limiting the scope of financial advice to scaled advice can mean lowering costs to make this service affordable to a lot more Australians. This is because the adviser needs to consider fewer of the client's circumstances. Holistic personal advice can often be expensive, whereas scaled advice is an affordable avenue for many consumers seeking personal advice.

This common sense amendment to FoFA allows clients and their advisers to make a joint decision on the scope of the advice being provided whilst still ensuring the advice is appropriate for the client, as the advice will still be subject to the best interests duty.

To describe this, my colleague the member for Bowman earlier used an excellent analogy to describe our common sense approach to scaled back financial advice. He said, 'If you ask a builder to repair a faulty door in your house, should the builder have to do a structural check on the entire building or just the part he is going to repair?' Most would answer, 'Just the area the builder has been contracted to repair.' To conduct an assessment on the entire building would be an unnecessary cost and frustrating, expensive and—obviously—a bit of red tape. This does make sense to me. And these amendments are asking the same of advisers who are providing professional advice on one area of a person's financial story—for example, life insurance.

If I go to see a financial adviser to seek advice on what life insurance I should purchase and he or she needs to charge me for hours of work in order to understand my entire financial history, possibly I would think that to be overpriced. I think that would probably deter a lot of Australians from seeking advice on one area where their financial literacy might be lacking. These changes will allow financial advisers to provide low-cost advice services and enable more consumers to access advice.

Unlike the Labor Party, I think it is a good thing that financial services will become accessible to more people who might not necessarily be wealthy and have an investment portfolio. They might just want advice on life insurance and now they will be able to afford that.

I commend Minister Cormann for these changes to regulating scaled back advice and allowing Australians to be able to access high-quality financial advice in order to set up a financially secure future. Unfortunately, the Labor Party has spread a lot of misinformation about the government's improvements to FoFA and are being encouraged by the union-dominated industry funds, who have also been coordinating a campaign of misinformation.

Mr Deputy Speaker, can I say to the Labor Party—and there are some colleagues over there at the table: you are being most unhelpful. You are misleading the Australian public on the topic of financial investment and financial security. You are being irresponsible and your behaviour does nothing but confuse Australians when it comes to seeking financial advice.

The government's FoFA amendments do not water down consumer protections. They improve the quality of advice whilst building trust and confidence in the financial advice industry. Furthermore, these common sense changes will reduce costs across the financial advice industry by $190 million dollars a year—a $190-million-a-year reduction in costs that will filter down to the consumers. How the Labor Party continues to oppose these common sense changes is beyond me. Maybe it is because they do not have much common sense themselves.

We announced our policy to improve Labor's FoFA more than two years ago and we are doing what we said we would do. This bill is a start in unravelling the six years' worth of mismanagement and excessive government regulation that is the Labor Party's legacy. Again, I commend the minister and his team in their superb efforts in improving the FoFA legislation and in making financial advice more accessible to all Australians.

Gai Brodtmann (Canberra, Australian Labor Party, Shadow Parliamentary Secretary for Defence) Share this | Link to this | Hansard source

It was most interesting to listen to my colleague the member for Solomon, for whom I have the greatest respect but with whom I disagree entirely in terms of this bill.

She mentioned that our proposals were designed just to regulate, regulate, regulate. In my view, it was designed to protect, protect, protect. And, indeed, protect we needed to do, particularly given the financial tragedies that besmirched so many Australian families as a result of Storm and many other financial disasters over the last decade. I will be talking about one those, which touched the life of my family further on in my speech. As I said, I have the greatest respect for the member for Solomon, but I disagree entirely with everything that she mentioned, particularly about this bill. Our proposals were designed to protect, protect, protect the consumer.

This bill, the Corporations Amendment (Streamlining of Future of Financial Advice) Bill 2014 seeks to significantly weaken the future of financial advice reforms put in place by Labor. In doing so, this bill rips away important and sorely needed consumer protections. Our FOFA reforms are something we are incredibly proud of. These reforms were welcomed by both consumers and industry alike, they were the result of years and years of consultation and they were a significant step forward in the financial services sector. The CPA Australia and the Institute of Chartered Accountants Australia encapsulated the positive reception that the reforms received in their submissions to the Senate inquiry, where they said:

The passage of the FoFA reforms was the result of extensive, wide spread consultation over many years. Its introduction marked a milestone opportunity for the sector to take a greater responsibility and refocus its efforts on providing and promoting quality financial advice in the best interests of the client, free from conflict and in a transparent manner.

'Quality financial advice in the best interests of the client, free from conflict and in a transparent manner'.

In the wake of the collapses of Storm Financial and others, and the subsequent parliamentary inquiry into financial advice, products and services, Labor's FOFA reforms sought to strike a balance by introducing further consumer protections while simultaneously requiring financial advisers to meet higher standards of care and skill. I would not think that was too much to ask. The original twin objectives of FOFA were to rebuild trust and confidence in the industry and to expand the affordability and accessibility of financial advice.

The reforms that Labor introduced were the most significant reforms in financial services for a generation, for 20 years, and included several measures designed to protect investors and help the industry professionalise. They included: the best interest duty, requiring advisers to act in their clients' best interest—not something one would expect would be too difficult for a professional; opt in, requiring advisers to get their clients to opt into receiving ongoing service every two years; annual disclosure, where statements are to be sent to clients annually disclosing fees and details of services performed; conflicted remuneration ban, this was implemented where commissions are paid by financial product providers to financial advisers.

The whole basis for introducing the FOFA reforms was to restore faith in a sector rocked by high profile collapses. It saw enormous tragedy right across the nation for families; it was intergenerational. It was also designed to eliminate a poor culture of product sales over advice and now, with $1.8 trillion of savings, to ensure that Australians are getting advice and service that is in their best interests. During the reform process over many years there was extensive and intensive industry and public consultation that clearly identified a path to achieve growth, protect consumers and to restore trust. That was done through three channels: by changing the culture of the past 20 years, by lifting standards and professionalising, and acting in clients' best interests. When you say this out loud, you would think these were just normal business practices—modern day, professional business practices. The fact that there are so many objections to changing the culture of the past 20 years, lifting standards and professionalising and acting in their client's best interests—why anybody would object to that is beyond me.

Why were these reforms necessary? They were primarily necessary to protect consumers. As I mentioned before, I am going to cite the example of my mother-in-law, my sister-in-law's mother. She was a single mum. She brought up her kids on her own and worked very hard and managed to own her own home on her retirement. When she retired she had some savings; her house was paid off and she was looking forward to going on to the next journey of her life of post-retirement. She went to see a financial adviser. That financial adviser gave her a great deal of advice, none of it good. That financial adviser's advice has resulted in her having to sell her house, losing an enormous amount of money—hundreds of thousands of dollars. She had to go back to work, she is now living in rental accommodation and essentially her future looks very bleak. We are talking here about a woman in her late 60s or early 70s.

That is just one story, but everyone in this chamber would have experiences—either their own personal experiences or the experiences of their constituents—of those who have been the victims of shonky financial advisers. People have been ripped off, have had their life savings ripped off, their houses gone from them—houses they have spent all of their lives paying off, ripped away from them—as they have had to sell them. Their future—their financial future, their retirement future—has been completely obliterated. They are now facing rental accommodation and they are now facing having to return to work—if they can get work at the ripe old age of between 65 and 75. They have got nothing—no nest egg at all, despite a lifetime of hard work—as a result of shonky financial advisers. That is my own story, my family's story, but, as I said, everyone in this chamber would have experiences, through their constituents or personally, of people who have been ripped off by these shonky advisers.

I am not saying that that is the majority of the industry. I know it is not. When I had my own small business, I sought the advice of a number of financial advisers. It was at all times professional, it was at all times valuable, and it was at all times worth the investment. But there are shonky financial advisers out there, and these protections, the protections that Labor proposed, were designed to protect Australians consumers against those less than reputable—evil in my mind—operators.

I want to highlight another story that was brought to my attention through Choice. It is Lyndi's story. I will not read out the full story, but this is her view:

I am shocked that the government is trying to wind back what little protection we have when seeking financial advice.

For me, getting financial advice wasn't about becoming wealthy. It was about having enough to retire on. And it's all gone horribly wrong.

I am a 57-year-old mum with two teen boys. Instead of preparing for retirement, I'm using more than half my wage to pay a debt from a risky financial product an adviser convinced me and my husband was a good investment.

In 2006 a financial adviser offered me and my husband a financial check. She had us complete questionnaires about our monetary goals. I was coerced into changing some answers so she could rate us as aggressive investors. She then presented a scheme where we would be $700,000 in front by 2014. She made it sound foolproof so we borrowed to invest in a share portfolio, a "capital protected" loan for more shares, and a tree plantation (which we have since been advised was very high risk but with excellent commissions for advisers).

My husband and I are both university-educated people but we never really understood what we were doing. Our adviser was obviously very smart and very convincing. We know now we shouldn't have gone ahead with the loan, but we thought our advisor was working in our interests and knew what she was doing.

When the GFC hit, our investments collapsed. We ended up with a debt of $276,000. We're lucky we didn't take our adviser's other suggestion and get a risky margin loan; if we did we would have lost the house as well.

That is just one example. These are people who admit they are university educated—obviously highly educated, confident people—and yet they were the victims of bad advice. I believe that even the most highly educated consumers in this community need protections, which is what Labor's proposals were designed to do: protect, protect, protect.

The government wants to water down those protections. The government has announced changes to the FoFA reforms, including: removing the essential catch-all provision in 'best interest', which adds a loophole for advisers that means 'best interest' will become ineffective; scrapping opt-in, which allows advisers to continue to charge fees, sometimes without having actively worked on a client's while, indefinitely without receiving consent from their client; amending annual disclosure provisions so that advisers now only have to provide annual disclosure to clients who commenced with them after 1 July 2013, which was the start date of FoFA, rather than to all of their clients; and lifting the ban on conflicted remuneration. This ban will only apply to commissions on general advice. Other forms of conflicted remuneration will be allowed, including as part of a balanced scorecard approach for both general and personal advice. This will open the door for a sales push culture of products over advice.

The member for Solomon, my well respected colleague, said that what is being proposed by the government will restore the balance between regulation and protection. I will give you some views from a number of organisations and individuals who beg to differ. Choice, Council on the Ageing, and National Seniors have all been critical of the Abbott government's changes, particularly focussing their criticism on the removal of best interest, opt-in, annual disclosure statements and the return of conflicted remuneration. We heard this today from a number of speakers, but I will reiterate it again: even Alan Jones—who is no fan of Labor, as we know—is critical of the government's changes. He praised Labor's laws on his show on 25 March this year, saying:

I am not happy with what is being proposed here by the Abbott Government, there are some times when we are dealing with people's money that certain protections are needed ... I'm no fan of the Labor party—

we know that—

but I think on this issue their legislation is correct.

The Financial Planning Association of Australia wrote:

… the FPA strongly opposes any possible reintroduction of commissions for financial product advice on superannuation or investment products. There are several risks which are associated with commissions for general advice.

I think this is a point that we need to factor in: one of the aims of Labor's reforms was to re-establish trust and confidence in the industry. Here we have the Financial Planning Association saying:

Thirdly, commission payments have also eroded public confidence in our financial system. Australians will not have the confidence in our financial system as long as providers of products or advice are exposed to perverse incentives such as commissions.

Choice said:

… we are concerned about the watering down of the best-interest obligation, the changes to rules about conflicted remuneration, the removal of … opt in … We see these things as pretty basic consumer protections and, indeed, signs of basic good practice in business that any financial adviser should be happy to sign up to.

The Australian Institute of Superannuation Trustees said:

Mums and dads expect advice from advisers and they expect sales from sales people. Investors have an understanding of the difference between those two terms.

Industry Super Australia said:

Industry Super Australia is concerned that the measures proposed in the bill being considered by this inquiry will significantly dilute key consumer protections in financial advice law and therefore increase the likelihood and impact of future financial advice scandals.

COTA said:

We believe the cumulative effect of these changes is to seriously weaken the reforms, giving less consumer protections and ultimately undermining confidence in the financial advice sector.

And Alan Kohler said:

Under the cover of streamlining the laws and removing red tape to lower cost, the Government is proposing eight changes to the law that will allow banks to once again use licensed financial advisers to sell investment products while pretending to provide independent advice.

These amendments add up to the comprehensive return of disguising sales as independent advice, which the advisers themselves have been trying to get away from.

There are a lot of people who are rightly angry and disappointed at the actions of the Abbott government in watering down these important reforms: mums and dads, retirees, people who have lost money in the past and many, many thousands of ordinary Australians. Financial products are complex. I do want to see an improvement in financial literacy, but we need a system that is transparent and protects the consumer. (Time expired)

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

I am pleased to add to the second reading debate on the Corporations Amendment (Streamlining of Future and Financial Advice) Bill 2014. In the heat of this debate I think it is easy to lose sight of the fact that there is bipartisan support for the central policy goal of the future of financial advice, or FoFA, reforms. I think we can all agree that it is in the national interest for the quality and affordability of financial advice to improve whilst building trust and confidence in the financial services industry. That is important.

The financial services industry is already Australia's largest industry on gross value-added terms, and its size and importance to the economy will continue to grow as our population ages. The importance of Australians having access to affordable, high-quality financial advice will only grow with an ageing population and a growing pool of retirement savings under management. It is also a fact of modern life that Australians generally want their money to work harder and to stretch further because they are getting more out of life, while living longer than at any point in our history. Therefore, it is of critical importance that we have a financial services industry delivering advice that people can trust, and at a price that they can afford.

Where the government and the opposition differ is in our respective views about what that requires of the government. The member for Banks summed it up well earlier in the debate when he remarked that Labor wants to legislate for every possible, conceivable scenario. In contrast, we recognise that a balance needs to be struck because of the complexity inherent in trying to legislate for every scenario. That comes at a cost, and that cost is going to be, ultimately, borne by consumers. We contended, at the time, that while we agree on its central policy aims, Labor's version of FoFA failed to strike the right balance between consumer protection and the costs those regulations imposed on the financial services sector. And we were right.

Labor likes to pitch this issue as though it was only the bigger institutions that were subject to FoFA—part of Labor's inherent hostility to big business that brought us the ill-fated mining tax and the many other policy failures. But it was also small-to-medium-sized firms, including those operating in regional Australia—indeed, in the Riverina, my electorate—that had to comply with FoFA. For them the costs were, to quote one local company in my electorate, 'just huge'.

So we are getting on with the job of doing what we said we would do: correcting Labor's regulatory overreach to strike a better and fairer balance between important consumer protections and the costs associated with regulation. All important consumer protections in FoFA will remain. I need to stress that. Only those that impose unnecessary red tape and cost are being repealed. The best-interest tests will be retained. Advisers will still be required to provide advice that is in the best interests of their clients but, importantly, advisers will be clearer on what that requires of them. Under the current law, advisers have to satisfy seven steps but the seventh of those steps is a catch-all provision that is so open-ended that it is nearly impossible for advisers to work out what it requires of them in practice. This bill removes that uncertainty from the legislation. There remain a number of other duties that advisers will be bound by, which work in concert with the best-interest test, including that the advice be appropriate for the client and that the adviser must place the client's interests above their own. That is absolutely critical.

Another important change to FoFA will help to better facilitate scaled advice, which is important for improving the affordability of advice. The member for Forde is a good member. He knows finance and he understands entirely what this is all about. He made a really useful contribution to the debate on this point—probably from his business background, but also because he is a very, very good member. He said:

A full financial plan is beyond the reach of some people, and for some people it is not necessary or appropriate, so that the ability of access advice that is limited to a particular area is vital if we want more people to be accessing advice.

We should listen to the member for Forde, certainly in that respect and on so many other things as well. Let us bear in mind, too, that scaled advice provided on a particular topic will still have regard to the client's best interests and be appropriate for that client.

What has the government actually done to improve FoFA? As we promised before the last election—and that would be something new to Labor because they never kept their pre-election promises—and as we first announced as our pre-election policy position in March 2012, we have done the following. We have removed the requirement for investors to keep re-signing contracts with their advisers on a regular basis, opt-in. We have simplified and streamlined the additional annual fee disclosure requirements; we have improved the operation of the best-interest duty; and we have provided certainty around the provision and availability of scaled advice. That is, we have removed unnecessary and costly red tape.

I know the member for Kooyong has been adamant that we need to remove a lot of red tape and green tape, which Labor loved in their six years of government—six years of dysfunction in a chaotic and shambolic government. The member for Kooyong is getting on with the job of removing so much red tape. This particular legislation removes uncertainty to ensure that access to high-quality advice that people can trust can be more affordable—and that is so important. This will reduce costs across the financial advice industry by $190 million a year. That is a big figure.

We have also dealt with a number of mistakes and unintended consequences that were the result of sloppy drafting by the previous government. For example, we have fixed Labor's grandfathering arrangements, which had the effect of lessening competition by effectively forcing planners to stay with existing licensees. Haven't we heard that so many times about sloppy drafting of legislation because so much of it was rushed, so much of it was done on the back of a beer coaster, and so much of it was done because of a requirement to fit in with the 24-hour news cycle. It was all about spin. It was all about government by media release. There was very little careful consideration, and certainly there was very little considered consultation with industry. The FoFA laws was just one examples of a situation where stakeholders were not consulted. The industry and the sector were not properly consulted prior to Labor's legislation. We need a robust but efficient regulatory system which is competitively neutral so that people saving for their retirement, or managing financial risks through life, can access affordable, high-quality advice.

Labor is pushing the union interest; there are no surprises there. Labor is pushing the union barrow by continuing to want a disallowance for our FoFA regulations even though the Senate clearly supported them. We are focused on the public interest, consumers and small business financial advisers. Those small business people are part of the sector that Labor ignores. Labor just ignores small businesses, particularly in regional Australia.

The government will work in consultation with all relevant stakeholders to establish an enhanced public register of financial advisers, including employee advisers. I might at this point mention Senator Mathias Cormann, the Minister for Finance and acting Assistant Treasurer, who, in The Australian Financial Review of 24 March this year, wrote a very enlightening piece called 'FoFA changes cut back on costs of advice' in which he writes:

There has been a lot of misinformation circulating about the government's proposed improvements to our financial advice laws and their impact on people seeking advice as they save for their retirement. Some of it has been deliberate and mischievous while some of it reflects a genuine lack of understanding of what is proposed. It has, however, created a level of unnecessary concern and confusion of those who believe everything that has been written, especially those saving for their retirement.

That group of people is very important because they are increasing in number, and they do not need the unnecessary burden of being worried, or fraught with dismay and despair, about how their nest egg is going to be treated. I will continue with Senator Cormann's contribution to The Australian Financial Review:

So let's make a few things clear right up front. Firstly, contrary to what has been said, the Coalition is not appealing the Future of Financial Advice laws. We are improving them in line with our election commitments.

There is something that Labor could learn a lot from—'improving them in line with our election commitments'. Senator Cormann writes:

Secondly, we are not proposing to get rid of the requirement that financial advisers act in the best interest of their clients. We have supported the introduction of such a best interest duty to complement the general common law fiduciary duty from day one and we are absolutely committed to keep it.

There he says it: ' … absolutely committed to keep it'.

What we are doing is to provide certainty on how the FoFA best interest duty operates so financial advisers are very clear what their obligations are. Thirdly, we are not proposing to reintroduce commissions or other conflicted remuneration structures for financial advisers providing personal advice. We are, however, committed to restoring a level playing field across the whole financial services market when it comes to the treatment of general product advice to ensure consumers can continue to receive the benefits that come from robust competition among providers and business models.

That was a good article, well written, by Senator Cormann.

It is important that we listen to people with experience who have the interests of the financial sector at heart, not to Labor members running around conducting scare campaigns. That is what Labor is doing in this regard and in so many other regards when it comes to the legislation we need to introduce to fix up their sloppiness, as well as to make ours a better economy and a better financial sector.

This is good legislation. This is necessary legislation. We are getting on with the job of making streamlined processes that help the financial sector, in the best interests of the people. Many pensioners and aged people are coming to that section of their lives when they need to have their money working properly for them, so that they can have a good future with the money they have tucked away and saved. This bill is one way in which we are delivering on our commitment to reduce the regulatory burden on business.

We understand business on this side of the House. Deputy Speaker Kelly, you have been in business. I have and so many others have—our minister at the table, Minister Andrews, certainly understands business. Those on the other side just do not get it.

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

I was in business, mate, for 25 years!

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

Well, you probably were in business too. But certainly you are beholden to your union mates.

It is unfortunate they are going around scaremongering about this particular piece of legislation. This bill is another way in which we are getting on with the job of fixing up the mess we unfortunately inherited after six years of Labor. But it is not we as a coalition who inherited it; the nation inherited it, and we do not need to continue with that mess. That is why we are getting on with the job of fixing up the awful mess we were left with.

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

This bill, the Corporations Amendment (Streamlining of Future of Financial Advice) Bill 2014, really goes to the heart of the fundamental difference between the Labor Party and this Abbott government. In 2011, Labor acted to introduce the most significant reforms in financial services for a generation. That included several measures designed to protect investors and to help the financial services industry professionalise.

The measures included the introduction of a best interest duty—a requirement for financial advisers to act in their client's best interests. That is something that professional advisers should already have been doing, but they were not. In circumstances where they were not, the results were shocking. So we introduced a duty, in legislation, for a financial adviser to act in their client's best interest rather than to sell the client products which would gain the adviser the most commissions or which were related to products developed by corporations or companies for which that adviser was working. The second element was the opt-in provision, requiring advisers to get their clients to opt in to receiving ongoing advice every two years. The reason behind this was that numerous inquiries uncovered the fact that financial product advisers were selling products to clients who were often unaware of what those products were or of the commissions that were associated with them. If a particular client had a portfolio of shares, equities or investments, they just continued to roll over, and so did the associated commissions and fees, which generally went to the adviser.

So we made it a requirement for the adviser to sit down with their client every two years to explain the fees and commissions that were being paid on the products that the client was accessing and to allow the client to question those fees, ask for alternatives and, importantly, opt in to continue to receive that advice, knowing full well, with full disclosure, the products they were in and the fees and commissions they were paying. We also introduced annual fee disclosure, where a statement was to be provided to clients annually disclosing those fees and the details of the performance of services. We also put a ban on conflicted remuneration or commissions paid by financial product providers to financial advisers.

These reforms did not just come about because someone had an idea to introduce them. The reforms came about as a result of a series of financial collapses in Australia that left many mum and dad investors, Australian citizens, with nothing. Those collapses included Storm Financial, Opes Prime, Trio Capital and others. There were numerous subsequent parliamentary inquiries into these collapses and into financial advice, products and services.

I was a member of the Joint Parliamentary Committee on Corporations and Financial Services, which conducted the inquiry into the collapse of Trio Capital. I sat in those hearings listening to the evidence of hardworking Australians, many of them in the twilight of their retirement or having just retired, who put all of their money—their life savings—into Trio Capital, often on the advice of their accountant, whom they trusted for many, many years to do their tax returns and accounts, or their financial adviser, whom they trusted. On their advice, they set up self-managed superannuation funds, not knowing that they were taking all of their money out of their industry fund and setting up their own self-managed superannuation fund. They were just being told by their financial adviser, 'Here, sign this; it's the right thing to do,' and setting up their own self-managed superannuation fund, thereby taking themselves out of the protection of the industry fund and the Superannuation Industry (Supervision) Act. In some cases, people who had retired were remortgaging their houses to put more of their savings into these products as they had been advised to by their financial adviser or their accountant. So not only were they losing their own life savings but they were losing their kids' inheritance as well.

These were heart-wrenching stories and this was the cold, hard reality of what had occurred in the cases of these financial collapses—and the system allowed it to happen. The system allowed people to give this advice to innocent men and women of Australia, and most of these people, I might add, were working-class Australians. These unscrupulous advisers and product sellers and originators were targeting particular working-class areas. One of those was Wollongong, where you have a lot of miners and steelworkers with large superannuation balances. They were in unionised workplaces. Their unions had fought hard and they had fought hard to win decent entitlements and wages and conditions, including a decent superannuation fund and a decent retirement income. Then they retired and were advised by their financial planners or accountants to take all of their money out of their industry superannuation fund and put it into their own self-managed superannuation fund—'Sign up to this and you'll be right. There are these wonderful products that are doing really well. You can't lose.' Well, lose they did. Many of them lost the lot. Many of them were sitting before this inquiry in tears, telling us of their stories.

What was the government to do? What were the Gillard and Rudd governments to do? Were we to sit on our hands, do nothing and allow these people to be exploited in that manner and for those loopholes in the system to continue? Any good government worth its salt that had an obligation to the Australian people would know that something needed to be done about it. And that is what the former Labor government did, by introducing the Future of Financial Advice reforms.

The Abbott government says that this bill is about reducing costs to business. It is about reducing red tape. But the reality is—and this is borne out by the comments of commentators and those associated with the industry—that this is an attack on the Australian consumer by a government that is on the side of the big financial houses and banks when it comes to this. They are the only organisations in Australian society that are supporting what this government is doing. It is only the banks and the big financial houses who do not like this regulation, because they now have to fully disclose. They now have to sit down on a biennial basis with their clients and tell them what is actually going on with financial products. They are the only ones in our country who do not like this. Labor is not going to stand for that.

With this bill, the government seeks to drastically alter consumer protections by removing the essential catch-all provision in the best-interest duty, adding a loophole for advisers that means that the best-interest duty may become ineffective; by scrapping the opt-in provision, allowing advisers to continue to charge fees, sometimes without actively having worked on a client's file for a couple of years, and charge those fees indefinitely without receiving the consent of their client; by amending the annual disclosure so advisers only have to provide annual disclosure to clients who commenced with them after 1 July 2013; and by lifting the ban on conflicted remuneration. The ban will only apply to personal advice, not general advice. Even then, there will be an exemption for personal advice as part of the balanced scorecard approach. This will open the door for a sales push culture of products over advice. It was that sales push culture—that culture to try to sign people up to financial products because of the commissions and fees that flow to the financial adviser—that led to hardworking Australians being duped into buying these financial products that were not in their best interests and ultimately saw them losing their life savings.

I will not stand for that. I will not agree to reforms in this parliament that do that to constituents in my community. It beggars belief, given the tragedies experienced by some of Australia's most vulnerable consumers, that this government would push ahead with what are horrible reforms. By removing the opt-in and fee-disclosure requirements and reducing the need for an adviser to act in the best interests of their client, the government is exposing the consumer to potential financial destruction. It is loosening laws that were put in place to stop another disaster like the collapse of Storm Financial from occurring again.

And Labor is not alone in criticising these laws. Many industry experts, consumer advocates, senior groups—in particular senior groups, who understand the vulnerability of their members if this reform goes ahead—and, of course, previous victims of dodgy financial practices are condemning this coalition's policy. But, yet again, this government will not listen. The arrogance of this government is breathtaking when it comes to listening to the Australian public on this reform. The Prime Minister should dump all of these changes just like he has dumped their champion, the former Assistant Treasurer. The changes are not about technical reforms but are a complete unwinding of many of the important protections that were in the original FoFA legislation. This is a lowering of standards, and the delay towards professionalising is a massive step backwards for the entire sector and for consumers.

There is much talk about the expected $190 million in compliance cost savings to the sector—which may only in part be passed on to consumers—but no acknowledgement of the expected boost in revenue to come directly out of the pockets of ordinary people. In a recent Sydney Morning Herald article the Journalist Adele Ferguson put it well when she wrote:

No matter which way the government tries to play it, the changes to the Future of Financial Advice (FoFA) reforms are substantial and it is only the banks and a few other vested interest groups that support them.

She continues:

Indeed Senator Mathias Cormann's argument that the amendments to FoFA are designed to make advice more affordable by cutting red tape fails to recognise that the current structure of vertical integration is inherently conflicted. It also fails to recognise that cheap advice is good for nobody if the advice is bad or conflicted.

I could not have put it better myself. This reform ensures that the protections that were put in place by Labor to protect vulnerable consumers, to ensure that financial advisers cannot dupe hardworking Australians into financial products that do not suit them, that financial advisers are required to disclose the commissions and fees associated with products they are selling to their clients, to ensure that clients sit down with their adviser every couple of years and are fully aware and transparent about the products they are investing in and to ensure that the client recommends and authorises the adviser to continue to provide ongoing services for that client in the best interests of Australian consumers. That is why this bill has been roundly condemned within Australian society and that is why I am opposed to the passage of this bill.

Paul Fletcher (Bradfield, Liberal Party, Parliamentary Secretary to the Minister for Communications) Share this | Link to this | Hansard source

I am very pleased to rise to speak on the Corporations Amendment (Streamlining of Future of Financial Advice) Bill 2014. In the brief time available to me I would like to make three points. The first is that the set of stronger legislative protections for Australians obtaining financial advice that were introduced under the last government are broadly supported by the coalition. We made that clear at the time, and that continues to be our position. Having said that, Labor's future of financial advice legislation nevertheless contains some troubling instances of legislative overreach where the social costs of the measure exceeded the benefits. Indeed, in some cases the consequence was that financial advice became less readily available than it had previously been. Therefore, the third point I make is that the coalition took to the last election a promise to make some amendments to the future of financial advice legislation to get the balance right in this critical area so as to protect consumers and to ensure the greatest possible availability of financial advice.

Let me turn to the first point: the broad support of the coalition for the reform direction that was pursued under the previous government. As the previous speaker, the member for Kingsford Smith, pointed out, the genesis of these measures goes back to an inquiry conducted by the Parliamentary Joint Committee on Corporations and Financial Services following the collapse of Storm Financial, which occurred as one of the many consequences of the global financial crisis. There was a very sharp in equities prices, and t emerged that a significant number of Australians—many of them not financially sophisticated—had been put into pretty risky schemes under which they mortgaged their homes to buy a portfolio of shares. The share market fell sharply, the value of the share portfolios fell and many Australians—many of them not financially sophisticated—ended up in a very difficult position as a result. The key recommendation of that inquiry, known as the Ripoll inquiry—the inquiry of the Parliamentary Joint Committee on Corporations and Financial Services—was to impose a fiduciary duty on financial advisers requiring them to place the interests of their clients ahead of their own. Of course, the coalition clearly supports that principle.

I want to highlight one observation made in the final report of the Ripoll inquiry, where it was specifically noted that it was not an absence of regulation that was the problem, it was an absence of enforcement. I quote:

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

Somewhere along the line that principle got lost and the FoFA measures got built around some sensible core principles and a significant encrustation of excessive and counterproductive regulatory burden. There were measures contained within the FoFA legislation which imposed social costs which exceeded the social benefit.

Let me mention, for example, the retrospective fee disclosure requirement. Many products currently in the market are 10, 15 or more years old. The retrospective fee disclosure requirement meant that major financial service providers were required to open up and make major changes to their legacy IT systems which support those products. Such an exercise is always risky, expensive and deeply fraught. Indeed, the Financial Services Council estimated that its members would incur around $1.5 billion in cost in implementing these changes in the area of superannuation advice and insurance reforms.

I want to make an important related point here. One of the evils which the future of financial advice legislation was designed to address purportedly was advisers who were, in substance, salespeople employed by banks or other product manufacturers, as opposed to independent providers of advice. But one of the perverse consequences of the future of financial advice legislation has been that some of its provisions have made the business model of genuinely independent advisers harder to sustain than before. For example, the requirement to provide a single annual fee statement can be more difficult to meet for an independent financial adviser who might have put his or her clients into a range of products from a range of different product manufacturers—I use the industry jargon—than for somebody who is tied to a particular product manufacturer and puts all of his or her clients into the products of that particular manufacturer. Similarly, the opt-in requirement creates difficulties for independent advisers competing against large organisations with huge sales and marketing budgets.

I make the point that it is one thing to talk about the objectives of legislation, but it is another thing to carefully analyse the actual effects on a market—on both providers and on consumers—of those provisions. In the detailed analysis that the coalition did in relation to the measures in the future of financial advice package, there were a number of instances of measures that we thought, in substance, worsened the position from the point of view of the desirability of making financial advice as broadly available as possible. So Australians who are called upon to make significant financial decisions in relation to such matters as insurance and superannuation as they plan for their retirement—should I pay down my mortgage, should I put more money into an equity fund or into bonds?—should have the widest possible availability of affordable financial advice. One of the principles which guided the coalition as we looked at the measures in the legislative package was: which ones advance the position toward achieving that desirable objective and which ones end up causing that position to be harder to achieve?

The opt-in requirement, which I mentioned briefly before, is a requirement under which every financial adviser is compelled to obtain written confirmation from a client every second year that the client still wishes to retain that adviser. It is worth making the point that the opt-in requirement was dreamed up by the Industry Super Network, which is the lobby group for industry superannuation funds. You can see why they like that measure. It makes very little difference to the business model of the industry funds, while doing a pretty effective job of disrupting the business model used by retail funds in which financial advisers play important roles.

It, no doubt, did no harm at all to the Industry Super Network's prospects of getting a hearing on the desirability of introducing this opt-in requirement that the Minister for Financial Services and Superannuation at the time was our friend the member for Maribyrnong, now the Leader of the Opposition. He, of course, is a former director of a predecessor organisation of the biggest of the industry super funds, Australian Super. Again, I make the point that there were a range of motivations swirling around, and a number of the provisions which ended up in the legislation were not necessarily motivated exclusively by a desire to protect Australian consumers. There may well have been other motivations which were also in the mind of the Rudd-Gillard-Rudd Labor government in introducing those measures.

A similar analysis could be made of the future of financial advice provisions, which had the effect of making it more difficult for financial advisers to deliver what is known as scaled advice. 'Scaled advice' is another one of the jargon terms that pervades this area. It refers to the provision of advice which is limited in scope to some extent. For example, advice on superannuation products rather than on a holistic financial plan.

Feedback from the industry is that the current legislative provisions have resulted in increased costs and in significant legal uncertainty for advisers who do not feel that it truly allows them to provide scaled advice to their clients. In other words, the provisions as they presently operate may require an adviser to investigate all of the client's financial services, even when advice is sought on a specific and narrow issue.

The consequence of that is that Australians who seek financial advice on a specific and defined issue may find it harder to get that advice because there is a set of legislative provisions which now make it more difficult for advisers to deliver that advice. If you say that the policy objective is to maximise the availability of financial advice to Australians who need that, whether that be broad-ranging advice addressing the totality of their life and financial circumstances or whether it be more narrowly defined scaled financial advice, then we believe that some of the settings in the current legislation need revising.

That is why I now turn to the third part of what I want to say. This bill gives effect to a commitment made by the coalition at the last election that we would make some changes to get the balance right. In the last parliament, the Parliamentary Joint Committee on Corporations and Financial Services, of which I was a member, contained a number of coalition members and senators. We issued a minority report, with 16 recommendations. We went to the 2013 election with commitments based upon those recommendations. We committed that we would remove the opt-in arrangements and bring about the simplification and streamlining of the additional annual fee disclosure requirements. We would improve the operation of the best interest duty and provide certainty around the provision and availability of scaled advice.

I want to comment particularly on the best interest duty, because we have heard from speakers on the other side of the House that, in some way, in the measures in this bill we are gutting the best interest duty contained in the legislation. Nothing could be further from the truth, as the most cursory examination of the legislative provisions makes clear.

The first point I highlight is that the requirement for a financial adviser to act in the best interests of his or her client is set out in subsection 961(B)(1) of the Corporations Act. There is no change to that provision contained in the bill before the House this afternoon.

The second point I make is that subsection 961B(2) outlines the steps that an adviser may go through to show that he or she has satisfied the duty to act in the best interests of his or her client. There are six steps that are now in the legislation and that will remain in the legislation after this bill goes through.

The first is a requirement to identify the subject matter of the advice sought and the objectives, financial situation and needs of the client. I am somewhat paraphrasing and simplifying. The second is to identify the objectives, financial situation and needs of the client that are disclosed to the adviser. The third requirement is, where it was reasonably apparent that information relating to the client's relevant circumstances was incomplete or inaccurate, to make reasonable inquiries to obtain complete and accurate information. The fourth step for the adviser to take is to assess whether the adviser has the expertise required to provide the client with advice on the subject matter sought. The fifth step is if, in considering the subject matter of the advice sought, it would be reasonable to consider recommending a financial product then, firstly, conduct a reasonable investigation into the financial product that might achieve the objectives and meet the needs of the client that would reasonably be considered as relevant to advice on that subject matter and, secondly, assess the information gathered in the investigation. The sixth step is to base all judgements in advising the client on the client's relevant circumstances.

That is a very comprehensive set of steps, which, if a financial adviser goes through them, both the adviser and the client have certainty about the best interests duty being met. There is only one provision which we are removing from the act in this bill and that is a catch-all requirement that, as well as all of the steps I have gone through, an adviser must take any other reasonable step that would be regarded as being in the best interests of the client, given the client's relevant circumstances.

That is an inherently uncertain provision. It is quite unclear what it means. It is quite unclear what obligation it imposes on a financial adviser and we are removing that uncertainty by making that narrow, technical amendment to remove that provision. But the vast substance of this regime remains in place. There are specific, targeted amendments in this bill to cause the regime to operate more efficiently. I commend the bill to the House.

Jim Chalmers (Rankin, Australian Labor Party, Shadow Parliamentary Secretary to the Leader of the Opposition) Share this | Link to this | Hansard source

I also rise today to speak on Corporations Amendment (Streamlining of Future of Financial Advice) Bill 2014. It is a particular privilege to follow on this side of the House the member for Kingsford Smith, who has worked on some of these issues for some time and knows his stuff in this area. I found his contribution to be very compelling.

Recently in this House we have seen examples of where both sides of the House can find common ground. We have seen it in respect of some of the foreign policy questions that we are currently dealing with and in response to the recent tragedy in Europe.

It is true to say that, when it comes to issues like this, these are fundamental issues where we will never find common ground. This future of financial advice bill is nothing but another attack on average people, working people: mum and dad investors, people with superannuation, people who have just tried to do the right thing their whole working life, to save and give themselves some financial security.

The main problem we have with this bill is that it tips the scales in the wrong direction and it gives a green light to some of the most powerful actors in our economy to take advantage of people who are more vulnerable, people who might not have access to the information and people who want to trust their financial adviser. There are many good financial advisers in the community, but we need to ensure that we are protecting consumers so that that small group of people who might want to do the wrong thing are prevented from doing so.

Whether it is the budget or the wind back of consumer protections in financial advice that we are talking about today, I think these types of initiatives do shine a light on what I think is the government's biggest flaw—that is, their inability to put themselves in the shoes of people from Middle Australia, people who are vulnerable or people whom they are supposed to represent but don't.

It is sickening in my view to see people on that side of the House line up to get up and suck up to the big banks and to try to show how tough they are and how useful they can be to some of the most powerful actors in our economy. What we need is people in this House who are prepared to stand up for the little guy in this conversation and stand up for people who need consumer protection. There is something particularly sickening, particularly appalling and particularly despicable about lining up with the most powerful forces in our economy to do over the least powerful people in our economy.

When you think about it this way, most people in Middle Australia would go to work and when they get home they would think about what they had achieved that day. It might be a bit of extra overtime to invest some of their salary in their financial security for the future; it might be paying off the mortgage—all kinds of financial decisions that people take in the ordinary lives. When those opposite go home after a long day at work and put the feet up, what they would have achieved today is an entirely different thing. They would have weakened consumer protection, they would have made it easier for advisers to act against the interests of their clients; they would have put the wrong incentives into the system; they would have reinstated the type of conflicts of interest that have bedevilled financial advice in recent times; and they would have tipped the balance further in favour of the big guy against the little guy. That should be something they should reflect on. They come into this place and at the end of a long day of work that is basically what they have done. This side of the House, whether it is the member for Blair, who is here, or others, are proud to stand up for people who deserve to be protected from the worst elements in the financial advice system.

There is a very intelligent guy called Amit Singh who wrote a very good piece on the Chifley Research Centre website recently about these reforms. He made two very strong points, I thought. The first one was: judge this conversation by who is on either side of the debate. On one side of the debate you have got a very small handful of big banks, effectively, and the Liberal Party. On the other side you do not just of the Labor Party; you have the experts; you have got the people who represent seniors, whether that be National Seniors or Council on the Aged; you have got consumer groups; you have got independent commentators—basically everyone but that tiny little group who think that consumers should be protected when it comes to their financial advice.

The other good point at Amit Singh made in this article in the Chifley Research Centre site was that when Chris Bowen, the member for McMahon, first introduced these changes in response to the very good work of the member for Oxley, there were people on that side of the House and people in the industry who said that they were unnecessary. They had egg on their face pretty soon after, really, because some of the issues that came to light, particularly in the Commonwealth Bank, happened so soon after post changes were introduced. The legislative changes that were put in place by Labor were to combat the type of atrocities we have seen perpetrated on average people by the Commonwealth Bank and others who have done the wrong thing in the system. I thought it was really indicative of that side of the House's approach to these sorts of things that when these issues were coming to light, when the whistleblower was getting the message out about some of the bad things that were being done to people who were clients of, in particular, that one bank in this instance, they were rushing through these changes with the assistance of the Palmer United Party.

These changes are not just unfair to people; they are not real smart—they are dumb changes, because the weakening of consumer protection here in Australia is going in completely the opposite direction to the movement in the financial sector around the world, which is towards greater stability and greater protection, whether that is the Basel III initiatives or all the other initiatives that are taking place in the international banking system to make sure that people are protected. What that really goes to is this sense that we have had a lot of turbulence in financial markets and in the economies of the world in the last six or seven years and really I think people who do not want to protect consumers, having learned those lessons, are really doing the wrong thing by their people. There is a saying, of course, that those who fail to learn the lessons of history are doomed to repeat them. It seems that on that side of the Hours they either do not remember the GFC or some other various financial scandals, they do not understand or they do not care. We should be spurred on by our lived experience, whether it is the GFC or whether it is some of those shameful activities that were part and parcel either of the crisis or of things that happened subsequently.

Around the world millions of people felt the impacts of the collapse of banks and small lenders. Shock waves went through the financial system and millions of jobs were lost. We were very fortunate in Australia for a whole range of factors but including very effective government stimulus under the Rudd and Gillard governments and Treasurer Swan. The stimulus did help protect Australia to avoid recession. There was a whole range of contracting factors to that as well. But as well as we did as a country by working together during the global financial crisis, we did not get through entirely unscathed and not every investor got through those episodes entirely unscathed either.

Other speakers have spoken about Storm Financial. There was $3 billion of debt on behalf of their 4,000 clients. There were all kinds of reckless activity engaged in in that period. The member for Oxley is the expert on some of these things, having conduct of the inquiry. I would encourage members of the House who have not done so to read some of that testimony, because there were some extraordinary examples brought to light in that process. There was one that I read about—Barry and Deanna Doyle, a semi-retired couple from Queensland. They had a combined income of less than $25,000 a year and through the advice they were getting from Storm and other institutions on that 25 grand a year they ended up with share portfolio costing $2.26 million with debts to match. Their annual interest payments ended up exceeding $190,000. All of this was done on the equity of their house, which was worth about $450,000. The fact that they were advised to leverage up to that extraordinary amount really is one of the lessons we really should take to heart. We really should learn from that episode. There are so many examples like it—people who were hurt by bad advice. There should be a clear imperative to act from that.

After that parliamentary inquiry led by the member for Oxley and the response put together by the member for McMahon, the last Labor government did undertake some significant reforms to better protect the consumer when it comes to financial advice. We did introduce reforms to protect investors and help the industry professionalise. We had one ultimate and worthy goal, which was to return trust and confidence in the system that had been rocked by the GFC and by various scandals. That meant better protecting consumers and safeguarding the stability and integrity of our financial system as a whole.

Other members have mentioned the various components of the Labor government's reforms. For the sake of completeness in my own contribution, these were: a ban on conflicted remuneration structures; a best-interests duty for financial advisers; a biannual opt-in provision for advice; simplification of the terms and conditions and the disclosure statements of financial advisers; and an annual disclosure statement of fees and details of services performed. The new government is intent on undermining these reforms. They remove protections from consumers and make it easier for unscrupulous agents to take advantage of vulnerable people.

One of the key reforms being unwound is the so-called best-interest test in the FoFA package. This is the one that imposed obligations on financial advisers giving client-specific advice—that the adviser 'must act in the best interest of the client in relation to that advice'. This is similar to the sorts of responsibilities and duties that fall on other professionals, like lawyers and accountants. That section was enforced by a seven-point check list. I will not go through all of the points, but the seventh of those was a catch-all provision plus an obligation that the adviser take 'any other step that at the time the advice is provided would reasonably be regarded as being in the best interests of the client, given the client's relevant circumstances'. That is a really important catch-all provision and the one, unfortunately, the government is seeking to remove. That will weaken protection for clients.

There should be nothing controversial about the best-interest catch-all provision. It seems bizarre in the extreme that people on that side of the House would think it not the duty of a financial adviser to act in the best interests of their client. Watering it down now means it is a mechanical check-list, which will just require financial advisers to go through the motions.

The best-interest test is vital because of the information asymmetry in financial advice. Obviously, people who work in this space know a lot more than their clients. It is important we protect consumers from those advisers who might want to take advantage. I am not saying all will, but it is important those protections are there, because if you are a mum-and-dad investor or a retiree and you are going to your adviser to try to work out how to invest your hard-earned money, you do not have the information available to you. You rely on that person. It is a relationship of trust and we need to bolster that relationship of trust with adequate consumer protection.

The changes to the best-interest test come on top of other proposed amendments. No longer will we require advisers to act with objectivity and care. Some advisers will be entirely exempt from even the weakened-down best-interest test. There are all kinds of changes that have been made to these laws. One of the biggest problems we have with the weakening of this legislation is the opening up of the sector to conflicted remuneration—the weakening of the section that bans financial advisers from getting monetary or non-monetary benefit that might influence the financial products they recommend. That is just common sense. You cannot have the incentives aligned in such a way that advisers try to make a buck from the disadvantaged or the people they are trying to represent. We will see the return of conflicted remuneration to the industry. This does not apply just to cash payments, it applies to all kinds of advantages that an adviser could have.

The reintroduction of conflicted remuneration will mean consumers will never again be confident that the advice they are receiving is good for them rather than just good for the adviser. That is the problem we have with the government watering this down.

Another problem is the weakening of our reform, the so-called opt-in requirement for financial advice. One of the revelations of the parliamentary inquiry is that approximately two-thirds of all financial-planning clients were passive. They were not getting advice, they were not in touch, but they were still paying fees, so they were getting charged for advice they were not receiving. We wanted to crack down on that. We wanted there to be, every two years, an opt-in requirement for their advice. This legislation removes that opt-in requirement. It also removes the requirement for an annual statement of fees, which is really important for people in understanding what they are getting.

The net effect of all these changes will be less trust and less confidence in the financial-advice sector. ASIC estimates that consumers lost about $5.7 billion between 2006 and 2010 as a result of the various scandals. This legislation makes those sorts of scandals likely to recur, and that is unforgiveable. The legislation will cost consumers and it will cost our economy. It will degrade trust and confidence in the financial-advice sector. Most importantly, it will make it more likely that real people—mum-and-dad investors—will lose money in a financial scandal. It is for these reasons that Labor opposes this bill.

Clare O'Neil (Hotham, Australian Labor Party) Share this | Link to this | Hansard source

It is great to have the opportunity to speak on the Corporations Amendment (Streamlining of Future of Financial Advice) Bill 2014. It is a deeply Orwellian title for such a piece of legislation that takes away the fundamental measure of Labor's FoFA scheme. A better title might be something like, 'The removal of basic financial protections,' because that is the substance of the legislation before us. It is one that removes the fundamental and very basic protections that Labor put in place to ensure that ordinary Australians received financial advice free of conflict. It is uncontroversial, in my view, but the legislation today takes away some of those reforms.

I want to talk in a bit of detail about some of the issues I find most offensive about this legislation. I want to speak firstly about why it is they matter. We have a lot of debates in this House that can seem very removed from the experience of the people we represent. The debate we are having today is not one of those. More than many others we have in this House, the legislation before us will have a very profound, direct effect on the lives of millions of Australians.

We are very good savers in this country. As some of you may know, we have $1.8 trillion in savings in various financial products. We have families—like those I represent in Hotham—who have been saving for years for their children's education. We have young people right around the country saving very hard to buy their first homes. There are senior Australians all over this great country who have been saving for many years for their retirement.

All these people come to financial advisers with some very basic, legitimate expectations. The people the FoFA reforms sought to protect, the ones I described, are often people who are not working in financial services. They are experts in other areas of life—like teaching, nursing or parenting. These are people who are not as well positioned as financial advisers to make perfectly educated decisions about risk, about reward and about uncertainty. They have basic expectations that the best advice will be given to them. They have an expectation that the advice will be honest, fulsome and frank, and that they will have all of their options carefully explained to them. You would think that the fact that they are paying advisers to provide that kind of advice would make those expectations perfectly clear.

Perhaps the most important of all expectations that the ordinary person has when seeking financial advice is that the advice being given to them will be in their best interest—and their best interest alone. Unfortunately, the absence of legal protections in black-and-what law in this country to make financial advisers meet these very fundamental, basic requirements or expectations, has meant that people around Australia have not received that type of financial advice.

The FoFA reforms where never an attack on financial advisers. As a general principle, we have great respect for people in the financial industry and people who are providing financial advice. It is essential to the efficient functioning of the economy that we have people who can provide really good financial advice, and that it is accessible to ordinary Australians. But over a number of years we have seen that the standards written into law were not standards that met community expectations. The FoFA reforms were simply about bringing the law into line with community expectations about financial advisers.

The lack of laws like the FoFA legislation led some Australians who were consumers of financial advice to lose huge amounts of money. Some of them lost their entire life savings. Many of the people who were victims of organisations like Storm Financial were not people who had lots of money to lose, but lose it they did. I want to spend some time on Storm Financial because this is a pretty obvious example of where people who are not being forced to act in the best interest of their clients ended up giving some very bad financial advice. Three thousand Australians had invested in this Townsville-based company. The liquidators of that company found that the organisation had paid very little heed to the needs and requirements of the people that were investing in them. People right though that organisation were asking people to invest in products that were clearly not in their best interest, and which did not fit the risk profile for these investors. Instead, investors were being asked to make certain investments because that was in the financial interests of the company with which they were investing.

Those clients who made investments in Storm Financial made some very reasonable assumptions. One of them was that paying for financial advice meant that their advisers were acting for them—and them only. I cannot think of anything more basic that you would require when you are seeking financial advice. It is always hard for me to believe—despite sitting in this chamber and listening to all of the arcane things that we debate here—that this very fundamental and very basic protection was not provided to those people by the law.

Opes Prime was another example. There were 1,000 Australians with $2 billion under management. There were some similarities with Storm Financial services that I will not go into. Almost 1,000 people around this country have walked away with next to nothing because the law did not provide them with the basic protections that were needed. Often we find, in cases like these, that amongst a very long line of creditors to companies that go under, the ones with very deep pockets are the ones that end up getting money back. It is the mum and dad investors who end up walking away with nothing—often after having saved for their whole lives.

These incidents—perhaps not in full, but in some respects—and others very much like them, occurred because the law did not accord with the clear values and obvious expectations of the Australian community. It was incidents like these that resulted in Labor setting out on this journey to try to fix the financial advice system and to bring in some of those really important reforms that were very well received by consumers and consumer groups right around the country.

I want to talk about some of the really important pillars of those FoFA reforms which are being removed by the legislation that is before us this evening. The most fundamental of those FoFA reforms, and the one that, I think, has been under the most concerted attack from those opposite, was a very simple one. All it made into law was a requirement that, very simply, financial advisers act in the best interest of their clients. I cannot believe that we are having a debate about whether that was an appropriate law.

Part of FoFA was a requirement that financial advisers act in the best interests of their clients. And it was quite simply structured—written directly into law were those exact words. What was devised was a simple checklist that would amount to compliance, to give financial advisers some certainty about what exactly, in the grey areas, that might mean.

To catch instances where the fast-moving world of financial products may take us, there was a catch-all clause included, so that instances that were not directly covered by the checklist, and which were clearly outside the best interest of the client, were captured. I can think of no more basic provision or obligation in a search for financial advice than this one. And, yet, we come into the chamber this evening to debate the fundamental weakening of this basic principle. I just want to reiterate this: this is about financial advisers acting in the best interests of the people who are paying them a fee. Yet, from the other side of the chamber we have a weakening of this basic principle. I find it absolutely astounding.

The way that this is being weakened, of course, is indirect. It is not just being taken out of the legislation. It is being done by adding in a number of exceptions that will basically mean that people who are looking for reasons not to act in the best interest of the clients will be able to find one. I will provide an example. Bank employees, who provide extensive financial advice to Australians all over the country, are now exempt if they are providing advice on general products. So, in this most bread-and-butter incident of financial advice, which must be provided hundreds of times a day, we are now taking away this best-interest test. That provision that I talked about for banking employees is just one of a number of new exceptions that will massively weaken the best-interest test. This is one of the most fundamental elements of the FoFA reform. That alone, I believe, would probably be enough for Labor to come in today and say that we cannot support this reform. But there are actually many other examples, and I want to talk now about conflicted remuneration, which is a second and critical change and which related to the best interest test.

Labor's reforms banned financial advisers from any benefit that may influence what financial products they recommend. Again, Mr Acting Deputy Speaker, can you believe it? Just thinking about the values of the people we represent in this chamber, of course financial advisers should not be able to be compensated for providing financial advice that may not be, in some instances, in the best interests of their clients. A financial adviser can accept money from me to provide the best financial advice while at the very same time being remunerated by a seller of financial products. I am just astounded: it just seems so obvious and basic to me that that is just a critical protection. Again, in the legislation before us, this is being dismantled. Some of Labor's protections have been maintained here but, again, through the clever introduction of exemptions, the provisions are fundamentally weakened.

I will just provide one example: one of the exemptions now is payment for free overseas trips for advisers who make a particular number of sales of a particular form of product. So, if I go to a financial adviser and get financial advice, that person may also receive an overseas trip from a company that is trying to get them to sell their product to me. That is a conflict of interest if I have ever heard one.

I really want Australians to understand this: because of the Liberals, your financial adviser is now allowed to get a free overseas trip if they sell specific financial products to you. Unbelievable!

A final fundamental weakening of those FoFA reforms that I want to mention is the changes to the opt-in requirement. It is quite a surprising figure to really understand, but two-thirds of financial planning clients around this country—these are Australians who are paying fees to financial advisers—who are actually not getting any services currently from their financial advisers. In the initial FoFA policy discussion they called it the 'fee for no service' model. So, two-thirds of all clients, all over the country, are paying fees right now and getting absolutely nothing in return.

Labor's solution to this one was a pretty straightforward one. It was a requirement that financial advisers, every two years, have to contact the client by whom they are still being paid a fee for services and the clients have to tick off those current arrangements. Pretty basic; pretty simple. Someone who is providing me with a service that they are charging me for checks in with me every couple of years to make sure that they still should be deducting money from me, even though in many instances—two-thirds of all instances—we know that there is no service being supplied for those fees.

That is pretty straightforward, but no: under the new laws that is gone too. The Liberals, who love to come into this chamber and talk about how supportive they are of efficiency and how much they support entrepreneurship and economic efficiency, are allowing a situation to continue where most people in receipt of financial advice in this country are paying for something and getting nothing in return. It is absolutely laughable; I just cannot believe that they would go down this path. It is just completely nonsensical.

I have talked about some of the provisions in the legislation before us that I think are most reprehensible and most offensive, but I want to finish my contribution tonight by coming back to where I started, which is talking a little about the people for whom these protections were designed. These were laws that were written for the everyday Australians who have lost money in recent years—who have put all of their savings after so many years into the hands of people who they believed to be trusted financial advisers, and who the law failed. The law was not there to protect them.

We have all kinds of debates in this House, but for simple issues like this one, where people come to a financial adviser and they expect that there are duties in place under the law, and they simply are not there, then we have a problem. We are meant to be here reflecting community standards and community attitudes. Labor identified an area where there was a fundamental chasm between the protections provided by the law and the expectations of the community. We set out to fix that, and we did fix it. But what happens next? We have a new government that wants to rip up everything constructive that was done by that last government and instead re-write the rule book with exceptions that you can drive a truck through.

I think that what often gets missed in conversations like this one is that there are other people who benefited. I genuinely believe that people who work in financial advice are the losers today from the legislation, because we all know what is going to happen. We all know that when we see regulation and protections taken away that we have another Storm and then we have to bring things back again, and we have to re-regulate and, in some instances, to overcompensate. Labor's reforms were strong, they were balanced, they worked and I stand today to say that they should not be overturned.

Graham Perrett (Moreton, Australian Labor Party) Share this | Link to this | Hansard source

I commend the member for Hotham on her contribution to this debate on the Corporations Amendment (Streamlining of Future of Financial Advice) Bill 2014, which I totally support. I am going to commence by looking at a little of the history of this piece of legislation introduced by the coalition government and then go through some of the reasons for the Labor Party rejecting it.

It is important to look at a little of the history because, like the member for Hotham, I have had members of my community sit in front of me, in tears—particularly people who were the victims of Storm Financial. But I know that there are many other groups, including victims of Opes Prime. I could go through a long list of people who suffered significant losses. They were good, sensible retail investors who suffered through these unfortunate sets of financial circumstances—these significant corporate collapses. These were people who were sensible—not risky investors, but people who believed they were doing the right thing.

So that was the context where Labor brought in the FoFA legislation in the first place. It can be traced back to the 2009 report of the parliamentary inquiry into financial products and services—the PJC inquiry. That looked at the role of financial advisers and the regulatory settings for the selling of financial products and services.

In Australia, it is important that we see this because in Australia in particular, almost like no other nation in the world—because of the changes made by Hawke and Keating to superannuation—we have a significant pool of superannuation funds. It is roughly about the same size as Australia's economy, and obviously, as more and more people put money into superannuation, that will continue to be an issue.

So I stand here not as someone who is an expert in financial advice but as someone who is, I guess, first and foremost a lawyer. I always approach it from that aspect, thinking, 'What if I received remuneration in 2040 for advice I gave in 1994?' As a lawyer, part of me says that would be fantastic if I could get on to that sort of gravy train. But obviously that sort of thing does not happen in law at all. You give a bill for services and you are paid for the services. You have to negotiate with the client and work out what they are prepared to pay. You give them the bill, they pay the bill, that is it. And they of course then say, 'That's why lawyers are so loved, because it's sorted out quickly.' But the idea that you could give advice in one year to a 20-year-old person and then still have that person, when they are 65 or 69 or 70—obviously people are going to be working for a lot longer—still paying for the advice that you gave them when they were 20, that is ridiculous to me as a lawyer, irrespective of how wonderful that advice is. This is why we brought in those FOFA changes, which were basically saying, 'You need to check in.'

The reality is that while many Australians are receiving financial advice, two-thirds of them are receiving no advice whatsoever, effectively, from that initial consultation. I am not taking away from the 18,000 financial advisers in Australia; I am sure the majority of them are doing a fantastic job. They manage more than $500 billion worth of funds under advice and generate more than $4 billion revenue per annum. I am advised that between 20 per cent and 40 per cent of Australians use or have used a financial adviser, and that percentage will continue to increase as more and more Australians have a superannuation fund. Superannuation, from memory, came in around 1992-93. I remember the discussions at my workplace at the time about superannuation—what it was et cetera. I remember the Accord basically had Australian unions agreeing to forgo some pay rises as part of that deal. Those 18,000 financial advisers will continue to grow as a group and the funds they manage, and their clients, will also continue to grow in the years ahead.

In Australia there are more than 750 dealer groups who can pair and access financial products on platforms and select a range of products. I am all for a market, like the government opposite. They believe in markets—sure, they do not believe in a market when it comes to pricing pollution that might affect our planet, but when it comes to financial advice they do believe in markets. If there is a competitive market, then you will get the best advice at the best price. That makes sense. But that market mechanism is hamstrung if people do not have to dip back into the advice they are given. As I said, we could have that ridiculous example of an 18-year-old receiving advice and then still paying for that advice 40 years or even 50 years later.

The former Labor government responded to the 2009 report and it brought in legislation that basically reflected a pretty common-sense approach that there should be some checking in every now and then. Also, as many speakers on this side have touched on, there is that possibility of conflicted remuneration. It is the age-old problem for anyone selling a financial product or credit that if their own mortgage is being paid off by the advice they give, there is always that possibility of them giving conflicting advice. Certainly that is why, for lawyers, there are all sorts of rules and regulations governing who should be put first and foremost. As we have heard in speeches tonight, if there is a possibility of you receiving a trip overseas or some direct money into your wallet because of the advice you give, then there is always the possibility of you perhaps not putting your clients' interests first.

Before the 2013 election, during the consultation about the proposed FOFA package back in early 2011, Senator Cormann, now a very significant player in the government when it comes to their financial credibility—in fact, some might argue that he is the only one left with any financial credibility—stated that he supported the introduction of a statutory best interest duty, but he did not support Labor's push to force people to re-sign contracts with their advisers on a regular basis. So on this particular election promise he was halfway there in terms of having a check and balance system, but obviously he did not want extra red tape and have people go through the whole thing every two years. We just wanted people to do something that required some input.

The bill before the House basically removes the need for clients to renew their ongoing fee arrangement with their adviser every two years, which is basically the opt in requirement where you just touch base. And my understanding is it could have been as simple as a letter. I have spoken to financial advisers in my collection; they said that would not necessarily be the end of the world. And, remember, if you are that 18-year-old client that I talked about, you have value for the financial adviser—so much value in fact that you are listed on their books when they sell their business. People buy books, which is basically just the advice that you gave to a certain number of people in years gone by. It is something that is desirable, this list of clients.

The legislation put before the House by the coalition would make the requirement for advisers to provide a fee disclosure statement applicable but only for those clients who entered into the arrangement after 1 July 2013, which seems to be neither fish nor fowl. It is neither one nor the other. They have not worked out whether it should be done or not. The legislation also removes from the list of steps that an adviser must take in order satisfy the best interests obligations the requirement that advisers 'must generally act and provide advice in the best interests of their clients'. When Labor inserted that it was a catch-all provision to make sure the financial planner was not thinking of their trip to Disneyland, made sure the financial planner was not thinking about their own mortgage or their kids' private school education or whatever it was, and instead focused wholly and solely on the client in front of them. That is a bit of background and a bit of explanation of the purpose of this bill.

Obviously, when we went to consultation about this, the reliable sources to go to are consumer groups. What did Choice say when looking at FoFA1 and FoFA2? They said:

… the proposed changes will lead to costs to consumers as they reintroduce measures that encourage sales-driven practices in financial advice.

Remember that we are talking about nearly 20,000 advisers, so there will be all sorts. They went on to say:

With financial advisers working in boiler-room style sales cultures, consumers are highly likely to lose significant funds through further major market failures like Storm Financial. While no legislation can fully prevent a market failure, the original FoFA reforms aimed to curb the worst practices in the financial advice industry. The effects of recent major financial advice scandals have been catastrophic, resulting in consumers losing $5.7 billion in funds as well as their homes and certainty about retirement.

That is what Choice said—a sensible guide to what should be done. Obviously other consumer groups, like the Financial Services Council, had a different view, but, having spoken to advisers in my electorate who look after people, I was impressed by their professionalism, their intellect and the rigor that they brought to our discussions. We agreed to disagree on some of these matters, but I was impressed by their professionalism. Like any group, like politicians, we are often judged by the worst—judged by the rogues, judged by the cowboys, judged by the thieves. For financial advisers in the bigger groups that do the best work and have checks and balances, there would not be too many problems. But, obviously, if people see an opportunity, they are more likely to take advantage of people sitting in front of them, and there are the dollars associated with giving advice. As I said, if it is an 18-year-old person who is going to have a good income stream for 20, 30, 40 or 50 years, it is like sitting in front of a gold ingot, I suppose.

The Labor Party have had concerns that can be traced back to Storm Financial. That was a horrible set of circumstances, particularly in Queensland, in Townsville. A lot of people in my electorate who came to see me were former pharmacists, smart people—not people who made rash decisions. They thought they were making sensible decisions based on the advice that they had been given. Whenever there is the possibility of conflicted remuneration, the person who provides the financial product advice should have the extra checks and balances. Our legislation had only just commenced. People were re-adjusting to the new reality. The coalition wants to bring in more red tape and change the circumstances again. We are committed to going back to the original legislation. It is only going to create uncertainty.

We have a much stronger connection with superannuation than the coalition, obviously. One of their election promises was to retreat from the idea of increasing superannuation to the higher percentage that is needed to give people a bit of dignity in their retirement. Under Labor, we had started that progression, hopefully, towards what Paul Keating always said should be around 15 per cent. For parliamentarians elected after 2004, that is the super scheme we are on. Obviously, people elected before 2004 are a bit like that lawyer I talked about who gets paid for the advice they gave when they started. I am not sure where the numbers sit at the moment. Mr Deputy Speaker Whiteley, you were elected after 2004, so you have the benefit of that slightly different scheme. That is a discussion for another day, perhaps in another place. There are two sets of rules in here—

Paul Fletcher (Bradfield, Liberal Party, Parliamentary Secretary to the Minister for Communications) Share this | Link to this | Hansard source

Some are in business; some are in economy class.

Graham Perrett (Moreton, Australian Labor Party) Share this | Link to this | Hansard source

Some are in business; some are in economy class—I will take that interjection. This legislation is about financial advice to all Australians. As the funds increase, we need to have the appropriate checks and balances. That is why the Labor Party will be resisting this attempt to remove that protection. (Time expired)

Kelvin Thomson (Wills, Australian Labor Party) Share this | Link to this | Hansard source

The purpose of the Corporations Amendment (Streamlining of Future of Financial Advice) Bill 2014 is to repeal some of the future financial advice measures introduced by the Labor government. The bill amends the Corporations Act to remove the need for clients to renew their ongoing fee arrangement with their adviser every two years, which is known as the opt-in requirement; to make the requirement for advisers to provide a fee disclosure statement applicable only to those clients who entered into their arrangement after 1 July 2013; to remove from the list of steps an adviser may take in order to satisfy the best interests obligation the requirement that advisers must generally act and provide advice in the best interests of their clients, which is referred to as the catch-all provision; to facilitate the provision of advice limited to, say, a particular product or product range that is personal advice that is limited in scope; and to provide an exemption from the ban on conflicted remuneration for general advice, but not personal advice, in certain circumstances. Broadly, personal advice is advice directed at a person by an adviser with knowledge of the person's objectives, financial situation and/or needs. General advice is advice that is not personal advice.

The Liberal government has a penchant for euphemism, whether it is 'green tape', 'open for business' or, in this case, 'streamlining'. What is happening here, however, is yet another example of the government bowing to the vested interests of the big end of town. Labor's reforms—referred to as the FoFA reforms—were introduced for a reason. They were introduced in the wake of the collapses of Storm Financial and others and the subsequent parliamentary inquiry into financial advice products and services.

These were the most significant reforms in financial services for a generation, and a number of measures were designed to protect investors and to help the industry become more professional. They included the best-interest duty, requiring advisers to act in their clients' best interests; the opt-in, requiring advisers to get their clients to opt-in to receiving ongoing service every two years; annual disclosure statements to be sent to clients annually disclosing fees and details of services performed; and a ban on conflicted remuneration—that is, commissions paid by financial product providers to financial advisers.

The whole basis for introducing these FoFA reforms was to restore faith in a sector which had been rocked by high profile collapses and a poor culture of product sales over advice. And now that we have $1.8 trillion in savings the reforms were to ensure that Australians were getting advice and service that was in their best interests. During the reform process, over many years there was extensive and intensive industry and public consultation that clearly identified a path to achieve growth, to protect consumers and to restore trust by changing the culture of the past 20 years—lifting standards and professionalism and acting in clients' best interests.

The government's comments on these changes to FoFA are about certainty for the sector, but not for the consumer. The changes are much more than technical reforms; they are a complete unwinding of FoFA. The lowering of standards and the delay towards professionalisation is a massive step backwards for the entire sector and for consumers. Removing blanket best-interest provisions is what the banks want. This has nothing to do with red tape and everything to do with the government doing the banks' bidding. It is not about protecting ordinary people.

The effects of recent major financial advice scandals have been catastrophic, resulting in consumers losing $5.7 billion in funds, losing their homes, losing their financial security and retirement. The consumer group CHOICE—the member for Moreton pointed this out too—pointed out:

… the proposed changes will lead to costs to consumers as they reintroduce measures that encourage sales-driven practices in financial advice. With financial advisers working in boiler-room style sales cultures, consumers are highly likely to lose significant funds through further major market failures like Storm Financial. While no legislation can fully prevent a market failure, the original FoFA reforms aimed to curb the worst practices in the financial advice industry.

I know firsthand that constituents in my electorate of Wills have been very badly affected as a result of poor advice by a financial adviser—specifically, the Melbourne-based accountants and financial planners, Holt Norman Ashman Baker. People have lost their homes, hundreds of thousands of dollars, their self-managed super funds, their share portfolios and their health because of poor advice and management by Holt Norman Ashman Baker accountants.

Mr Holt sold schemes using dubious advice concerning loans and margin lending. An example of the consequences of his poor advice is contained in the following impact statement provided to me by constituents. It reads:

Our situation has been desperate since October 2008 and very much a work in progress looking for the bottom of the financial quagmire, the legacy left by Mr Peter Raymond Holt, our ex-accountant. In brief, Mr Holt had overcommitted us with debt by taking out loans in tree schemes, Timbercorp. We were unaware of most of these loans and they were for large sums of money. He had been paying them with money from a bank account that was to collect dividends from my husband's margin loan account. I found the deductions in the margin account in October 2008. The amounts were very large and would eventually bankrupt us. The first invoices that we received from Timbercorp were forwarded to us by Holt's office in October 2008. They were to the value of $128,000 and were due for payment on 31 October 2008. It was about then that we really came to grips with the true meaning of debilitating and hysteria—hell had begun. By the end of January 2009 our situation was dire. Holt had lost $70,000 in cash trying to save margin loans with stupid recommendations. He had turned about $450,000 cash into $15,000 with margin lending. We had deductions of about $177,000 per annum for tree schemes. These payments would exceed our income for the year. Peter Holt has gone through hundreds and hundreds of thousands of dollars, including our superannuation fund. We really don't know the exact tally, but it would be somewhere around $400,000. The deeper we dug, the worse things got, so we stopped digging.

As a result of the efforts of the HNAB Action Group, set up by past clients who were financially ruined by Mr Holt—a group dedicated to providing information to members of our community who have been victims of poor financial advice—ASIC banned Peter Holt for three years. In my view, this was pretty light. I think his actions warranted a life ban. Peter Holt filed for personal bankruptcy and his personal assets seem to have been largely protected through his bankruptcy proceedings. Two of the partners of the former firm now operate as an accountancy practice called Holt Baker Pty Ltd, and the financial planning arm of the practice is called HBM Advisers Pty Ltd under the WealthSure banner.

Peter Holt and his associates were the largest distributors of the Timbercorp product. Peter Holt and his associates geared his clients in share portfolios and managed investment schemes, including Timbercorp and other agribusinesses. His clients, in many cases, were not aware of the agribusiness loans and, in particular, the loan conditions were either misrepresented or not disclosed at all. These loans effectively resulted in some clients being geared twice over. Where gearing was disclosed, he assured his clients the margin loans would never exceed 50 per cent. Investors were explicitly assured their homes were safe. In fact, he allowed the margin loans to exceed over 200 per cent, resulting in his clients losing their entire share portfolio and other assets. Former clients have made attempts to recover their capital losses, which were significant, but there was inadequate professional indemnity insurance of only $2 million. According to the HNAB Action Group, significant flaws existed in the practices used by Peter Holt and his associates. He frequently assured clients that he was ex-ATO, representing the investments as government endorsed and a superior investment to superannuation. In most instances, clients were asked to sign the rear page, which was not witnessed in their presence. Asset, liability and income details were often left blank or were completed after the client had signed the application. Some of the loan documents recently obtained from Timbercorp Finance show that these details were never completed, had liability details erased, or included incorrect client information. Timbercorp management, maintenance, insurance and other agribusiness fees were disguised by being rolled into the refinancing of debt. Timbercorp increased the level of commission paid to financial advisers to promote their geared investments as the GFC began to impact. A number of clients were pressured by Peter Holt and associates to increase their level of investment in Timbercorp even when the product was failing. Undisclosed incentives were provided in relation to his recommending of Timbercorp products—for instance, the provision of overseas trips. Given that the product disclosure statement for Timbercorp required them to disclose all incentives they might pay to advisers distributing their products, this would have been in breach of the requirements of the Corporations Act. Even when gearing levels were significantly above the 50 per cent threshold on margin lending and share portfolios, which he had set as the maximum, as the GFC set in he continued to recommend and pressure clients to continue to increase their gearing by buying more Timbercorp or other agribusiness products.

As recommended by the HNAB Action Group, ASIC should be requested to reopen the case against Peter Holt and his associates with a view to a life ban. A three-year ban is inadequate and, in any case, it is alleged that he is circumventing the ban through the engagement of an authorised representative working from his accountancy practice.

The significant omissions and potential fraud in respect to loan documentation should be investigated, all debts frozen and recovery action ceased by the respective creditors. The ANZ, CBA, Macquarie Bank and other credit providers should explain their involvement and why such significant breaches of lending practices were permitted. They should waive debts as a consequence of the improper and inappropriate lending facilitated by Peter Holt and his associates.

Furthermore, the proposed changes to the FoFA reforms we are debating now should be opposed due to the risk of loopholes being reopened which enable advice scandals like this one to occur again. There needs to be opposition to the bill's removal of the opt-in requirement—that is, the requirement for financial advisers to obtain their client's approval at least every two years to continue an ongoing fee arrangement. This has been criticised by National Seniors Australia:

Removing the opt-in requirement pushes the obligation onto consumers to externally monitor the performance of their portfolio and the appropriateness of their current services and fee structure. It is clear that advisers are far better equipped than consumers are to perform this task.

And:

Without the opt-in requirement most consumers will remain inactive. Unaware of the services they are receiving and associated fees and charges, they will not have the opportunity to determine if they are receiving value for money.

CPA Australia and the Institute of Chartered Accountants also support the existing mandatory two-year opt-in process as an important pillar of the FoFA reforms on the grounds that it will assist clients who are actively involved in planning their financial future to assess whether the services they are receiving reflect value for money before they decide to renew an ongoing fee arrangement.

The minister says that people who are opposed to their changes have vested interests with political motivations. Is the minister seriously saying that National Seniors Australia, the Council of the Ageing or Choice are part of some Labor/union conspiracy?

Despite a Senate inquiry into these changes, and revelations about disturbingly poor practice at the financial planning arms of the Commonwealth Bank, the Liberal government is pushing ahead with these changes—changes that clearly put the big banks' interests ahead of those of consumers. These changes have nothing to do with removing red tape or streamlining and everything to do with the Liberal government acting on behalf of vested interests in the sector. The CBA crisis highlights the problems that can arise if people try to push products when they are supposed to be offering consumers independent advice in their best interests.

The proposed government changes are not minor or technical in nature—they are, rather, a complete undermining of the core principles of consumer protection and lifting standards to a professional level. The reality is that these changes will broaden the scope of what banks can do in terms of upselling and advice on products to make more money. That is the reality of what is being done and, if these changes pass, people will again need to pay a lot of attention—close attention—to the type of advice they are getting. It is entirely regrettable that the Liberal government has decided to weaken the strong elements of consumer protection put in place by the previous Labor government.

Terri Butler (Griffith, Australian Labor Party) Share this | Link to this | Hansard source

In 1969 Gough Whitlam, in his pitch to the electors of Australia, talked about the importance of consumer protection as being central to part of Labor's platform and Labor's program. Again, in the lead-up to the election at which he was elected, he talked about consumer protection. As a consequence, we have the Trade Practices Act 1974. I make those comments because it is important to remember that Labor has always been the party of consumer protection. Labor has always been the party saying: 'There are plenty of interest in our community; how about the interests of consumers when it comes to weighing the protections that can be offered?'

What do you see many years later? Labor's FoFA reforms—the Future of Financial Advice reforms—were introduced to again protect consumers—consumers like mums and dads who do not necessarily have a lot of power. They do not necessarily have a lot of opportunities to understand sophisticated financial issues, not because of any lack of capability of understanding but simply because in a busy life, with lots of other pressures—kids, grandkids, jobs, family commitments and community commitments—we all have to rely on the expertise of advisers when it comes to planning for our futures and our families' futures. That is why it is so important that, when it comes to financial advice, there are protections in place for consumers.

Our FoFA reforms, as you know, Mr Deputy Speaker, were introduced in the wake of the collapses of Storm Financial and others and the subsequent parliamentary inquiry into financial advice, products and services. These were the most significant financial services reforms for a generation and they included several measures that were designed to protect investors and help the industry to professionalise. They included the best-interest duty, requiring advisers to act in their clients' best interest, a paramount obligation given the position of trust in which the adviser is placed; and an opt-in obligation that required advisers to get their clients to opt in to receiving ongoing service every two years—in other words, you do not just sign up once and then continue to take fees forever and a day; the client gets the opportunity every two years to think about whether or not they want to continue with the arrangements in place. Another reform was annual disclosure. Statements were to be sent to clients annually disclosing fees and details of services performed, again a very obvious requirement. If you are charging someone for your professional financial services, they ought to know how much they have been charged and what they are getting for their money. Then, of course, there was the conflicted remuneration provision, which imposed a ban on conflicted remuneration—for example, commissions paid by financial product providers to financial advisers.

In introducing these changes, Labor wanted to help consumers, and we also wanted, for the good of the nation, to restore community confidence in the sector, which had been, as you know, Mr Deputy Speaker, rocked by high-profile collapses, with a poor culture of product sales over advice. Of course Labor is interested not just in individual consumers being protected but in everybody in our community having faith in the financial services sector. The reform process involved significant consultation with industry and with the public. That consultation identified a path to achieve growth, protect consumers and restore trust by changing culture, by lifting standards, by professionalising and by acting in clients' best interests.

Unfortunately, through this bill, the government has sought to amend the FoFA reforms by removing the catch-all provision in the best-interest duty, the provision that provides not just tick-a-box, checklist style compliance with the best-interest duty but a genuine, quantitative duty to think about what is really needed to act in the best interests of the client and to undertake that. The government is scrapping the opt-in provision that I talked about, allowing that ongoing charging without, every two years—not a particularly onerous provision—asking the client, 'Do you still want to be in?' Annual disclosure is to be amended so that advisers only have to provide annual disclosure to clients who commence with them after 1 July 2013. The ban on conflicted remuneration will be lifted so that it will only apply to personal advice and not general advice, and there will also be an exemption for personal advice as part of a 'balanced scorecard' approach. We are obviously really concerned about whether that opens the door to go back to that culture of sales, rather than advice, being what is really important. The reason you have to think about those two things, of course, is that, if I am placing my trust in you as a financial adviser to do the right thing by me, I need to have confidence that you are not going to sell me a product to benefit yourself when you should be looking after my interests first.

Those are the reasons why Labor is very concerned about the changes. They are not just minor technical changes; they are an unwinding of the Future of Financial Advice reforms and we are very concerned—and we are not the only ones, Mr Deputy Speaker, as you know. The consumer group CHOICE has not supported the repeal of elements of FoFA. I will read what CHOICE has said:

… the proposed changes will lead to costs to consumers as they reintroduce measures that encourage sales-driven practices in financial advice. With financial advisers working in boiler-room style sales cultures, consumers are highly likely to lose significant funds through further major market failures like Storm Financial. While no legislation can fully prevent a market failure, the original FoFA reforms aimed to curb the worst practices in the financial advice industry. The effects of recent major financial advice scandals have been catastrophic, resulting in consumers losing $5.7 billion in funds as well as their homes and certainty about retirement.

That was from consumer group CHOICE. So, as I say, we are not the only ones concerned about winding back FoFA. We are very concerned about consumer protection generally but also about protecting people who are in that vulnerable position of placing their trust, their faith and their confidence in someone who is supposedly acting in their best interests to help them to plan and to save, including for retirement.

We are very disappointed that this is a huge step backwards for the sector. It is undermining the move towards professionalism and is not a step that will favour the interests of consumers. The removal of the catch-all clause in the best-interest obligations changes the definition of best interest to those tick-a-box checklists, determined by the sector. Of course, going backwards on conflicted remuneration is a great shame. Conflicted remuneration is part of the sales culture that the consumer group CHOICE was talking about.

The reported savings from these measures is $190 million. Our concern is that the regulatory analysis that has been done takes into account the effect on the sector but not the cost to the consumer of having these protections removed. While the sector might stand to save $190 million in compliance costs, the consumer will have to bear the weight of extra fees and charges, not to mention the risks that are inherent in having lesser consumer protection. We are of course gravely concerned that those costs to consumers will be much greater than any savings to the sector. In any event, these changes certainly will not help consumers. They are aimed at making consumers less protected.

Of course, we know that the government knows that it has a problem with this legislation in the public eye because of the way that the changes were snuck in via regulation prior to the proposed start date. That was done because the government knew that it was really going to struggle to get this legislation to pass the parliament. So the original changes were made by regulation, which, of course, bypassed parliamentary scrutiny at the time. There are opportunities for disallowance after the fact, but that is really inconsistent with major changes.

What ought to have been done is for the legislation to have been introduced in the parliament and dealt with in the Senate early enough for the legislation's changes, if they were going to pass, to take effect by legislation, not by regulation. So it has been really disappointing. We know that the former Assistant Treasurer released the draft changes just days before Christmas and then had submissions close in late January, so it was a very sly process. The obvious difficulty with that process is that, if you release the draft before Christmas, you say to people, 'While you're on your Christmas holidays at Caloundra, the Whitsundays or down in Hobart having a nice break, could you write us a bit of a submission in respect of our future of financial advice changes that we propose to make?'

Ed Husic (Chifley, Australian Labor Party, Shadow Parliamentary Secretary to the Shadow Treasurer) Share this | Link to this | Hansard source

What about a postcard?

Terri Butler (Griffith, Australian Labor Party) Share this | Link to this | Hansard source

Or the back of a postcard. Send it in by postcard. Why not send it in by postcard? Why not just make a submission? 'Wish you were here. Beautiful sunshine on the front. My serious concerns about watering down consumer protections on the back. My serious concerns about the fact that you are going to make it easier for me to have a financial advice service provided to me that does not protect my best interests on the back.' That was of course a terrible process, and it was aimed at preventing people having the opportunity to be consulted about these future of financial advice wind backs. Popping it through by regulation was, as I said, not appropriate in the circumstances. Really, if the government is not confident in its ability to negotiate with crossbenchers, perhaps the thing to do would be to learn to negotiate with crossbenchers, not sneak important changes through in regulations.

We know that the government has long been opposed to protecting consumers, because they are much more interested in backing the interests of the top end of town. That is just what a Liberal government is really for. If we consider their record, as I said at the commencement of my remarks, it took Labor to introduce comprehensive consumer protection laws in the form of the Trade Practices Act 1974. We have always had consumer protection front and centre in our concerns about what government can do.

Of course, the lessons learned from the global financial crisis would not be lost on anyone here. It is not appropriate to throw up your hands and say, 'Let the financial services sector regulate itself.' That is not the appropriate approach. Of course there should be appropriate, measured regulation to protect the interests of consumers and to protect the interests of all of us in having a functioning financial sector that the community, the sector and industry can all have confidence in. That is what the future of financial advice laws were all about. They were all about opportunities for building confidence in our financial services sector and ensuring that those mums and dads, those grandparents who are relying on the financial advice they are seeking from professional advisers, could rest assured that those advisers were acting squarely in their best interests, to avoid conflict, to avoid the possibility that the adviser's interests or the adviser's employer's interests would be put ahead of the consumer's. These protections are all about ensuring that consumers could have that confidence in making sure that an adviser would always be acting in their best interest.

Ed Husic (Chifley, Australian Labor Party, Shadow Parliamentary Secretary to the Shadow Treasurer) Share this | Link to this | Hansard source

Let's be clear about one thing: the people of this country should be furious about what this bill represents. This bill represents repayment of an IOU to the biggest financial interests in this country—interests which did not want to be accountable for the way they provided advice to mum and dad investors. The Liberal Party was trawling around, creating fundraising dollars for itself, making the nod and the wink to big business, saying, 'You give us the money and we'll make sure that we do the right thing on FoFA' and trampling along the way, in the rush towards those dollars, upon the interests of the welfare of some people who would be their constituency. Some people would actually be their supporters.

Small business owners, for example, invest their money and want to make sure that, after all their hard work, they would be able to have a retirement that would leave them comfortable. And what happens? The Liberal Party goes ahead and decides that it will put in place a series of reforms—or they would deform the type of reforms we put on the table—and would weaken the type of financial advice that is put forward to people and see those small businesses potentially lose out on the financial advice or the return that they would get. They would see people line their pockets at the big end of town at the expense of smaller people. It is absolutely scandalous.

What is absolutely happening here is that these reforms that are being dressed up as improvements to the act do nothing of the sort. As the member for Griffith rightly pointed out, they were put forward a few days before Christmas because the government did not want to have any scrutiny of what they were doing. They then expected people, as the member for Griffith pointed out, to respond over January; and then, if they were not going to get it through, they would try to just ram it through as regulations instead of accountable legislation. Why? Because they did not want to have on full public display the fact that there was this grubby operation designed to repay the huge fundraising effort that you saw the now Minister for Finance and Arthur Sinodinos as the Assistant Treasurer attending. We know they were going to a lot of fundraisers, and I would be interested in knowing what type of commitments were given then in terms of what would happen on financial advice.

It is a truism of the modern Liberal Party that they soak in the dollars from the big end of town, harvest the votes of small business, sit on the loot and do not do anything to repay the trust that was given unless you are a big business or big interest. They do not care who gets burnt along the way.

If you have a person like Alan Jones, who is no friend of Labor, expressing the view publicly on his program that he has serious doubts about what is being put forward by the Liberal Party in terms of the moves to de-form the future of financial advice reforms, then you have got to be worried. You seriously have to question what is being put on the table and whether or not it represents a fair deal for people—because it certainly does not. People on the other side of the chamber are worried that once every two years you would be required to get an update—to re-sign a contract. They say that this is onerous: that once every 730 days you might go back to your financial adviser and be required to look at how you are travelling and whether or not you re-sign. They say that this is heinous. They say that this is outrageous.

Those on the other side of the chamber weigh things up. They look at a person who has lost their life savings as a result of poor financial advice and then they look at a person who has to go back once every two years to their financial adviser. And they think, no, the paperwork is worse. It is worse to have to fill out more paperwork. It does not matter that that person, who is expecting in their senior years to rely on a decent level of income and savings, has nothing—that they are left destitute, that they are have to live with relatives or friends, and that they are denied the dignity of being able to enjoy their later years and to reflect on what they have done. No, the worst thing is the paperwork; that is what those opposite concentrate on.

People are doing this all the time. People out in the broader community are re-signing contracts every two years, all the time. If you go and get a mobile phone, you are re-signing a contract every two years. The general public do not have a problem with that. Having to re-sign a contract has not stopped the progress of this great nation. But these people opposite seem to think that it will threaten the absolute financial foundations of the country if we make people go back to their financial advisers to make sure that everything is on track, and re-sign their arrangements.

It is simply absurd that that is what the government is putting forward. They are saying that this is going to create a bulk of red-tape weight on the nation. I will tell you what I would rather stick up for. And I know every person on this side of the chamber would rather stick up for the fact that someone can live in dignity and have the income they rightly deserve in retirement, than be worried about whether or not they have to go back every couple of years to see their financial adviser, or to test the type of advice that is being put forward.

In the place of Labor's reforms, we have here the Liberal Party basically running to the bell that is being rung by big banks, who did not want to have to justify why it was okay for a bank teller—I do not dispute for one minute the knowledge of most bank tellers, who are trying to do the right thing—to give financial advice. You would want to have someone specialised, who would be able to give you the proper advice, who could account for their advice in the breadth and complexity of financial products, and who would be able to answer questions and give advice in the best interests of the consumer. What is wrong with that?

What is wrong with asking that someone who is giving you advice is doing it in your interests and not in terms of their interests or in their employer's interest. Yet this simple proposition seems to be the most devastating of all to those opposite. They think this is crushing. Again, I restate the point that on this side of the chamber we would rather have protections in place that are looking after people. They are not onerous. I would rather have them in place than what we have at the moment, which is simply a grubby payback for donations that were made for the sake of getting people elected. Those opposite benefit in terms of their election, but the people who depend on a decent financial retirement are denied that.

Look at the type of reforms we put forward: the best-interest duty, which I reflected on a few moments earlier; the opt-in mechanism requiring advisers to get their clients to opt-in to receive ongoing service every two years; the annual disclosure; and the conflicted remuneration provisions that we put forward. All of these are as a result of seeing, one after the other, the terrible situations where people lost millions of dollars. In particular, our reforms arose out of the terrible circumstances of Storm Financial.

I have also sat with people who have been affected by the collapse of Timberland Financial Group and the types of rorts that occurred there. Those poor people said to me that they would never have believed that they would, after having had a relatively prosperous life, at the tail end of it feeling like they were going to live like paupers. Again, these people are being told, 'We don't want to protect you from that type of circumstance.' That is what the coalition is telling these people. The government could not care less that these people had been put in this terrible position where they lost their life savings. I would not want to look someone in the eye and say, 'I could not have gone the extra mile to protect you, and in particular to protect your financial security in later life,' simply because those opposite had collected a great fund-raising kick prior to the last election and had made this commitment that they would water down these reforms.

I have already reflected upon the fact that the government were trying to usher in these reforms just before Christmas. They were trying, during the January break, to get people's reactions to them. They were trying to make these changes by regulation rather than legislation. Then, if you look at the contortions that they went through to avoid scrutiny before we rose at the winter session you will see the way they have gone. You can clearly tell that they are trying to do everything they can to avoid scrutiny and to confront the justifiable anger that exists in lots of people over what is being done here, and the type of things that are being put forward. Look at the reaction of CHOICE, who represent consumers, for instance. They said:

When the wind back of consumer protections is explained, it is clear it will hurt consumers. CHOICE's nationally representative research found 81 per cent of consumers were concerned that bank tellers would be able to sell complex financial products like superannuation without assessing customers' personal needs and that they would earn a commission for doing so.

If, for example, you look at the comments of Mark Randall, who is the Chief Executive Officer of the Financial Planning Association of Australia, he says:

… the FPA strongly opposes any possible reintroduction of commissions for financial product advice on superannuation or investment products. There are several risks which are associated with commissions for general advice.

That association outlines at great length its concerns at what was being put forward by the coalition.

Mr Richard Webb, Policy and Regulatory Analyst, Australian Institute of Superannuation Trustees said:

Mums and dads expect advice from advisers and they expect sales from sales people. Investors have an understanding of the difference between those two terms. We note that the Cooper review wrestled with this and concluded that:

"… commissions should be banned on all insurance products in super, including group risk and personal insurance."

Ms Josephine Root, National Policy Manager, Council of the Ageing Australia said:

We believe the cumulative effect of these changes is to seriously weaken the reforms, giving less consumer protections and ultimately undermining confidence in the financial advice sector. We are concerned that people will opt out of getting financial advice and, therefore, not get the maximum benefits that they could and in the long term be a cost on the taxpayer and government because they will move to not having sufficient funds in retirement.

This was the whole process of devising the national pool of savings that were represented in superannuation. In terms of what you see with the growth of self-funded retirees there would be a pool of savings that could deal with this demographic wave of an ageing nation that we are all confronted with, regardless of your politics. We simply cannot afford to have all of those people on a pension, and they would be better served by having a strong retirement income which provided an adequate return, and making sure that they had decent super, as the shadow minister rightly points out, then the cost would not be transferred to the taxpayer.

What happens in the instances where people do lose considerable millions of dollars? We talked about Storm Financial, Timberland, Westpoint and a number of others that had fallen over. All we will see is a shift from having private funds, private savings. When those people lose that where do they go? Naturally, they will turn to the government with the expectation that they should be able to. And they will have to as they will have no income and no other way of supporting themselves, and the government will have to foot the bill. So, as a result of the Liberal Party getting its great little fundraising stash, weakening these financial laws, the taxpayer is forced to ultimately foot the bill as a result of these reforms. It is simply disgraceful, and it is why I keep going back to the point that people in the general populous, the general public, are rightly upset about this. The more they realise what this means and that this is not in their best interests, the angrier they will get, and they should be even more angry when they realise what the longer term ramifications of this will be, not just on the individual, but on the taxpayers as well, given what is being put forward and what we are expected to rubber stamp in this parliament. I mentioned the fact that the coalition tried to ram this through at a time when the general public would not be expected to engage fully in consultation.

Also, along the way, we lost an Assistant Treasurer, and the responsibilities for this job went to the finance minister. This is the finance minister who tells us that there is a budget emergency and then the Treasurer tells us there is not one. The Assistant Treasurer's spot is left vacant, and we do not have a person with their full attention on one of the most significant reforms that people will face in their later lives. At what point will they appoint an Assistant Treasurer to fill the spot that has been vacated by the departure of Senator Arthur Sinodinos and have that person usher through and be cognisant of all the complex facets of this debate? Instead they leave it to a finance minister who is juggling two roles. Actually he is juggling three roles—he is doing the work of the Treasurer, plus his own role, plus the Assistant Treasurer's role. He is the 'Super Treasurer'. Given that the Attorney-General has the terrible case of reverse Midas, where everything he touches turns to dust, no wonder they want him. (Time expired)

Laurie Ferguson (Werriwa, Australian Labor Party) Share this | Link to this | Hansard source

I rise to speak on the Corporations Amendment (Streamlining of Future Financial Advice) Bill 2014, which, essentially, undermines significant provisions of the Future of Financial Advice legislation. The member for Kingsford Smith in an earlier contribution contrasted, as he saw it, the difference between the two sides of this House, and I thought he was very telling about his personal experience on the relevant committee that structured the legislation that we are destroying this evening. He had very genuine tales of people whose houses had to be sold, whose sometimes limited savings were totally destroyed. He obviously, as did we all, stressed the impact of Storm Financial, Trio Capital, Opes Prime, et cetera, in precipitating that inquiry and that legislation.

I thought that, rather than the contrast between the two sides of the House, there was an equally telling contrast between the contribution of two members on the opposite side. The member for Riverina, who is in the House, spoke of the government getting on with the job. He talked about the mess of the previous government. He boasted of his own pronounced business acumen. He took time to praise Senator Cormann as one of the greatest financial thinkers of the early 21st century. He spent most of the time sailing the current legislation in a very negative contribution. He had the effrontery as well to condemn the previous government for lack of consultation. With heard more recently the way in which they rushed this legislation over the Christmas period so as to avoid consultation. Those that have followed this debate actually know that the previous legislation came after an extensive inquiry with significant investigation of what had occurred in those collapses.

There is a contrast because the member for Bradfield, who has a fair bit of knowledge in this sector, came in here and gave a very different slant. He claimed that the government was broadly supportive of the previous government's measures; they were his words. He went on to speak of 'some amendments'. He was, in a sense, minimising the difference between the two. There is a reason for this because he actually knows what is happening out there in voter land. He is not living distant from public commentary.

When we speak of these other collapses that were so crucial in persuading the previous government to try to protect consumers, there has been comment more recently. Christopher Joye in the Financial Review commented on a more recent problem:

The CBA crisis helpfully highlights the problems that can arise when people try to push products while simultaneously offering consumers supposedly independent advice that is in their "best interests".

He described the performance of the coalition as:

… amateurish efforts to unwind Labor's Future of Financial Advice (FoFA) laws.

More recently, of course, we have had yet another instance of the danger that confronts the Australian people and people who have worked all their lives to get some superannuation savings. Some of it might be very paltry compared to the expectations of members in this House, but for them it is really crucial. We have another instance of this which was cited by Adele Ferguson in the Sydney Morning Herald of 16 August where she and another author spoke of:

… revelations in Fairfax Media this month that hundreds, possibly thousands, of customers of Macquarie may have been wrongly classified as sophisticated or wholesale investors rather than retail investors to get around the extra regulatory requirements and paperwork that advisers must complete for retail clients.

We have two highly respected Australian operations being forced now to apologise to the people they have been giving advice to because of the poor manner in which it was given and the misleading way in which those people were handled. That is the kind of reality that is still out there.

The government, rather than trying to come in here and sloganise about 'regulation and red tape', should be aware of the reality of life. We went through a financial crisis precipitated in the United States because of this exact deregulation in housing mortgage finance and in the way that American banking and financial institutions had, over a period of time, been allowed to have more lenient controls. We went to a situation where Australian jobs had to be protected. Massive revenue had to be poured into saving Australian jobs because of an international crisis precipitated by lack of controls. And they have the effrontery today to say that it doesn't matter that the people in this country trust financial advisers. When we talk about them it is very interesting, isn't it? The recent debate has started to look at how skilled these people are. It has been shown that you can basically get a financial advice title with eight days of work and that you do not have to have any tertiary qualifications. There is a plethora of financial training operations out there that are very dubious. That is another aspect which has fortunately been exposed lately.

What we have here is a very, very real unwinding of this. Whilst I thought the member for Bradfield was in general more persuasive than many other people on the opposite side, I thought it was a bit rich when he tried to defend the undermining of the catchall provision of best interests by saying that this particular phrase, which they are deleting from this legislation, is exceptional and subject to unbelievable legal interpretation problems. That was his argument why we do not, in other words, demand that financial advisers have the best interests of their clients. He pointed to the phrasing: '…take any other step that, at the time the advice is provided, would reasonably be regarded as being in the best interests of the client, given the client’s relevant circumstances'. He says that we can justify decreasing the protections of Australian consumers, decreasing the protections for people who have saved all their lives to have some kind of security—basically allow people to not act in their best interests—because this phrase would lead to difficulties in litigation and in regards to interpretation! You would not have to be too bright to understand what that phrase actually means.

As well as that we have had the scrapping of 'opt in', allowing advisers basically for the rest of their lives trade on a stream of money coming from advice given decades previously. What is so unreasonable about every two years requiring them to in any manner justify themselves to the people they are supposedly assisting and to actually give those people some knowledge of what they are doing for them? They talk about 'getting the balance right'. Is it that unreasonable that people get some kind of protection in those circumstances?

They intend to amend it so that advisers only have to provide annual disclosure to clients who commence with them after 1 July 2013. If it is justified on 1 July 2013, why the hell is isn't it equally justified for people before that date? As a previous speaker said, the way in which this government is obviously bending to corporate interests is so strongly driven home by that particular provision. Finally, and importantly, they are lifting the ban on conflicted remuneration. The ban will only apply to personal advice not general advice—and we all know that that general advice provision has been changed in such a manner that even there the impact will be lessened.

It is not only in financial advice; in so many policy areas we see this government driven by the corporate interest. There was a debate on Monday in private members' business about charitable controls—every charity in this country supporting transparency, supporting people being able to know that their money is donated for a good purpose and is being used properly. But just because those private managers of charitable trusts are upset, just because there might be some kind of investigation of the way in which they—in a similar fashion to people getting payments for financial advice for decades—are ripping off his charitable trusts, they are going to scrap that particular legislation. We have also heard recently loud thoughts from them that maybe we should ease the controls over people on various company committees.

It has been said that this government will liberalise the way in which these companies can operate so that even if they commit the gross, indecent activities of James Hardy—in trying to avoid its asbestos responsibilities—they will not be affected.

In summary, this particular legislation has the wrong priorities. It seeks to undermine protections for Australians who really need that kind of protection under the guise of concern, with red tape, bureaucracy and regulation et cetera.

Debate interrupted.