Sue Boyce (Queensland, Liberal Party) Share this | Hansard source

I am pleased to have the opportunity to speak on the FoFA bills. We in the coalition support financial reform—intelligent, good financial reform. We are not entirely sure that that is what we have here. I am privileged, I think, to have been a member of the Parliamentary Joint Committee on Corporations and Financial Services for a number of years, and to be deputy chair in the more recent past. I was involved in what is now known as the Ripoll inquiry, which came up with a bipartisan report containing some very sensible ideas on how to go about improving the financial planning industry—improving not just the delivery of financial services but also Australians' knowledge of financial services.

I must admit that I continue to be concerned that, while we discuss the lack of engagement of investors in their investments in many cases, we do not really analyse why that might be. There have been a number of inquiries into how we get people to be more engaged. One thing that suddenly emerged from nowhere and is still in this legislation is the idea of a mandatory opt-in by people receiving financial planning services. Every two years, they must sign a letter sent to them by their adviser which says, 'Yes, I still want to be advised by you.' If it were that simple to engage people, that would be wonderful. But that is not how it happens.

It seems to me that we really need to consider more carefully the delivery of superannuation to the many investment funds it currently goes into. Employees do not see their superannuation, under the super guarantee levy arrangements, except as a line item on a statement of their wages. It is not money that they are consciously asked to put into super. It is not money that they perceive as having been cordoned off from one use in favour of another use. In effect, the majority of workers in Australia see their pay minus the super levy, and that is what is they see as their base income. They really do not think of that nine per cent amount, which is set to increase, as theirs. I think that is one of the issues that we need to look at far more closely: how we engage consumers, investors, in their investments.

So the Ripoll inquiry came up with its bipartisan report, and then suddenly, out of nowhere, some of the recommendations were taken up in the FoFA legislation, while others were completely ignored. One of the more irritating aspects of looking at this legislation when we did was that there was other legislation around the MySuper scheme that was not known at the time and other regulations that were not known at the time. A good deal of the inquiry was taken up by financial planners and others explaining to us how incredibly difficult it would be for them to redesign their systems so that they could meet the government's implementation date of 1 July 2012, which at the time was about four months away. Of course, all that is now irrelevant because yes—thank goodness—Mr Shorten did see that it was foolish to ask the financial sector to change systems for the purposes of the opt-in and fee disclosure provisions from 1 July 2012 when everything would have to be to rearranged all over again from 1 July 2013 for the MySuper provisions, which will affect pretty much the same information deliverers.

So at least that recommendation was taken up. But it did mean, as I said before, that quite a lot of the committee's work was wasted in looking into issues which subsequently changed. I think that can only be one demonstration of how poorly some of this material was thought out before it was first put into the legislation. The fact that we have yet more explanatory memoranda tabled tonight by the government about amendments to the legislation suggests at least that they are listening but also that they should have listened a lot earlier to what is being said by stakeholders throughout the industry and by others.

This is the second time today I have spoken about the government's implementation deadlines for material. It would be nice if only in the e-health area the government was also prepared to put the mandatory start date out to July next year not July this year when we have the bizarre situation described earlier by Parliamentary Secretary McLucas that for an e-health online system you can only register over the phone or in person at a Medicare office on the start date of 1 July. At least we know with this one that it is voluntary for financial planners to begin to send out information saying, 'Do you want me to be your financial adviser from 1 July 2012 and mandatory from next year?' At least that is a start. Hopefully online systems will all be sorted out by then. However, we continue to find the opt-in system a strange and anti-business approach to take.

We have quite a lot of governance in this area. There is no reason we cannot continue to improve it. Many financial planners are small businesses. It would seem to me there has been no effort whatsoever put into understanding the needs of small business involved in this area. They range from huge organisations through to quite small organisations and the different needs of those two areas have never been properly assessed or looked at by the government in terms of the legislation. The Financial Services Council had a function in Parliament House this very evening which was addressed by Minister Shorten. Members of the Financial Services Council account for $1.8 trillion of Australian investments, a staggering amount and just a proportion of the funds under investment in Australia. In fact the financial services industry accounts for 10 per cent of GDP and, as was pointed out tonight by Minister Shorten, we have a very small export industry of financial services planning and advice. If that were to be expanded, as it certainly should be with the growing middle classes of Indonesia, China, India et cetera, we can expect this to become an even more massive industry. It is not a massive industry made up of all massive players; there are many small players in this industry, people represented by the Financial Planning Association, for example. They can be quite small, one professional adviser businesses with some administrative support. We need to think about that as well when we take issues around the provision of financial advice into consideration.

I was interested to see that the Financial Planning Association has looked at some with amendments to the FoFA bill and said: 'It's heavily amended. It's not exactly what we wanted but it does deliver. In the end, the final shape of FoFA delivers a sensible outcome for Australia's professional planners and their clients.' With some of the reforms that suddenly emerged halfway through, Mr Mike Rantall, the CEO of the Financial Planning Association said:

We have fought hard for our members from the first hurdle to the last. We hope they will see that the end result is what counts. For FPA members the formal opt-in process may not apply and they may not be subject to the law at all. Our members are also in the best possible position to be captured under the restricted definition of the term 'financial planner' which will be tabled in parliament next year. There are no other groups or bodies that can claim these concessions for their members.

So one hopes that all the mays and mights and 'We'll let you know next year' come to pass for the Financial Planning Association. It was more interesting that Mr Shorten tonight described the financial services industry—not just the Financial Services Council whose members were in attendance—as 'the quiet achievers of our economy'. I suspect they have in many ways been the quiet achievers but they have also been achievers who have not been terribly well consulted by the government, a point made by, for example, shadow Assistant Treasurer, Senator Cormann. He pointed out that we have the government to thank for the constant stream of people from the financial services industry seeking to see him to say: 'Please don't put this legislation through. Please do what you can to stop it.' As our shadow Treasurer, Mr Hockey, has said, we would not be intending to proceed; we will change the opt-in provision when we become the government.

Australia does have a very proud record of reform in the regulation of financial services with progressive unification and simplification of the regulation of the provision of financial services and also of financial services providers. This largely reflects the financial reforms made by previous coalition governments. Certainly, we have no problems with the fact that there is more work to be done, but we started it. We have a strong and proud history in that area and it is an area that we will continue to watch very closely, both to ensure that there is strong governance and that there is sustainability within the industry.

Financial services now comprise 10 per cent of Australia's gross domestic product, which is in fact a larger contribution to the economy than mining, manufacturing or agriculture. So, clearly, it is very important to Australia.

Financial advice must be affordable and simple to understand and it must put the needs of the client first. We have no issues whatsoever with that approach. FoFA, of course, does not meet any of those three criteria. It does not make advice more affordable, it is not simple to understand and it does not put the needs of the client first. It pretends to, but it does not. It increases costs for practitioners and clients by adding unnecessary costs and red tape. It is overly complex and it will lead to a reduction in business activity and will cost jobs. As well, the rather conflated best interests duty used in this legislation fails to establish the strongest requirements of a fiduciary duty.

From 1 July this year the opt-in provisions are voluntarily available. I notice that the explanatory memorandum was produced so quickly that instead of using the word 'voluntary', it uses the words 'weren't voluntarily'. It is just a little grammatical slip, but it does demonstrate how quickly the government has tried to fling all of this together. However, it will be fascinating to see how many financial services advisers and planners are knocking on the door on 1 July saying: 'Let's voluntarily send out these things. We want to voluntarily get our clients to opt-in.' It will be fascinating to see the numbers there. I think we will find that the vast majority will wait for it to become mandatory, on 1 July 2013.

The current time frame for the implementation is now somewhat realistic. Businesses have to change processes and software and they have to train advisers, all before they have even seen the regulations that underpin the legislation. The fact that they have to take so long telling the government this and the fact that we had to hold an inquiry and spend a lot of time just repeating the fact that it was impossible for the industry to change in 3½ months are just two indicators of how this government goes.

The FoFA legislation is still quite likely to cost Australian jobs in the financial services industry. It will lead to the closure of a lot of smaller companies. It will just get too hard. There will be a need for new computer systems and better online facilities—it will just get too hard. In fact, our committee was told that there would be a $700 million initial implementation cost for the proposed changes and a $350 million cost annually thereafter, which would be borne by the industry. This was not agreed with by the Industry Super Network, which represents the union based superannuation programs. They thought differently, but they were the only organisation that did think differently.

We had evidence from AMP and from the CEO of the Association of Financial Advisers, all saying that there was a strong likelihood of jobs being lost. In fact, Mr Klipin from the Association of Financial Advisers said that over 6,800 adviser jobs are at risk. Nothing about this legislation has changed that, except that it has been somewhat pushed out by the fact that it is not mandatory until next year for the opt-in and other provision to have effect.

As the opposition, we see our role as being one of holding the government to account, and we are definitely going to do that. Our longstanding commitment to prospectively apply detailed fee disclosure statements stands. The government's commitment to that should stand, too, but of course it is not. I find it strange that the government has chosen not to implement a fiduciary-duty provision in this. The best thing we have is this confusion called the 'best interests duty'. That is better than nothing, but it is still a bit of a problem.

The other aspect of this legislation concerns some of the powers given to ASIC. They can now have the power to suspend somebody from their business on the basis of an assessment of what they might do, not what they have actually done. If they are likely to contravene the obligations of an Australian financial services licence, they can be suspended. I asked ASIC how they would know if an organisation or an individual was 'likely to contravene' its obligations. They said, 'Oh, we can work it out from history, and we will have a tick and flick sheet that we can design for this.' How ridiculous. This, too, is something that must be amended.