David Bushby (Tasmania, Liberal Party) Share this | Hansard source

I rise today to also speak on the Corporations Amendment (Future of Financial Advice) Bill 2012 and the Corporations Amendment (Further Future of Financial Advice Measures) Bill 2012, which together represent a flawed package for change in this sector that is likely to lead to increased costs and reduced choice for Australians seeking advice to improve their financial future. Before I get into the details of the bills, I will put a quote to the Senate and make a few comments about it:

The government's new found power has also led to an arrogant disregard for the democratic institutions of our parliament. I talked before about the role of the Senate in tempering executive excess and in holding governments to account. Given the radical path that this government has embarked upon, that function should be more important than ever. Unfortunately, though, the job of the Senate will also become more difficult. The government has shown that it is not interested in maintaining the institutions of the Senate. Just as it wishes to silence student organisations and just as it wants fewer people to vote, so it wishes to silence the Senate. That is why the number of sitting days for 2005 has been slashed. That is why there is talk of changing the procedures of the chamber, introducing stronger time limits, increasing the use of the guillotine and changing the activities of Senate committees. The government's contempt for the Senate is clear. Removing parliamentary impediments to the passage of its legislation is gathering what I think is unhealthy momentum in the government.

Many people might think that the quote I have just read sounds as if it may have come from Senator Eric Abetz or Senator Brandis, or perhaps as if it were Senator Fifield or Senator Macdonald railing against the excesses of this government undermining the democratic institutions of this place. Certainly those senators and others have railed against the government's approach to truncating the Senate's proper scrutiny of legislation that the government is trying to put through. But, no, that quote did not come from any of those senators or indeed any coalition senator—it was delivered by the Leader of the Opposition in the Senate at that time, Senator Chris Evans, in his contribution to the debate on the address-in-reply to the Governor-General's speech on 17 November 2004. It highlights the fact that this government is at best inconsistent in its approach to the examination of legislation and the need for proper scrutiny and transparency and at worst potentially hypocritical.

I now turn to the bills themselves. The coalition will be moving a number of amendments that, if passed, will address most of the flaws in this package and render it worthy of support. The most important of these amendments will require the government to table a regulatory impact statement on the full Future of Financial Advice package—or FoFA—that has been assessed as compliant by the government's Office of Best Practice Regulation. It will remove the opt-in requirements and it will remove the retrospective application of the additional fee disclosure requirements. The amendments will improve the drafting of the best interest duty and they will refine the ban on risk insurance commissions payable within super and delay the implementation of the package until 1 July 2013.

The financial services and advice industry provides an extremely important service for Australians. Financial advisers assist Australians to better manage financial risk and mitigate against unexpected life events and generally increase their wealth and prosperity. Many people who engage financial advisers do so because they acknowledge they have a need for assistance to successfully manage their own financial affairs or they are looking for ways to grow or maximise their wealth. In the process, a significant degree of trust is placed in financial advisers and planners to act in the best interests of their clients. Because of the good faith with which consumers engage financial services providers, the potential for that trust to be breached and the possible dire financial consequences, the coalition supports a robust regulatory framework for the financial services industry to ensure that there is effective consumer protection. There can be no doubt that Australia's strong regulatory framework, legislated during the Howard years, helped the financial services industry get through the global financial crisis, and the events that unfolded as a result, largely unscathed.

However, there is always room for improvement. The report of the Parliamentary Joint Committee on Corporations and Financial Services, which was chaired by Mr Ripoll, a government MP—a committee that maintains a government majority—set out a blueprint that could have received bipartisan support if it had been adopted by Labor. The catalyst for that inquiry was of course the high-profile collapse of a number of financial service providers, particularly Westpoint, Storm Financial and Trio. It was felt, given the extremely severe financial consequences suffered by investors in those schemes, that it was wise to examine the regulatory system applying to financial advisory services to see what went wrong and if regulation could be improved to minimise future risks of similar collapses. The main proposal of the report of the Ripoll inquiry, as it became known, was the need for a fiduciary duty to be placed on advisers that would mean that they were obliged to put their clients' interests ahead of their own. The recommendations of the report were well considered and they were reasonable. But the government decided yet again to corrupt an essentially good idea by incorporating aspects intended to deliver an agenda other than good policy outcomes, an agenda that incorporated the wishes of vested interests, an agenda that has led to a number of unexpected, unexplored and certainly not recommended changes to the FoFA proposals, with many unintended—and possibly intended—consequences for the industry.

This was generally done with little or no consultation, no apparent understanding of the consequences and even a reckless disregard of those consequences. The important positive aspects of this reform package could have been implemented almost two years ago with bipartisan support if the government had chosen to follow the recommendations of the Ripoll report. Instead, these reforms have been delayed and corrupted. These bills as they now stand will place an inordinate amount of regulatory burden and cost on the financial services industry—costs that will flow through to retirees in the form of lower retirement incomes. They have been poorly drafted, with little meaningful consultation and a near total disregard for the impacts the legislation will have on the sector.

As is so typical of this Labor government, these bills will increase red tape, regulation and costs for both businesses and consumers for little or no additional consumer benefit or protection. In fact, the government's approach to this legislation was so bad that, embarrassingly, it failed the government's own Office of Best Practice Regulation testing requirements. That is right—on 8 August 2011 the Office of Best Practice Regulation noted that an adequate RIS was prepared for only part of the proposed FoFA changes. Labor has not conducted a satisfactory regulatory impact statement for the whole package and therefore there is not adequate information to assess the impact of FoFA on business and consumers or to assess the costs and benefits of the proposed changes. This has not stopped the government trying to plough this legislation through the parliament today. It is no wonder that submission after submission to the Senate Economics Legislation Committee that examined these bills, and witness after witness at the inquiry, raised issues about the lack of rigorous analysis of the impact of this legislation as a major concern.

In addition to their failure to conduct an adequate regulatory impact statement, the government also did not see fit to listen to the key stakeholders who urged them to rethink aspects of this disastrous legislation. I have been contacted by a huge number of affected stakeholders who are simply flabbergasted by Labor's approach to this legislation, stating that their concerns have fallen on the deaf ears of a government intent on rushing through this package and determined to ignore those concerns. The first of many concerns I will raise is the immense cost to industry that these bills will impose. John Brogden, from the Financial Services Council of Australia, told the Senate economics committee inquiry that conservative estimations demonstrate that the legislation will initially cost the financial services industry $700 million to implement and $350 million every year thereafter—$700 million of regulatory burden and red tape on one industry in one year, and $350 million every year thereafter.

In the end, who will pay for this regulatory cost? Inevitably, retirees will pay out of their retirement incomes. The government is now highly skilled at drafting industry-destroying pieces of legislation. If a business in Australia is not particularly badly impacted by the great big mining tax or the carbon tax that we would never have under this government, the Gillard Labor government will devise a policy to cripple free enterprise with regulatory burden and cost blow-outs instead. It is little wonder that so many in the financial services industry from my home state of Tasmania have contacted me out of their grave concern that they will be unable to remain in business if the FoFA package is passed. That brings me to my next point, that the legislation will cause a significant number of job losses. Industry participants told the Economics Committee that forecasts project that there will be in excess of 3,000 job losses should this legislation be passed. The committee heard that already individual operators who can see the writing on the wall are closing their doors and seeking shelter under the umbrellas of larger financial services firms who can better absorb some of the administrative burden that is being imposed by FoFA. The closure or failure of small businesses has significant economic impacts, particularly in rural and regional areas of Australia, where, the committee was told, financial services providers are shutting up shop or leaving in droves in response to the FoFA proposal. Naturally, there is a fallout for the communities that these closures leave behind and for the clients that they served. The reality of this legislation is that it will inhibit ordinary Australians—mums and dads, grandparents and retirees and young professionals just starting out—from accessing basic financial advice by making it too difficult and too costly for the average Australian to obtain.

I will return to the practical operational issues that this package will impose on the industry. Another issue raised time and time again throughout the inquiry was the opt-in process, which requires consumers to re-sign contracts with their financial advisers on a regular basis. As drafted, the opt-in requirement will add unnecessary red tape and additional costs. Not only that, it defies basic common sense: there is no precedent for this sort of government red tape in the financial services and advice relationships industry anywhere in the world. That claim was backed up by Treasury, whose officials were unable to point to any examples despite repeated requests to provide such information on many occasions over a long period of time. I recall requesting that at estimates on a number of occasions. Additionally, and not surprisingly, studies of human behaviour have shown that opt-in does not work nearly as well as opt-out. Why would it? If I engage a financial planner and I am not satisfied with their advice then I would quickly seek to terminate the professional relationship and go elsewhere to obtain advice that was more satisfactory to me. But why, if I engage the services of a financial planner and I am satisfied with the services he or she provides, do I need the government to legislate for me to reaffirm that relationship every two years? Why should I not be able to enter freely into a contract that suits me and that does not require me to re-enter it every two years?

My own constituents in Tasmania pointed to the issue of cost in relation to the opt-in requirement. I know of financial advisers in Hobart who have clients in all sorts of far-flung places across the globe, including Defence Force personnel who are serving overseas. The administrative difficulty and cost of contacting these clients simply to reaffirm a professional relationship that both parties are amenable to is not only preposterous, it also jeopardises the financial planner's ability to provide sound advice in the event that clients cannot be located to renew the contract. One adviser in Hobart that I was speaking to has a client in Kazakhstan; he can get in touch with him once a month, at best.

The committee heard evidence expressing concern about the negative consequences which may flow for consumers who do not opt in within the required time frame. There is a strong likelihood that by virtue of nothing but default a client will no longer be considered an 'advice client' if the planner does not receive the client's opt-in renewal notice within the required time period. Clients who fail to understand this may experience significant ramifications at a later date when they attempt to seek compensation from their planner for not advising them of changes to the law, of market movements that may have affected their financial position or of decisions that they needed to make. Similarly, I have heard from many financial planners who tell me that they only hear from some clients when things go wrong, whether it be a death in the family, a severe medical condition or circumstances resulting in an insurance claim. Advisers are concerned that if the opt-in requirement has not been met, they are going to be faced with the unenviable task of informing people who thought they were clients that they actually are not—and at a time when they most need the assistance of their financial adviser.

Coalition senators strongly oppose this push by the government to require people to re-sign contracts with their advisers on a regular basis. It does nothing except further feed the nanny-state agenda of this government. We see no benefit to opt-in and, in fact, can only identify significant issues that are likely to arise, with the high probability that many individuals will fall through the cracks and only realise too late that their financial affairs are not being managed as they thought. With the new best-interest duty in place, appropriate transparency of fees charged and an ongoing capacity for clients of financial advisers to opt out of any advice relationship at any stage, it is clear that there will be adequate consumer protection without the need to impose further regulatory burden and red tape on industry. Interestingly, the only submission to the Ripoll inquiry that did argue for opt-in was that submitted by the Industry Super Network, which represents the union super funds. Its argument was not accepted by the Ripoll inquiry. These opt-in requirements would not have had any impact on preventing the high profile collapse of financial services providers such as WestPoint, Storm or Trio. Opt-in is nothing more than an over-the-top knee-jerk reaction from a government that clearly does not understand the real issues behind these high-profile cases.

The retrospective fee disclosure statements are another operational issue raised by many of the witnesses at the inquiry. The committee received strong evidence that it was the industry's understanding that the government's proposal to impose an additional annual fee disclosure statement would be prospective. But the introduction at the eleventh hour, after more than two years of consultations by the government on FoFA, of a requirement for retrospective annual fee disclosure statements took the industry by surprise when it appeared in the legislation in October last year. The committee was told that this new, late change would double the workload required by industry to implement the changes and would drive up costs and increase red tape even further. The Financial Services Council has calculated that implementation of the fee disclosure requirements will cost approximately $54 per client for new clients and $98 for existing clients—that is, for the retrospective part of it. I have also received representations recently that the practical implementation is not proving as easy as expected, because the information required to be included needs to come from different sources—part of what needs to be on the disclosure statement is in the hands of the advisers and part of it is in the hands of product providers—and the IT costs of getting this to work accurately are much larger than expected; so the cost per client is likely to be larger than that which was originally calculated. It is another example of this government's inability to effectively consult and liaise with industry when drafting legislation.

Yet another concern that industry highlighted at the committee hearings is the provisions that relate to scalable advice. Concerns were raised before the committee that the ambiguous wording of the best-interest provisions in the legislation do not allow for the provision of scaled advice. Scaled advice makes sense. The practice of allowing clients to identify which areas of their financial affairs they need advice for and which areas they do not and then pay their adviser accordingly should not require government intervention or further regulation. But again, just like opt-in requirements, this Labor government thinks it knows better than individual Australians about how to manage their individual financial affairs—which is a bit rich when you look at this government's total inability to manage the finances of the country. Just like the increase in costs, the removal of scalable advice will deter Australians from seeking professional financial advice.

The committee heard from many financial advisers who told of mum and dad clients who only wanted income protection insurance or a life insurance policy but did not necessarily want a root and branch review of every facet of their financial situation. By removing the capacity for financial advisers and their clients to decide on the scope of advice required, the government is removing access to professional financial advice for many Australians who do not need or want, nor have the means to afford, to undertake an extensive review of their financial situation.

Another example of the government's chaotic approach to this legislation is their confusing position on risk insurance inside superannuation. We support the banning of conflicted remuneration structures such as product commissions within the financial services industry and we note that the industry has moved proactively over the last few years to abolish these structures, and we commend them for that decision. But we do not consider the commissions paid on advised risk insurance, be they group policies or individual policies, inside or outside superannuation, are conflicted remuneration structures. Like so many other aspects of this legislation, banning commissions on risk insurance will increase costs and remove choice for consumers. Government and industry super funds may argue that Australians who receive automatic risk insurance within their super fund without accessing any advice should not be required to pay commissions, but Australians who require and seek advice to guarantee adequate risk cover should have the same opportunity to choose the most appropriate remuneration arrangement for them. We already have a problem of underinsurance in Australia and, if anything, the government should be legislating to make it easier to obtain. However, the proposals in the FoFA package will instead increase the upfront cost of taking out risk insurance.

The financial services industry is also concerned about the proposed implementation date of 1 July 2012—less than two weeks away. The coalition believe that these bills, if amended, should at the very least be delayed until 1 July 2013 to coincide with the implementation of MySuper. The committee heard that the implementation of FoFA and MySuper will require significant IT changes and it would be preferable to implement both these changes at the same time. The government has indicated that it will move the implementation date to 2013, but the bills before the Senate still retain the 2012 date.

The best way the government can give effect to its stated intention is to support our amendments. If the government fail to adopt this approach then it will only serve to further demonstrate how completely out of touch they are with their stakeholders. These bills can be fixed with the support of our amendments. If they are fixed, they should be supported; if not, they should be rejected.