Ursula Stephens (NSW, Australian Labor Party) Share this | Hansard source

I just wanted to make this really important point: we travelled quite significantly and time and time again we saw the extent to which the financial advisory industry was so poorly regulated. All we could do was listen with jaws dropping to stories of people who were being advised—in good faith, they thought—to do the most extraordinarily unwise things, risking their financial future. I know Senator Williams has a particular interest in this. We have shared many stories about how people in the bush have been caught in exactly the same kinds of situations. The proposals that we had to consider and the recommendations that were made out of that inquiry really reflected the horrible circumstances that were part of the evidence to the inquiry. We really felt that the government and the opposition knew that there was a need for some critical action to be taken.

I will give you just one story—perhaps I might share two. One story is of the Doyles—Barry and Deanna Doyle—from Townsville. They were an ordinary couple in their 60s who were not particularly wealthy and not particularly sophisticated financially either. Mrs Doyle was retired. Mr Doyle was still working part time. As a result of financial advice that they never should have been given, they ended up owning a share portfolio costing over $2 million, with debts to match, on which their annual interest payments eventually rose to nearly $200,000. The Doyles had been modestly secure before they were advised by Storm Financial. They had paid off their mortgage. They had about $600,000 in superannuation. But Storm's investment advice was to borrow against their home and use the cash to raise yet more money to invest. They increased their borrowings—or exposure to the stock market—on the advice of Storm Financial 11 times in two years and ended up not only losing their super and their share portfolio but also with a debt of over $450,000 on their previously unencumbered house and with not enough income to make the repayments. Quite frankly, their situation was that they were completely financially wiped out.

We heard story after story. There were thousands of people who, on the advice of the financial service industry, entered into high-risk transactions in which they were likely to lose their money and even their homes—and they did. I was particularly taken by a story that we heard in Wollongong from another gentleman, a very articulate but desperately angry man who had been the victim of a car accident. He had received a compensation payout which he had been advised by the insurer needed to be invested wisely because this insurance payout meant he would not be eligible for any kind of Centrelink payment until he reached retirement age. He was in his late 40s at the time. With the advice of a financial adviser, he invested all his money in a particular strategy and was completely wiped out. He was, at the time we spoke to him, almost homeless, living on the charity of friends, not eligible for any kind of social security support and not eligible for any kind of compensation for the way in which the financial adviser had completely ripped him off not only through gouging of fees but also through poor investments. The total unfairness of this man's situation was enough for us, as committee members, to say, 'Something must be done.'

The things we recommended in that report which were brought into effect in the Labor government's legislation are now being systematically challenged and wound back. The idea has been raised of dumping the opt-in demand that requires financial advisers to ask their clients whether they want to continue with an investment. The removal of that opt-in requirement would mean that they no longer need to ask the client's agreement before collecting fees automatically every year for financial advice that the clients have never sought. Any existing fee arrangements would continue to exist unless the arrangement was terminated. The opt-in requirement sounds like something being done in all fairness for transparency and good financial practice, one would have thought, but it is something that the financial services industry has resisted from the beginning and has systematically campaigned against to ensure that Senator Sinodinos was prepared to accept their advice.

The other issue is fee disclosure. The legislation that the government is now moving actually removes the requirements for advisers to disclose fees to all customers who entered into a fee arrangement before 1 July 2013, when FoFA commenced—so all existing clients can be kept in the dark. This is what the government is talking about as a reform. There is a trend that I want to flag, which I am going to come back to very shortly on this issue, and that is the influence of the financial services industry on the government's approach to the administration of charitable trusts, where we are seeing the same kind of insidious insistence that fees and charges be hidden from the clients. What happens if you are a trustee of a financial organisation, managing what is now called an orphan trust where there are no living trustees other than the trustee manager? We are seeing the same kind of approach that will hide financial charges and gouge the management of financial affairs in these kinds of financial investment mechanisms.

This issue is really about the financial industry's influence on this government. It is certainly not about protecting the interests of consumers in any way, shape or form. It will lead to pensioners and other people in their retirement years losing their savings all over again. It is poor policy, it is bad policy and it is going to leave the most vulnerable people, who are not financially literate enough to understand their superannuation, at the mercy of a gouging financial industry. It is just outrageous!