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

I start by saying that there has never been any issue whatsoever—and I look in the direction of Senator Whish-Wilson—about the tripartisan support that exists in this place for addressing the matter of financial advisers who seek to rip off their clients or to sign them up to dodgy products which are not in their interests and which really serve no purpose other than to line the pockets of those giving the advice. That is why, when we were in opposition, we actively participated in the Ripoll inquiry, which was referred to by the previous speaker. That inquiry came up with a unanimous suite of recommendations to address the issues that arose from issues like Westpoint, Storm, Trio and even Timbercorp. That suite of recommendations was unanimously adopted by the committee after looking at these issues, reflecting the tripartisan support of all parties involved to try to address these issues.

But FoFA went further. The legislation that the government put forward following the Ripoll inquiry went further than the inquiry's recommendations. We are seeking to make changes to the FoFA legislation to better reflect the unanimous recommendations of the Ripoll inquiry. In that sense, when Senator Dastyari talks about the Bernie Ripoll FoFA reforms he confuses me somewhat. I am not sure whether he is talking about the FoFA reforms or the Ripoll inquiry, because they are not one and the same.

Before the election it was clear that if elected we were going to make these changes. In government we are now seeking to put in place the changes that we took to the election, which were based on our dissenting report in the inquiry to the FoFA reforms. The opposition now seeks to scaremonger. They seek to beat up the idea that we are removing the best-interests requirement that is contained in the legislation and that we are removing all the reforms that were put in place to increase consumer protection in the previous government's FoFA legislation. This is absolutely not the case.

Facts are important when we are looking at this issue, so let us look at a couple. Interestingly, I note today that Alan Kohler, who has been a bit of a critic of what the government is trying to do on FoFA, has put out an article headed, 'Why Cormann is now right on financial advice'. In that article he notes:

The other parts of the government’s amendments will make very little difference now that Mathias Cormann has 'clarified' his undying commitment to banning commissions and making advisers act in the best interests of their clients. Having clarified that, the Minister and his drafters must now focus on de-complicating financial advice, and genuinely making it cheaper for people to get a single piece of advice.

That, in itself, is one of the reasons that we are doing this. We want to make sure that financial advice is both accessible and affordable to Australians. I think the chair of ASIC at one of the earlier hearings that the Senate committee conducted into ASIC's performance made the comment that only about one in five Australians over their lifetime receive the benefit of financial advice. He thinks that that should be one in two Australians, but you are not going to see one in two if you make financial advice more expensive. We need to work out what can be done to ensure that financial advice is both of a high quality and accessible to ordinary Australians. Financial advice is no good if you make it so expensive that only those who have buckets of money in the first place are able to afford the benefits of advice on how to invest. You need to broaden the accessibility and ensure that advice is affordable to all Australians. When it comes down to it, it is often people who do not have a lot of money who really need the advice more than anybody else.

Interestingly, a few weeks ago ABC Fact Check, which is not well known for drawing conclusions in the government's favour, conducted a fact check on Chris Bowen's comments about financial advice, which are summed up in Senator Dastyari's closing comments on the motion. Fact Check looked at the commentary that the financial planning and advice industry is about to return to the bad old days when retirees lost their life savings in dodgy investments that paid big commissions to their advisers. They asked whether that is really the case and after looking into the issue in some detail they conclude:

Mr Bowen is scaremongering. The proposed changes to the conflicted remuneration provisions do not bring back the type of commissions that financial advisers could receive before FOFA was introduced.

It is important to remember that that fact check was undertaken prior to the changes that Minister Cormann announced last Friday, which make that conclusion even clearer.

Let us look at the reality of what we are doing. The underlying objective of FoFA, as I said before, was to improve the quality of financial advice whilst building trust and confidence in the financial advice industry. Whilst the government agrees with the policy intent of FoFA, from the government's perspective it is quite clear that the legislation in parts went too far and impacted the balance between consumer protection and accessibility and affordability of advice. The objectives of the government's improvements to FoFA are to unwind the regulatory overreach created by the current FoFA legislation, which, in the government's and others' opinion, went beyond the original recommendations of the 2009 parliamentary joint committee inquiry; to reduce regulatory costs, thereby placing downward pressure on the cost of financial advice to consumers; and to provide certainty to the financial services industry by clarifying the operation of FoFA.

It is really important to clarify, because this is where scaremongering comes into the debate, that the key consumer protections and the objectives that were placed into FoFA when Labor first introduced it will remain. I emphasise that the key consumer protection objectives will remain in FoFA and I will go through them. Advice will continue to be in the best interests of the client. This is contained in section 961B(1) of the act and it is not changed at all. That makes it absolutely clear that the advisers must act in the best interests of their client. In addition, the advice must be appropriate to the client. That is contained in section 961G and also does not change under our proposed amendments. An adviser must provide a warning if there is any incomplete or inaccurate information. That is contained in section 961H and does not change under our amendments. An adviser must prioritise their clients' interests ahead of their own, which is contained in 961J.

Interestingly, at the Senate Economics Legislation Committee inquiry, senior legal advisers gave evidence that the primary obligation contained in the legislation, and of a much higher standard than the best-interests requirement, was that the financial advisers must prioritise their clients' interests ahead of their own. Legal advisers thought that was a much higher standard than the best interests. I think it is. If you have to put your own interest behind those of your client when you are providing advice then it is quite clear who comes out of that in front.

Further, conflicted remuneration structures, including commissions, that have the ability to influence advice are banned. That is important: financial advisers are banned from accepting remuneration that might influence the advice that they give. That will remain under the changes that we are making. Consumers will also continue to have access to high-quality financial advice, which is clearly one of the objectives of FoFA.

I have mentioned the Senate committee report. The Senate Economics Legislation Committee was asked to look into this and on 16 June 2014 the committee released its report. Overall, the committee found that the proposed amendments achieve a proper balance between providing adequate consumer protection and sound, professional and affordable financial advice. The committee recommended that the bill be passed after the government give consideration to two recommendations: firstly, that the explanatory memorandum include a paragraph to clarify the best-interest obligations and the level of consumer protection that they provide and whether any further strengthening is required to ensure that these obligations cannot be circumvented. Secondly, the government should consider redrafting the conflicted remuneration provisions to ensure greater clarity.

The government has since agreed with these recommendations and has responded by introducing parliamentary amendments and making changes to the explanatory memorandum to address the committee's concerns as expressed in their recommendations

Other findings of the committee included: that the best-interest duty remains robust and comprehensive; that clients receive scaled advice without diminishing their protections; that conflicted remuneration provisions redressed the problem of legislative overreach created by the original FoFA legislation, which essentially banned activities and remuneration structures that could not possibly influence the advice that was being provided to their clients and as such caught up in the net things that were never intended to be caught by FoFA. The committee also found that the amendments were not intended to bring back commissions in any form, which—contrary to some people's opinions or conclusions—was always the intention. Clearly, the wording, in the view of the committee, needed some tightening up to make that clear, even though the intention was that commissions were always intended to be banned in any form, whether upfront or trailing. Looking at general advice and conflicted remuneration, which is one of the hot spots here. The government made an election commitment to amend the law to enable incentive payments which do not conflict advice— (Time expired)