Peter Whish-Wilson (Tasmania, Australian Greens) Share this | Hansard source

We are debating a disallowance motion on a set of regulations to weaken financial advice in this country. But what we are fundamentally debating here today is about the government delivering for rent-seeking special interests in this country. It is about delivering for the big end of town. It is also about reducing protections for consumers and shifting the balance in this debate from small business and consumers to big business.

It is also about the late Noel Stevens. Those who saw the Four Corners documentary on issues around the provision of financial advice in this country will remember the very tragic, gut-wrenching story of Noel Stevens. Mr Stevens was phoned by his local branch of the Commonwealth Bank and asked to switch his life insurance policy from Westpac to the Commonwealth Bank. What he did not know was that the teller at the Commonwealth Bank received a referral fee of $444.60 and the bank employed financial planner then received almost twice as much in ongoing commissions. Sadly, only a few months later Mr Stevens was diagnosed with pancreatic cancer. The bank refused to pay his insurance policy. It said he had a pre-existing condition. This is what the Four Corners documentary was about—I am not being sentimental or political, but it was an absolute tear-jerker. Mr Stevens, in his dying days, was still fighting a court case to get the money to pay out his house for his family. After Mr Stevens' died, a judge found in his favour. He found that the planner did not act in Noel Stevens best interests and that the commissions and kickbacks that were paid to the staff of the Commonwealth Bank might have influenced the advice.

There are two things in that story that relate directly to these regulations today and the laws that were brought in around the Future of Financial Advice. One of them is the idea of conflicted remuneration and the other one is whether financial planners are acting in the best interests of the client. Both of these key critical components of financial advice have been watered down under this regulation and this legislation—not to mention other important factors such as opt-in agreements. I have heard Senator Cormann talk about this. I heard the Alan Jones interview. Senator Cormann has been very clear on record in the Senate during question time that commissions no longer exist. I want to quote Peter Martin, who has covered the story recently in The Age. I have been very impressed by the media coverage of this issue. In the last six months a number of journalists from a number of different media outlets have shown very sophisticated and excellent coverage of these issues surrounding financial advice. This is probably because this has been dragging on for a very long time and a lot of people have come to understand the detail around these issues. Mr Martin said:

Commissions will continue under the changes the Coalition is planning to sneak through. So long as the commissions are part of a "balanced score card" of rewards and so long as the tellers are not making "recommendations" the banks will be in the clear.

But it’s easy to get confused.

The regulations and the legislation that will no doubt come back to this House are very complex and difficult to understand. I used to work in this industry. I have been a banker. I have been a financial planner. I find it very complex and difficult to understand. Alan Kohler is another journalist who has followed this issue very closely, and he has put this in better words then I possibly could. In an article for The Australian he said:

In other words, the government is deliberately constructing an absurdly complicated set of regulations designed to allow banks to continue using advisers/planners to sell their superannuation and wealth products.

The word 'sell' is very important here. As I have pointed out in this chamber before, the banks in this country have in recent decades undergone radical changes in the way they have structured their business models. They have become vertically integrated. That means, apart from having savings accounts and basic financial investment products, they have moved down the value chain—or up the value chain, depending on which way you want to look at it—into the area of the provision of financial advice. They have manufactured products and distributed their products across their networks—and they have made a lot of money out of this. One reason the banks have been so profitable in this country is that they have been able to generate what is called non-interest income. They make interest out of deposits in savings accounts—it is about the difference in margins between the rate they borrow money at and what they pay out in interest—but they make most of their money from the sale of financial products.

As Senator Ludwig has just said, the government first put through legislation before 30 June and, knowing that it was going to fail, they rushed in regulations. The question is: why rush this now? Why bring back legislation now?

My understanding is that if these regulations are not disallowed today they are in place till mid next year. So why are we looking at this legislation coming back? There are a couple of reasons. First and foremost, during the Senate inquiry into the FoFA regulations evidence was provided by the Australian Bankers Association, who cover the big end of town, that they had an expectation that the government would deliver these changes to FoFA. They had an expectation. That smells like a deal to me. They had done a deal; whether it was with Senator Cormann or with Senator Sinodinos prior to Senator Cormann I do not know, but they had an expectation. They were not happy with the FoFA laws. Rather than adapt their back office, their compliance systems, to cope with the changes that were going to be brought through in FoFA they lobbied against them instead. So confident were they that these FoFA changes would be put into law by 30 June they risked their back office systems and potential costs of hundreds of millions of dollars. That is how confident they were that the government would deliver the changes. And it did. It rushed them through on a Sunday afternoon. On 29 June the regulations came into effect, while we were all out of this building. That might just be a coincidence, Senator Cormann, but the evidence we received in the Senate inquiry was that the Australian Bankers Association were very confident that you were going to deliver these changes for them.

These changes are opposed by a broad group of stakeholders across this country. Consumer groups oppose them. Pensioners oppose them. A number of interests within the financial services industry also oppose them. The question is: what were the FoFA laws originally designed to do? They were originally designed to bring back into the financial services industry the confidence and trust that was lost through a series of financial scandals. Only recently, thanks to the Senate Economics Committee's ASIC inquiry, we have uncovered a lot more information around financial scandals. That made it doubly important to put through the FoFA laws in the way there were originally designed. Of course not everyone is going to be happy with a regulation. According to the government the original FoFA laws were as they were because Bill Shorten was delivering for his union mates in the industry super funds. That is not a good enough argument for changing a set of laws, on which there have been years of consultation, that have been years in the construction and that have been designed to rebuild trust and confidence in the financial services industry.

The Greens came up with what we thought was a very good compromise on this. That was that the full FoFA laws should be passed through parliament and that, after a period of time, an independent review process should occur to assess whether there was going to be an increase in costs and red tape and all these arguments that Senator Cormann has talked about. A number of these laws have not even come into effect yet. There is no evidence about the losses from these laws. What we know and what is becoming increasingly clear is the challenge that the FoFA laws will confront by the vertically integrated big financial services companies. The second reason that I consider this is rushed is that David Murray, ex-CEO of the Commonwealth Bank, is delivering a wide-ranging, broad spectrum, hopefully very comprehensive set of recommendations around the financial systems inquiry in this country, which will look at all these issues in detail. The interim information we have received is that he is taking seriously the issue of vertically integrated business models. Going back to Noel Steven, these products, where products are sold on a volumes basis, still exist. Why rush this legislation back in? Let us get rid of it by supporting this disallowance motion so these things can be properly incorporated into any new legislation.

We also understand that the Australian Securities and Investments Commission is also looking at issues around the provision of financial advice and has been doing studies on this. That also has not been released yet. Given that we need to incorporate information into our decision making to get the policy right and to get the legislation right, why are we rushing legislation back into this house? We should support this disallowance motion today so that we as parliamentarians have the chance to get it right and incorporate in the legislation these current reviews into the financial services industry that are underway.

I would like to get on the record today that financial services and financial planning are critically important to this country, not just to individuals who are learning how to manage their own finances, many of them struggling, many of them battlers, many of them saving for their retirement, helping out their families not just for their private benefit but for the public good. When we have that wealth underpinning our economy and our society it impacts the decisions we make, what we consume and how we invest. The more people in this country who get financial advice the better off this country is going to be. There are a number of very good financial planners and investment advisers in this country. In fact, the big majority of them are excellent and they do the right thing. However, unlike what Senator Cormann has said previously, this is not a situation where we are talking about a few bad eggs. This is a situation where in the large financial service companies there is a sales based culture that is supported by their business models. I go back to the information that has come out of the ASIC inquiry.

I am going to quote another journalist who is doing an excellent job on this, Adele Ferguson at the Age. She wrote:

The structural flaw in the system is an estimated 80 per cent of the country's planners are either employed by or aligned to the big four banks and AMP. It is akin to a doctor being on the payroll of a drug company. … In a nutshell, in the vertically integrated model the institution gets fees and volume rebates from the financial planners for selling the product, they receive big bucks from the administration of the platform and they earn money at the funds management level.

She then goes on to talk about Jeff Morris, the CBA whistleblower, who gave evidence at the Senate inquiry:

Morris is adamant dodgy Don Nguyen was not a rogue planner—

He was the gentleman who was pursued—

but part of a fundamentally flawed, vertically integrated sales system, which uses financial planners to push their financial products on to their customers.

Morris believes that as long as these businesses remain vertically integrated, the "product-flogging" imperative will prevent financial planning from making the transition to a true profession.

That is what we all want to see.

We do want to see this become a true profession in the sense that all Australians are confident to go and receive financial advice. We owe it to the financial planners and investment advisers in this country to uphold these FoFA laws, give them a go, restore confidence and trust in the system and then all Australians will be better off. The Greens will be supporting this disallowance motion.