Mathias Cormann (WA, Liberal Party, Minister for Finance) Share this | Hansard source

What is happening in this chamber today is very sad. It is not sad for any one of us individually, because probably none of us in this chamber are going to be impacted personally by this. To the extent that what is happening here today will push up the cost of advice, we will be able to afford it. But many people across Australia who need access to high quality advice will see the cost of that advice being pushed up and they will find it harder to access advice, so for them this is a very sad development. We have a responsibility in this chamber to act in the public interest. We have a responsibility to very carefully consider public interest considerations, and that is very much what the government has done.

We are not having this debate today because of any change to policy settings. Nothing has changed since the Senate twice voted to support the reforms the government has put forward, reforms aimed at creating a better and more appropriate balance between consumer protection and ensuring access to high-quality and affordable advice. The only thing that has changed since then is that there is now, clearly and manifestly, a split inside the Palmer United Party—and a split between the Palmer United Party and the Australian Motoring Enthusiast Party. That is why we are now, for the third time in four months, having this debate about disallowing a regulation that the Senate has previously supported.

In his contribution, Senator Muir suggested that he was not really interested in whether this would help industry funds or whether it was targeted against banks. But he does not have the luxury of saying he is not interested—because industry funds do have clients. If the Senate has the view that the clients of advisers working for banks need to have protection which forces them to re-sign contracts with their adviser on a regular basis, why should the same protection not be available to clients of industry super funds? That is an absolutely valid policy question.

The overwhelming majority of people across Australia—the silent majority, the forgotten people—are not part of organised labour and are not represented by Choice. Choice is not representative of the overwhelming majority of people across Australia. They have always run a left-wing policy agenda. That is what Choice is all about. Choice is not representative of mainstream consumer interests. When people come into this chamber and say that what Choice says somehow provides justification for what is happening here, I completely reject that.

The truth of the matter is that the changes the previous government made went too far. The reasons have been well articulated in this chamber all day today. They went too far because the then minister, Bill Shorten, wanted to look after his friends in the union movement. He sought to impose additional burdens on small business financial advisers and their clients that did not apply to industry funds and their clients. I flag here that if the Senate is of the view that those burdens ought to be imposed on small business advisers and their clients then, in the interests of competitive neutrality, the government will consider moving amendments to the legislation to ensure that these requirements are extended across the board.

Right now, industry funds charge all of their clients a fee, a fee which is not disclosed. It is a charge for what Bill Shorten has fancily described as 'intrafund advice' but which, in effect, is personal advice or general advice. Industry funds charge their clients that undisclosed fee for that advice whether it is accessed by the client or not—and the client of an industry fund does not even have the capacity to opt out of that ongoing fee arrangement. That is not to mention that industry funds are not subject to the requirement to re-sign their clients to ongoing fee arrangements every two years. The government will explore whether, in the interests of competitive neutrality, we can make some relevant changes.

Let us go back to the basics. The government reached an agreement with the Palmer United Party on some very important policy matters. There was a key moment in all of this—and I am sure Mr Palmer will not mind me saying so. You might recall that in early July Mr Palmer was making public comments that the Palmer United Party would vote against our changes to the Future of Financial Advice legislation. That was because he then believed—he had assumed—that the assertions being made by Labor about the effects of our changes were true. Labor, through the shadow Treasurer, the shadow minister for financial services and others, had been out there dishonestly asserting that the government was abolishing the 'best interests' duty, that somehow we were removing the requirement in the Corporations Act for advisers to act in the best interests of their client. That was not true. That requirement remains in the Corporations Act. We did not touch it at all. When I was able to point that out to Mr Palmer, that persuaded him to engage in an ongoing and constructive conversation about how our streamlining measures could be further improved.

Labor also asserted, dishonestly and inaccurately, that we were bringing back commissions for financial advisers. That was also untrue. I think it was you, Mr Acting Deputy President Whish-Wilson, who were suggesting—it might have been somebody else, but somebody in the debate was suggesting it—that it did not mean anything that the ABC Fact Check had concluded that Labor's claims were wrong. But it does mean something. The ABC Fact Check said that Labor's claim that the government was bringing back commissions for financial advisers through these FoFA changes, that we were bringing back conflicted remuneration, was inaccurate and that it was scaremongering. The ABC's fact checkers are hardly apologists for the coalition!

Senator Whish-Wilson then said, 'Yes, but you are still allowing incentive payments to continue in the context of general advice and you are still allowing incentive payments through balanced scorecard arrangements.' But that was not our measure. As far as that goes, our regulation implements Mr Shorten's own legislation. I have said this before. The previous government had been quite explicit in saying that their FoFA changes were not about abolishing or prohibiting incentive payments in all circumstances. The previous Labor government indeed themselves envisaged circumstances where incentive payments to advisers were not conflicted remuneration and would be allowed. For example, Bill Shorten, in his second reading speech introducing the FoFA bills, said:

If … a particular stream of income does not conflict advice, then these reforms do not prevent them from receiving that income.

Further, his explanatory memorandum to the bill said:

… if … the remuneration could not reasonably be expected to influence the choice of financial product recommended, or the financial product advice given … the remuneration is not conflicted and is not banned.

Performance pay is a very important part of lifting performance in workplaces right across Australia. But performance pay in this industry needs to be structured so that it does not conflict with the advice given. For example, it should be able to encourage compliance with the law; it should be able to encourage more training; it should be able to encourage better attitudes towards customers; it should be able to encourage better engagement with stakeholders and a whole range of other things. And, in a very small way that does not conflict with the advice given, it should be able to encourage performance in terms of providing advice in relation to products. But commissions have been explicitly banned, and we have made that ban even more explicit. I refer to a particular section in the regulations that the Senate is considering the disallowance about. The explicit prohibition that we have introduced in our regulations prohibits:

This prohibition comes on top of requirements that:

So the person accessing general advice in those circumstances has to be told and has to be aware of who he is dealing with. Then it is up to the client to make an informed judgement as to whether they want to continue that conversation.

We did reach an agreement with the Palmer United Party and an agreement also with Senator Ricky Muir. We promised to do certain things, to make certain improvements, and in return the Palmer United Party senators and Senator Muir promised that they would not support the disallowance and that they would support the passage of the FoFA legislation when it came up. I guess the problem from the government's point of view is that these sorts of processes can take a while, so we delivered on our side of the bargain. But then certain senators decided to change their tune—to not deliver on their side of the bargain. What I would say to Senators Muir and Lambie—through you, Mr Acting Deputy President—is that the key currency in this business is trust. If you want to be able to deal with each other, if you want to be able to reach agreements on common ground and on sensible public policy ways forward, then you have to be able to trust that any agreement will stick. That is the basic foundation for the way things work here.

I remind the chamber that here we have Labor asserting—inaccurately, I say again. This is an area which is highly technical, where people with a vested commercial interest or a vested political interest can easily mislead people. Mr Palmer initially was misled because he assumed that Labor was telling the truth. When I explained to him what we were actually doing, he realised he had been misled and he worked with us on behalf of the Palmer United Party and the Australian Motoring Enthusiast Party on working up some sensible further improvements. Labor said we were getting rid of the best interests duty—not true. In our agreement with Palmer United we made a provision that there ought to be a requirement in the Corporations Act that certain things are explicitly listed in the statement of advice provided by financial advisers to their client, and signed off by both. No. 1 was that the adviser is required to act in the best interest of their client and to prioritise their client's interest ahead of their own, consistent with the requirements in sections 961B and 961J of the Corporations Act. Indeed, we have circulated amendments in the chamber to the substantive legislation to give effect to that part of the agreement.

We have also agreed that any fees be disclosed and that the adviser will provide a fee disclosure statement annually if the client enters into, or has entered into, an ongoing fee arrangement after 1 July 2013. This is already required under our amended financial advice laws, of course. Labor wants this to be imposed retrospectively. Imposing such a requirement retrospectively adds nothing at all to consumer protection. All it does is impose massive additional cost of implementation, which means that it will significantly push up the cost of advice for clients of small business financial advisers. So do not tell me this is about additional consumer protection; this is a bloody-minded change made in a way that imposes additional cost without actually protecting consumers in any additional way.

But I say again that, if Labor thinks that this is required, in the interests of competitive neutrality such a retrospective change ought to be imposed across the industry as a whole. So the government will consider very carefully not only whether we should impose additional fee disclosure requirements moving forward on industry funds in relation to the currently undisclosed fees that they charge to their clients for intra-fund advice, general advice and personal advice, but also whether that should be imposed retrospectively in relation to fees charged for advice that may or may not have been provided prior to 1 July 2013. I assume that, if the Senate takes the view that clients of small business financial advisers ought to be protected that way, then clients of industry funds ought to be protected the same way, because what is good for the goose is good for the gander. If, in the judgement of the Senate, small business financial advisers have to incur the costs which they then have to pass on to their clients in order to comply with this sort of onerous and inappropriate retrospective change, then that same change should be imposed across the board.

In our agreement we also agreed that a client has the right to return financial products under a 14-day cooling-off period, in accordance with relevant requirements in the Corporations Act. We agreed to various other bits and pieces but, importantly, at the specific request of Senator Muir we agreed to set up an enhanced public register of financial advisers, including employee advisers—and this is all covered in the letter that was tabled previously in the Senate. In good faith, within two days of signing that agreement and giving effect by supporting the regulation change in the chamber here at that time, we started a process of consulting on that change. I announced a couple of weeks ago now that this register will be established and it will be fully operational from March 2015. Indeed, every single financial adviser, as a result of this change, will be charged an additional $5 when they renew or register their licence.

So we thought that was okay because we were going to deliver $190 million in efficiencies by not imposing unnecessary and costly red tape, which was just pushing up the cost of advice without actually improving consumer protections. We were actually making a genuine and sensible change through this public register, providing more transparent information to investors across Australia wanting to access financial advice, empowering them to access the register and check out the adviser that they might be considering accessing advice from. They can then make a more informed decision on whether it is sensible to access advice from that particular adviser because the information included would be about their status in the industry, their qualifications, their history in terms of whether there have been any issues, any complaints or disciplinary issues in the past and who they are working for. All that sort of information is going to be on that register.

I delivered on my side of the bargain. Now that it comes time for Senator Muir to deliver on his side of the bargain as a result of an explicit agreement that he was a party to, he says: 'Thank you very much for doing your side of the bargain. I'm now going to leave and I'm not going to follow through on my side of the bargain.' Not only that, the first time that he had the decency of having a conversation with me about this was this morning. So here we are: I, in good faith, not only entered into a deal and into an agreement with the Palmer United Party and the Australian Motoring Enthusiast Party, I also acted on all of the requirements in that agreement, and when the time came for Senator Muir and Senator Lambie to honour their side of the agreement they walked away as if nothing ever happened, without any notice, without any conversation. If they had had genuine and legitimate concerns you would have thought that they would have given the government the courtesy and treated these things with the decency that those sorts of circumstances require, which is to have a proper conversation with us rather than to essentially ambush the government with this move today, as the Labor Party has initiated.

Senator Dastyari and Senator Muir have both suggested that there is no problem with abolishing this law today because you can just put in a transitional period through ASIC. I have taken that on board, Senator Dastyari and Senator Muir. I have spoken to ASIC, given that, without any other action, the disallowance would have the effect of reintroducing laws which have never previously reached their hard implementation date. Indeed, the government regulations took effect on 1 July 2014. Over the past five months, new arrangements consistent with the government's policy commitments made in the lead-up to the last election have been the applicable law of the land. To provide certainty to the market, to the financial services industry and to investors, I have asked ASIC to go back to a facilitative approach until 1 July 2015. In the circumstances that we are facing, I have asked ASIC to take a practical and measured approach to administering the law as it will stand following the disallowance of the regulations.

In the meantime, the parliament will have the opportunity to deal with the substantive legislation. In practice, nothing will actually change as a result of that. Particular issues will, of course, arise which will need to be addressed, in particular in relation to retrospective fee disclosure for statements for the period pre 1 July 2013, which were not required under the law that was in place for the last five months, so it would not be appropriate to now expect companies to comply with that sort of requirement as of tomorrow. So there will be a transitional period to 1 July 2015 in effect to which ASIC has agreed. I see Senator Dastyari nodding, indicating his agreement. Hansard does not pick up Senator Dastyari nods, so I will just put it in.