Nick Xenophon (SA, Independent) Share this | Hansard source

Senator Carr says you've got to draw the line! But on some issues—in terms of government accountability, data retention and those issues—I think that they have hit the mark. So I will take my advice where I think there is some substance in what people are saying, despite whatever their politics may be. Indeed, I even listen to Senator Di Natale at times, on health issues!

Choice, in their letter to the Senate Standing Committees on Economics of 15 September 2014 made a number of very salient points in respect of this:

CHOICE's concerns include changes to the obligation to act in the client's best interest, scoping of advice, conflicted remuneration, opt-in arrangements and annual statements.

The Bill makes several amendments to the definition and scope of the best interests duty. These changes leave only a 'tick-a-box' checklist of procedural steps to assess if an adviser has acted in a client's best interest.

Choice go on to set out in relative detail what these concerns are. For instance:

CHOICE is concerned some information now required will be misinterpreted by consumers. For example, the statement that "the provider of the advice genuinely believes that the advice given is in the best interests of the client, given the client's relevant circumstances (within the meaning of section 961B)" could lead a reasonable consumer to conclude that an adviser will act in their best interests. This simple conclusion is easy to reach without a thorough understanding of how s961B restricts and adds loopholes to the obligation for an adviser to act in a client's best interest.

I am a mere suburban lawyer who specialises in personal injuries claims, but the lawyer in me tells me that there is an issue here in terms of drafting. I see it as something that is particularly open to misinterpretation and that could be seen as a loophole in some circumstances.

I think it is worth reflecting on a very good opinion piece by Peter Martin that appeared in The Age of 24 June 2014, in which he questioned the constitutional validity of these regulations. He said, 'regulations are meant to support the aims of laws, not negate them'. I think there is an argument as to the constitutionality of these regulations. I also think it is worth quoting an excerpt of Mr Martin's column because it goes to the nub of these issues. I know that Senator Whish-Wilson has referred to this particular tragic case. I quote:

Recently, the ABC's 4 Corners program told the story of Noel Stevens. When Stevens was phoned by his local branch of the Commonwealth Bank and asked to switch his life insurance policy from Westpac to the Commonwealth he didn’t know that the teller received a referral fee of $444.60. The bank-employed financial planner received almost twice as much plus an ongoing commission.

When Stevens was diagnosed with pancreatic cancer and given six months to live the bank refused to pay. It said he had a pre-existing condition.

A judge later found the planner did not act in Stevens' best interests. Commissions and kickbacks might have influenced the advice. 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.

Mr Martin refers to an interview on the ABC's 7.30 with Steven Munchenberg, the chief executive of the Australian Bankers' Association—someone who I think is a particularly good bloke to deal with, but, with his views on this, I think he is defending the indefensible in some respects. When Mr Munchenberg was quoted in an interview with Greg Hoy, he slipped up and said something about banks recommending, and then he wanted to rephrase it, because it was legally incorrect. I think it goes to show the level of confusion that exists as to how these regulations would operate and that is a real concern. CHOICE released the following statement in response to the motion to disallow:

CHOICE says that if the regulation is disallowed, consumers will be able to feel more confident that they are getting impartial financial advice they can trust.

If this disallowance motion passes, consumers will notice practical benefits:

Financial advisers will have a clear and strong obligation to act in a client's best interests.

The advice received will not be clouded by financial incentives that reward advisers based on how much of a particular product they sell.

Advisers will be required to disclose the fees on a regular basis and will have to make contact with their clients from time to time, to make sure they are happy to keep paying fees.

In June this year, Ian Yates, the CEO of COTA and a South Australian whom I know quite well—I am not sure whether COTA is known as a left-wing organisation—issued a media release with the following statement:

To be very clear, COTA is not siding with any special interests in this debate and resents any such suggestion—we are acting on strong legal advice about the impact of these reforms and deep concern expressed by members, and we would oppose the FoFA changes whether proposed by the government or Labor.

Mr Yates's statement continued:

COTA will be advising older Australians to be very cautious of the financial advice they receive from banks and financial advisers if this legislation goes through—people will not be able to be assured that their best interests are always being put first.

Retirees simply can't afford bad or conflicted financial advice. They have no opportunity to recoup lost investments or assets and they need the best possible advice to maximise their retirement income.

These are only two of the many organisations that have spoken out against these regulations and the winding back of consumer protection reforms.

Members of the government have asked repeatedly why we are moving this motion today, why we are seeking to suspend standing orders, and why this is so urgent. The politician's answer to that is to ask why the minister felt that the changes made by these regulations—changes that wind back significant consumer protections—were so urgent that they had to be made through regulation and not primary legislation and, therefore, would not be subject to the parliamentary scrutiny that a bill would be subject to. But a humanist would answer with an example like this one. In 2000, Naomi Halpern received advice from her financial planner that she should invest in a number of managed investment schemes, including Timbercorp. The adviser also advised her on margin lending and borrowing against her home to make further investments. Eight years later, after the collapse of each of the seven managed investment schemes in which she had been advised to invest, she was left with $650,000 of debt and only $11,000 in superannuation. Since then, she has re-mortgaged her home twice in an attempt to keep up repayments on loans she did not know she had. She is not sure when, or even if, she will ever be financially secure enough to retire.

John McDonald was also advised to invest money in Timbercorp. At the direction of his financial adviser, he signed what he thought were buy-in forms but were actually loan applications. When Timbercorp collapsed, John owed them $240,000. Since then, that figure has almost doubled. Bernard Kelly and Meredith Byrne are in similar situations. We know these names because these brave people gave evidence at the Senate Economics References Committee hearing into managed investment schemes last Wednesday in Melbourne—just one week ago today. But there are hundreds, even thousands more people whose names we do not know. And to the government I say: that is why we are pushing this disallowance today. That is why it is urgent and that is why we will vote to disallow these regulations. We are not talking about abstracts here. We are talking about people. Too often we forget in this place, as we argue back and forth about standing orders, procedure and votes, that real people—people like us and like our parents and spouses and children and friends—are the ones who are paying the cost for the lack of protection in the financial services sector.

I want to thank Naomi, John, Bernard and Meredith for sharing their stories and those of people who have been similarly affected. It is not an easy thing to do, but it is an incredibly important thing to do. The evidence they provided to the committee was vitally important and has truly illustrated the human cost of poor regulation.

Mr President, I am supporting this disallowance because I believe it is the right thing to do. There are far more arguments against supporting these regulations than there are arguments for supporting them, and the cost of allowing them to remain in place is simply too great. I hope the government will take this opportunity to rework the relevant legislation, in consultation with the relevant interest groups and opposition and crossbench representatives. There is a genuine opportunity here to work in good faith to create a better scheme that provides appropriate protections for consumers and that requires financial advisers to live up to the trust we place in them. Many already do that, but we need to ensure that those 'bad eggs' in the financial services sector are subject to the safeguards that are essential to protecting consumers.