David Van (Victoria, Liberal Party) Share this | Hansard source

I rise to support the Treasury Laws Amendment (Ending Grandfathered Conflicted Remuneration) Bill 2019. This bill amends the Corporations Act to end the payment of grandfathered conflicted remuneration to financial advisers. Conflicted remuneration refers to the remuneration paid to financial advisers by product issuers, which can influence the advice they provide to retail clients about those products. When the ban on conflicted remuneration was introduced in 2013, already-existing arrangements to pay this remuneration to financial advisers was grandfathered so that the ban did not apply to them. Grandfathered conflicted remuneration presents an ongoing conflict of interest which can harm retail clients by entrenching customers in older products, even where newer, better and more affordable products are available on the market.

The final report of the royal commission recommended ending grandfathering of conflicted remuneration. Commissioner Hayne, a former justice of the High Court, stated emphatically that grandfathering provisions have now outlived their validity and can no longer be justified. The government is acting on this recommendation. A ban on grandfathered commissions would bring all existing financial advice contracts into line with the 2013 ban on commissions under the Future of Financial Advice reforms. Further, Commissioner Hayne's report strongly rejected arguments that repealing grandfathering would be unconstitutional. It said:

It is time to ignore the ghostly apparition of constitutional challenge conjured forth by those who, for their own financial advantage, oppose change that will free advice about, or recommendation of, financial products from the influence of the adviser's personal financial advantage.

The Future of Financial Advice laws banned billions of dollars of trailing commissions, and it's now time to bring those commissions to an end. This is, after all, how we protect our consumers. Addressing legacy products at a later time will not defeat the purpose of removing grandfathering. Ending grandfathering will better align the interests of advisers and their clients, ensuring that clients in legacy products can benefit from better-quality advice and lower-cost products. After all, surely this is why we're here.

The promoters of failed investments like Westpoint, Storm Financial, Timbercorp and Great Southern, to name just a few, paid outsized commissions to financial planners to attract people into their schemes. This can no longer go ahead. These commissions were, as the bill calls them, conflicted remuneration. Those conflicts can no longer go forward. The government's legislation will end the grandfathering of conflicted remuneration paid to financial advisers by 2021. This is likely to be of most benefit to older investors. That is because they are much more likely to be in investments and superannuation funds where an adviser is being paid a trail commission—again, a conflicted remuneration. Sections of the financial services industry are calling for the deadline for the ending of grandfathering to be extended to give planners more time to adjust. However, it must be seen that the government's timetable should be adhered to. These advice firms have seen the writing on the wall for trail commissions and other conflicted remuneration for many, many years.

On 4 February 2019, the government released Restoring trust in Australia's financial system, the Morrison government's comprehensive response to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. In it, the government committed to take action on all 76 of the royal commission's recommendations and, in a number of important areas, go further. It represents the largest and most comprehensive corporate and financial services law reform package since the 1990s. Of the royal commission's 76 recommendations, 54 were directed to the government, 12 to the regulators and 10 to the industry. Of the 54 recommendations directed to government, over 40 of them require legislation. In addition to the commission's 76 recommendations, the government, in its response, announced a further 18 commitments to address issues raised in the final report of the royal commission. The government has implemented 15 of the commitments it outlined in the response to the royal commission's final report. These comprise eight of the 54 recommendations that were directed to the government and seven of the 18 additional commitments. Significant progress has also been made on a further five recommendations, with draft legislation either introduced to the parliament or released for comment or detailed consultation papers issued.

The government's implementation timetable is ambitious. Excluding the reviews that are to be conducted in 2022, under the implementation roadmap, by mid-2020 close to 90 per cent of our commitments will have been implemented. By the end of 2020 remaining royal commission recommendations requiring legislation will have been introduced. In this implementation roadmap, we set out how we will deliver on the remaining royal commission recommendations and on additional actions committed to. This will provide clarity and certainty to consumers, industry and regulators on the rollout of the reforms. The industry has no excuses for not having already transitioned their business to a fee-for-service model. The models are outdated and need to be changed now. I commend this bill to the Senate.