Stephen Parry (Tasmania, Liberal Party) Share this | Link to this | Hansard source

I present the report of the Parliamentary Joint Committee on Corporations and Financial Services, Financial products and services in Australia, together with the Hansard record of proceedings.

Ordered that the document be printed.

On behalf of Senator Mason, the deputy chair of that committee of that committee—I move:

That the Senate take note of the report.

I seek leave to have Senator Mason’s tabling speech incorporated into Hansard and leave to continue my remarks.

Leave granted.

The speech read as follows—

As Deputy Chair of the Parliamentary Joint Committee on Corporations and Financial Services, it gives me great pleasure to table this report on financial products and services in Australia.

The committee inquired into financial products and services regulation with a particular focus on the issues raised by recent collapses such as Storm Financial and Opes Prime.

The committee received nearly 400 submissions, more than 200 of which were from people affected by the collapse of Storm Financial. The collapses of Storm, Opes Prime, and others, have certainly had a devastating effect on the people who invested in them. On behalf of the committee, I would like to thank those individual investors who took the time and effort to assist the committee with its deliberations while in the midst of such difficult personal circumstances.

When taking evidence on these collapses - most notably Storm Financial - the committee has taken the approach that we are not a judicial body and are in no position to make judgements about individual claims that have been made to us. Nor has it been possible to resolve the contradictory evidence received from Storm investors, the banks who provided margin loans, and Storm Financial themselves.

The committee can say this: investors were frequently given financial advice from Storm's financial advisers that was clearly inappropriate for them. The committee has been highly critical of the one-size-fits-all investment strategy offered by Storm, especially when that strategy involved borrowing to invest against the value of people's homes. We cannot reconcile the fact of Storm recommending aggressive, leveraged investment strategies to people on low incomes at or near the end of their working lives, with their obligation under the Corporations Act to provide advice appropriate to their clients.

The committee also considers the confusion between Storm and the banks over the provision of margin calls to be unacceptable, and we are concerned that some banks were lax in their lending practices when allowing Storm clients to borrow against their homes. The margin lending and consumer credit protection bills which the parliament has debated this year should rectify gaps in legislation that allowed these circumstances to occur outside the regulatory system.

The committee has taken into account the circumstances of these collapses when making recommendations for regulatory change to guard against similar events in the future. As a committee we recognise that isolated corporate collapses do not necessarily indicate regulatory failure. However, the committee received broad and consistent evidence telling us that improvements are needed to raise the overall quality of financial advice Australians receive. The committee's recommendations are designed to increase professionalism within the financial advice sector and improve consumer confidence and protection.

A better regulatory framework for managing financial advisers' conflicts of interest is needed. The product distribution role of financial advisers - and the remuneration they receive from product providers for recommending certain financial products - too often leaves consumers getting advice that is not in their best interests. The law needs to explicitly state that financial advisers must place their clients' interests ahead of their own. The committee has recommended that the Corporations Act be amended to include a fiduciary duty requiring advisers to put their clients' interests first.

The committee believes that payments from product providers to financial advisers - such as commissions and volume bonuses - create entrenched conflicts that are very difficult to manage. The committee has therefore recommended that the government consult with industry on the most appropriate way to cease payments from product manufacturers to financial advisers. In order to make transparent fee-for-service payments more appealing, the committee has also recommended that the government consider the implications of making the cost of financial advice tax deductible.

Greater professionalism could also be achieved by requiring those wishing to call themselves financial advisers to become members of an independent, industry-based, professional standards board. The committee has recommended that ASIC immediately consult with industry on setting up this body, which would establish, monitor and enforce nomenclature, competency and conduct standards for the industry.

Recent collapses have also shown the need for more effective regulatory enforcement. The committee has recommended that ASIC be appropriately resourced to perform effective risk-based surveillance of advice provided under licence and perform financial advice shadow shopping exercises annually. We recognise that it is often difficult for ASIC to take action when it identifies problems. The committee has therefore made two recommendations designed to lower the threshold for ASIC to remove individuals and licensees from the industry.

To protect investors when collapses do occur, the committee has recommended that the government investigate options for a statutory last resort compensation fund for investors.

I thank the committee secretariat for their assistance with this inquiry. Finally, I would again like to express my sincere thanks to all those that provided submissions to this inquiry and provided evidence at one of our public hearings. We as a committee hope that this report will lead to change to improve the regulation of financial products and services in the years ahead.

John Williams (NSW, National Party) Share this | Link to this | Hansard source

I congratulate the committee on the report that they have put together on this issue. I moved a notice of motion to have an inquiry into Storm financial activities around banks et cetera just prior to the Joint Parliamentary Committee on Corporations and Financial Services establishing this inquiry. The committee learnt a lot about the tragic events around the stock market and Storm Financial. It was a harrowing, terrible time for many people—people who are not 30 or 40 years of age but 60, 65, 70 years of age and older—who, because of the Storm model and their investments with Storm, lost virtually everything. The committee heard clear evidence that many of these people were lent money that they should never have been lent. The products were geared too high. It was basically a lending spree for some of the banks.

Of course, when the market crashed the inevitable happened. The product was simply geared too high, and it was sad to see that when the margin calls were triggered many were not notified. The Commonwealth Bank claimed that they notified Storm and said that it was Storm’s obligation to notify the clients that they were in margin call. Storm said that it was not their duty to do so and that in 2002-03, when margin calls were being acted on, it was the bank’s duty. This was the buck passing that carried on during the whole inquiry. In my opinion, there were ridiculous, risky lendings carried out by the banks. Unfortunately for many investors, they simply trusted their advisers, hence the committee has recommended that a fiduciary duty of care be instigated so that the client’s interest must be put first and foremost and the adviser is not to seek a product that gives trailing commissions and the most money to the adviser. That is a very good recommendation by the committee. The committee also saw that the fact that people could obtain an Australian financial services licence by doing a few weeks work on the internet was simply not good enough. Hopefully the bar will be raised for those who seek to achieve financial licences in the future.

As I said, it was a very stressful time for many of those involved. I must make note of SICAG, the Storm Investors Consumer Action Group, who in January this year met at Redcliffe, just out of Brisbane. I attended the meeting. They formed that group because there were hundreds and hundreds of people who did not know where to turn. Thanks go to those who formed that group and to John McLennan for going up there and instigating it so that they had someone to fight for them. Thanks also go to Noel O’Brien, Mark Weir, Graham Anderson and others who have given so much. They are under so much financial stress and are in such a financial mess themselves, but they have committed so much of their time to help others. That was a noble act, and let us hope that the settlements come forward. I do acknowledge that the Commonwealth Bank have said that they will right the wrongs and have admitted to those. That is a step in the right direction. I myself know what it is like to fight in the courts against a bank for some 10 years. It is not a lot of fun, I can assure you. It is costly and it is stressful, and hopefully these people can rebuild their lives, get back on track and retain their houses. Hopefully many of them who are in the twilight of their lives can enjoy the rest of their lives and be able to sleep at night.

I commend the committee. It worked well together. As always, the staff were terrific. Shona, Andrew and the others worked so hard. We travelled to many areas to hear the stories and the evidence. Let us sincerely hope that, because of this inquiry, people do not find themselves in this situation again at some time in the future. I again commend those in SICAG who worked so hard at giving moral support, at listening to people who were in a state of anger and frustration and who did not know where to turn. There was someone there for those people to call. There was someone to talk to them. Many simply did not know where to go in life. Let us hope that their futures are a little bit rosier. The committee had some 400 submissions, and we brought that to the public’s attention. I think that the media were very fair all the way through the inquiry. Let us hope that no-one has to stand up in this place in years to come and discuss the same issues again.

Jan McLucas (Queensland, Australian Labor Party) Share this | Link to this | Hansard source

I too rise to take note of what I think will be an important report that will assist in policy development. It will perhaps assist people to make better decisions. Hopefully, as Senator Williams said, we will not end up here in 10 or 15 years time placing down on the record another report that talks about the devastation of thousands of families’ lives, as we have seen in this case.

I was very pleased to be able to join this committee after they had actually started this inquiry because there are many of my constituents, particularly in North Queensland, who have been affected by the collapse of Storm Financial. The toll on these people is devastating. Many of these people have lost everything that they owned, and the many personal stories that people openly shared with us explained their situations. We should take this opportunity to thank them for their openness about their personal financial situation and the toll it is taking on their health and, in some cases, on their mental health.

It is important to note that this inquiry is simply that: an inquiry into the facts surrounding what happened, not only in Storm but in Opes Prime as well. It is not a court—it cannot find guilt—and I know from the commentary I have seen today that people who are involved in this know that. There are other places for fault to be found, and those processes are proceeding as we speak.

If I focus simply on the Storm inquiry, there was much conflicting evidence from the various sides of the story. The evidence that troubled me particularly was evidence given by the owners of Storm Financial, Mr and Mrs Cassimatis. Mr Cassimatis indicated to the committee that clients of Storm Financial essentially self-selected. They would go to the so-called ‘information evenings’ and then decide to ‘join’—and I put ‘join’ in inverted commas. They ‘joined’ Storm.

That is the language that I have heard used in my communities as well—that people ‘joined’ Storm. That is not the language we should hear when we talk about people receiving financial advice. Financial advice needs to be tailored to the individual circumstances of a person who is looking for that advice in order to invest—you do not self-select a product. Certainly, if you tell your planner that you are a very conservative investor you should not end up with what I think is one of the riskiest products that is on the market: to take a mortgage out over your own home to invest that money in the stock market, then—and this was the problem that occurred when the stock market crashed in mid- to late last year—not to be advised either by the bank or by your so-called financial adviser that you are in margin call. That is what happened. Many people lost thousands of dollars and are now living in circumstances that they certainly were trying to avoid.

We have made recommendations about the need for financial planners to have a fiduciary duty that would require a planner to put the interests of the client above all interests. That is what should be in place and that is what we have recommended.

The other conflicting advice that I think was very troubling is that five or six people came before the committee and said they had signed forms that were not filled in. There are two people at fault in that circumstance; one is the person who signed the form that was not filled in. Of course we know that we should not do that, but they were lulled into some sort of sense of security that everyone would look after them in the end—‘Just sign here, it will be okay.’ The person who signed it should not have. But surely there is a responsibility on a person who is asking a client to sign a form that has not been completed: firstly, not to ask for it and, secondly, to ensure that the figures are accurate. Some of the most appalling stories we heard were about pensioners with loan application forms indicating that they were receiving $120,000 a year in income. This is bizarre stuff, but it was too regularly repeated.

The conflicting evidence, however, came from the advice given to us by some of the banks, saying that no forms would have been signed prior to being completed. This is another matter that other avenues of redress will look at, but it certainly is an area of concern. I was very pleased to hear from three banks in particular—the Commonwealth Bank of Australia, the Bank of Queensland and the ANZ Bank—that they did accept some responsibility. The Commonwealth Bank in particular has indicated that they will assist clients in need. I encourage the other banks to ensure that their reputations are not sullied further by ensuring that they seek out every client they possibly had, ascertain their personal financial circumstances and do whatever they can to shield them from the devastation that may be in store for them.

I also want to acknowledge the role of SICAG. SICAG is a group of people—three very dedicated gentlemen—who have taken it upon themselves to provide advice, emotional support and friendship to the many hundreds of people who are in need of that assistance. I commend SICAG for the work that they have done over 12 months.

Finally, I also want to acknowledge the role of the very professional committee secretariat, and I commend them not only for their ability in dealing with the complexity of the material that was in front of us but also their compassion in dealing with people who needed tenderness and support in sharing their stories with the committee. They did an excellent job, and I think it is a quality report. I want to pay tribute to the chair of the committee, Mr Bernie Ripoll. I think he did a fine job of making sure that all the voices that needed to be heard were heard. It is important that this report is a unanimous report, and I have read that the Minister for Human Services, Mr Bowen, is pleased to receive it. I commend the report to the Senate and I seek leave to continue my remarks.

Leave granted.