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

A letter has been received from Senator Moore:

Pursuant to standing order 75, I propose that the following matter of public importance be submitted to the Senate for discussion:

The failure of the Abbott Government to protect the interests of consumers of financial advice.

Is the proposal supported?

More than the number of senators required by the standing orders having risen in their places—

I understand that informal arrangements have been made to allocate specific times to each of the speakers in today’s debate. With the concurrence of the Senate, I shall ask the clerks to set the clock accordingly.

Mark Bishop (WA, Australian Labor Party) Share this | Link to this | Hansard source

Tomorrow, Wednesday, 26 March, marks the fifth anniversary of one of Australia's most high-profile financial collapses. I refer of course to Storm Financial. There were other great frauds prior to that and there have been many other abuses since. Some of the names I mention—Bankwest, Commonwealth Financial Planning, Trio, Westpoint—are now well-known names that have been involved in financial scandal and financial harm to thousands, indeed tens of thousands, of Australians.

So what I am about to say is not news to anyone, but in this matter of public importance it is worth noting the significance of tomorrow's date, because in the not too distant future we will be inquiring into legislation introduced into the House last week on the Future of Financial Advice reforms. It will go to the Senate economics committee for investigation and, either prior to June or in the second half of this year, we will discuss in this chamber momentous legislation that affects the livelihood, the savings and the retirement of millions of Australians.

The financial scandals of all of those companies that I mentioned in my introduction—Storm Financial, Bankwest, Commonwealth Financial Planning, Trio and Westpoint—were occasioned by greed, fraud, excessive reward and incentivised commission payments to salespeople and those involved for a livelihood in the sale of financial products. All of those financial scandals resulted in heartbreaking loss: the loss of millions of dollars to individual Australians, the loss of assets built up over time and the loss of houses, as well as the breaking up of families, the displacement of children and the ruining of lives. Without exception, each of those scandals could have been prevented and was occasioned by greed and avarice on the part of thousands of individuals who gave out bad advice, unnecessary advice, improper advice and illegal advice. Innocent men and women who were seeking assistance to plan their savings, the purchase of their home, the purchase of an asset or funding to educate their children at school and university lost their life savings. All of it was avoidable and should have been avoided.

Last Friday, as the Minister for Finance and acting Assistant Treasurer advised us at question time, the Assistant Treasurer made a long overdue but still inadequate statement concerning the FoFA legislation repeal and/or amendment. I say the statement that he made last Friday or last Thursday was long overdue because this government for some time has been aware—as has been every member of parliament in this place and the other place—of the growing concern in the Australian community about the government's attempt to backdoor the introduction of commission payments for the sale of financial products. That is backdooring and making conflicted remuneration legal.

I say it was also an inadequate statement because the draft bill, plain and simple, is an election pay-off to five companies—four banks and one financial house, AMP. They are five companies so awash with surplus capital, record dividend payments to shareholders, record market share growth and generally record share prices that their naked greed in exploiting additional revenue streams amazes, surprises and indeed shocks all observers of this industry in Australia.

The opposition—the Labor Party, the party which when in government was responsible for the most breathtaking set of worthwhile financial reforms only two years ago—say upfront in this debate the following: we are opposed to conflicted remuneration and commission-based payments for general financial advice. We say upfront (a) that we are opposed to a situation where financial advisers can earn sales commission and trailing fees from product providers; (b) that, when financial advisers can also receive soft dollar inducements such as overseas education junkets, that is graft and corruption and should not be part of the deal, and we are opposed to that practice; and (c) that financial advisers will not need to tell their clients about these fees or other benefits that they gain for the sale of financial products to those consumers or clients who seek their advice, and we are opposed upfront—two years ago, now and forevermore—to those sorts of practices.

To return to my earlier introductory remarks about extra-large revenue streams for NAB, ANZ, Commonwealth Bank, Westpac Bank and AMP, we say that those new and additional revenue streams for clerks, for tellers, for salespeople, for financial planners and for financial advisers who upscale the sale of financial products without adequate disclosure to consumers or clients are a con. We disapprove of it. We do not want to participate in it.

During a Senate inquiry which has been foreshadowed into this legislation, we will pay close attention to the submissions and the evidence that we gather. On the basis of that inquiry, I will be very, very surprised if the position I foreshadowed at the outset of this discussion is not our permanent position. We are opposed in principle to the amendments sought to be introduced into the House last week and foreshadowed by Senator Cormann on Thursday or Friday of last week in this place.

If the legislation foreshadowed by Senator Cormann is introduced, is passed and becomes law, who wins? We know who the winners are. They are the four banks I named and AMP, commission-based salespeople and retailers of financial products who persuade banks to recommend to customers the sale of their particular product—by that I mean the ABC equity fund as opposed to the DEF equity fund. The people who flog those products either to the banks or to the staff of banks and AMP—who then flog those products to consumers—are the winners, and wholesalers are the same.

Who, interestingly enough, do we glean from public debate, opposes these changes foreshadowed by Senator Cormann? Firstly, National Seniors; secondly, the Council on the Ageing; thirdly, the Choice organisation on behalf of consumers; fourthly, Industry Super Australia on behalf of industry funds with membership in excess of five million Australians. Interestingly enough, there is a fifth group that has come out publicly so far and foreshadowed opposition, the Financial Planning Association. Think about that: seniors, aged people, old people, persons going into their retirement, consumers and workers—blue-collar and white-collar—who are members of industry funds. We are talking not five million, not seven million, not eight million but the best part of 10 million people in this country who, through their representative organisations or their professional associations, have voluntarily foreshadowed without equivocation total opposition to this bill introduced by Senator Cormann this week on behalf of ANZ, Bankwest, NAB, Commonwealth and AMP but on behalf of nobody else. (Time expired)

David Bushby (Tasmania, Liberal Party) Share this | Link to this | Hansard source

Senator Bishop, in his 10-minute speech, referred to the absolutely heartbreaking financial collapses of a number of financial advising firms and the devastating effect that undoubtedly created for the people whose money was lost. And he canvassed a number of reasons for why that happened. Indeed, the original Ripoll inquiry, as it is now known, had as its catalyst these collapses. The report of that 2009 Ripoll inquiry was in fact bipartisan. All members of the committee in that report worked together to come up with a very solid piece of work which made a number of recommendations as to how we could work in this place to minimise the risk of similar collapses occurring in the future.

But, when FoFA legislation was put forward by the previous government, it was not a particularly accurate reflection of the recommendations from the Ripoll inquiry. It went much further. As a result, rather than a bipartisan approach being available at that point, the coalition felt it needed to put in a dissenting report so that it could more accurately reflect the findings of the Ripoll inquiry, which had conducted the most thorough in-depth investigations of these issues there possibly could have been. As I mentioned, the FoFA legislation went much further.

It is my proposition that, if we can get the changes to FoFA that we are now proposing through, the FoFA legislation that would then be in place would be a much truer and more accurate reflection of the recommendations of the original Ripoll inquiry than what we currently see.

At the recent ASIC inquiry hearings for the Economics References Committee, the chair of the Australian Securities and Investment Commission, Greg Medcraft, noted that only about 20 per cent of Australians are in a position to receive or are receiving proper financial advice. In his view, at least half of Australians should be enjoying the benefit of detailed and thorough financial advice. But there is no possibility whatsoever of achieving this aim unless the advice that is available to Australians is both accessible and affordable.

As in all regulatory matters, you need to strike the appropriate balance between imposing regulations to protect consumers and making sure they are accessible and affordable. Our contention is that the previous government's FoFA legislation did not strike that appropriate balance. On the contrary, it worked quite strongly to make financial advice that Australians need—I repeat: the advice that far more Australians need than are currently receiving it—far too expensive and less likely to be actually accessed.

I have a couple of key points. First, I want to make it clear that we are not abolishing FoFA. On the contrary, we are just fiddling at the edges, making improvements to the way that it works in line with our election commitments. As I mentioned, our election commitments are based on the coalition members' findings in the Parliamentary Joint Committee on Corporations and Financial Services inquiry into the FoFA bills and more accurately reflect the outcomes of the Ripoll inquiry.

It is important also to note that we are not abolishing the best-interest duty; we are keeping it. But what we are doing is ensuring that there is a greater certainty for both consumers and financial advisers on how the best-interest duty will operate. It is also important to note that we are reintroducing sales commissions or conflicted remuneration for financial advisers.

On conflicted remuneration and commissions, I will make a couple of points. Mr Chris Bowen said recently a number of times—and I think he said it again this morning—that balanced scorecard payments are the same as commissions. I can tell you they are not. A balanced scorecard arrangement exists where an employee receives incentive remuneration that is calculated by reference to both volume based and non-volume based factors; for example, customer satisfaction, meeting training requirements and compliance targets et cetera. Importantly, that incentive payment is only allowed where it does not conflict advice and is only a small part of the overall bonus. And that is consistent with the original legislation introduced by Mr Bill Shorten when he was financial services minister. This is what Mr Shorten said in his second reading speech on FoFA on this issue on 24 November 2011:

For the most part, advisers will not be able to receive remuneration—from product issuers or from anyone else—which could reasonably be expected to influence financial advice provided to a retail client.

If an adviser is confident that a particular stream of income does not conflict advice, then these reforms do not prevent them from receiving that income. For example, in the case of the receipt of income related to volume of product sales or investible funds, there is a presumption that that income would conflict advice. However, this is a presumption only, and if the adviser can demonstrate that the receipt of the income does not conflict advice then such remuneration will be permissible under the bill.

That was from his second reading speech on 24 November 2011. It was also reflected in Bill Shorten's explanatory memorandum to his FoFA legislation. It said:

However, if it can be proved that, in the circumstances, the remuneration could not reasonably be expected to influence the choice of financial product recommended, or the financial product advice given, to retail clients … the remuneration is not conflicted and is not banned.

There was also an example of a payment under a balanced scorecard arrangement that could rebut the conflicted remuneration presumption in the explanatory memorandum.

Our proposal in this respect gives effect to that proposition contained in Mr Shorten's explanatory memorandum and second reading speech—nothing more and nothing less. The proposed provision provides business with certainty that they can continue to remunerate their employees under a balanced scorecard arrangement where that payment does not conflict with advice, as was envisaged by the original legislation and as enunciated by the then Assistant Treasurer and now Leader of the Opposition. Whilst the balanced scorecard payment provides an incentive for the employee to make more sales, it forms only a small part of the employee's total remuneration, and the employee needs to have satisfied a range of other criteria, such as customer satisfaction, to be eligible for the bonus.

Furthermore, the bonus is a one-off payment; there is no ongoing payment in relation to past sales—that is, there are no trailing commissions. By contrast, a commission is directly based on the number of products sold and no other non-volume related factors. The commission payment would in the past have been ongoing—that is, a trailing commission. Neither is the case with balanced scorecard payments.

As the acting Assistant Treasurer noted in a published editorial piece over the last few days,

Finally under Labor's FoFA legislation it was always envisaged that benefits to employees calculated on the volume of sales were permissible under a so-called balanced scorecard approach.

In a fuller version of the article, Senator Cormann wrote:

Labor in government, however, never got around to properly implementing that part of their stated intention through regulation. Consumer protections are inherent under this approach provided for under our legislation because there are clear criteria to ensure that any benefit does not directly influence advice. If, contrary to our clear expectations and our intention not to bring back conflicted remuneration the personal advice or for advice is providing general advice, developments in the market warrant our intervention. It could and would be addressed very quickly by relevant regulation. We don't believe it will be necessary.

In relation to the general advice exemption for employees of product advisers, this is about levelling the playing field across the financial services market after the special deals that Mr Shorten did with industry funds only.

Incentive payments for employees of product providers to provide general product advice are not conflicted remuneration. Their application is very limited: namely, to employees selling products issued or sold by licensees who have not provided any personal advice to the retail client in the last 12 months. Again, this is not intended to open the door for a return of conflicted remuneration, personal advice or advisers providing general advice; this is about restoring some competitive neutrality in the market as part of our efforts to ensure that we have the right balance between appropriate levels of consumer protection and affordable access to high-quality advice. We want consumers to continue to benefit from robust competition between both different business models and different businesses across the financial services market.

To summarise, the government continue to support the underlying goals of the FoFA reforms and we do not propose to change the vast majority of those reforms, but we do believe that the FoFA reforms went too far in imposing red tape and additional costs on business and, of course, those additional costs will be passed through to the consumer. Analysis by Treasury estimates that the government's amendments, if passed, would save the industry an average of approximately $190 million a year with further savings of $90 million in implementation costs. Those savings will, of course, be passed on to clients and improve the affordability and access of financial advice to Australians. The government is committed to amending the FoFA legislation to reduce these costs and make financial advice more affordable to consumers and has undertaken substantial consultation on the amendments and will continue to do so in the coming months.

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

Sometimes working in this chamber feels a bit like The Truman Show with cameras, live broadcasting and people looking down on you. What would you make of this government and this debate today if you were a member of the public, looking in from the outside? This is a government, I would point out, which has lost the faith of the public faster than any other first-term government in the last 40 years. I will tell you what I think it looks like. If you are a powerful organisation in this country, you have money and you donate it to this government—the Liberals or National Party—they will use this place to deliver for you. If you want a return to a free-for-all system of financial commissions and a winding back of consumer protections to help your business—ignoring recent disasters and the damage done to consumers of financial services, such as the collapse of Storm Financial or the government's disastrous managed investment schemes—all you have to do is donate. And guess what? The Liberals and Nationals will deliver. If it looks obvious that backroom deals have been done on these FoFA reforms—with the industry lobbyists so favoured by this government—then why wouldn't there be special favours for other legislation in front of this parliament?

If you do not like a mining tax because it nibbles at your superprofits and you donate, then the Liberals and Nationals will deliver. If you run a polluting power plant and you do not want to pay for the damage that burning fossil fuels cause to our environment and you donate, then the Liberals and Nationals will deliver. If you think the government is here to prioritise the delivery of health care or education or a future free from climate shocks, then this government is not for you. Why? I suspect there are no donations in these issues for the Liberal-National government. I have said it till I have been blue in the face: our political system is corrupted and undermined by rent-seeking special interests—vested interests—seeking to influence political decisions, regardless of the impact on the public good or public interest. Ross Gittins, one of the country's most experienced economic writers, has written several excellent articles on this subject recently.

Looking from the outside in, it is as if the executive government of Australia operates in a closed loop of special interests, lobbyists, staffers, ex-politicians, corporate rent-seekers and donations. It largely occurs in secret, undisclosed or vaguely disclosed years after the fact. The Australian public will not even know who donated to this government in the lead-up to the last federal election until February 2015.

The proposed winding back of FoFA reforms are a classic case. The previous government's proposal delivered sensible reforms to financial advice legislation to stop runaway rorts like Storm Financial, remove conflicts of interest in commissions and provide some simple consumer safeguards. Contrary to what Senator Cormann told the Senate today, there is nothing complex about understanding conflicts of interest or how they undermine consumer rights.

Speaking of conflicts of interest, this government is directly embroiled in its own conflict of interest in this debate today—explaining donations from the big end of the finance town directly to decision makers able to influence FoFA reforms. The lead proponent for the case against the previous government's FoFA reforms was the Financial Services Council. They represent many of the banks—and AMP, as mentioned earlier by Senator Bishop—that said they stood to lose from the original reforms and that they opposed them. So they naturally sought to influence the result in their members' favour. Other than submissions and direct lobbying, one way it would appear to have tried to influence the debate and the positions of the major parties is through political donations.

Over the last few years, not including the recent donations that have yet to be disclosed, the Financial Services Council donated over $42,000 to the major parties. These donations were not just general donations to the head office; they were targeted to the major relevant financial policyholders at the time in each party. The donations were: $11,000 to Joe Hockey's electorate fundraising arm; to Mr Tony Smith, the then shadow parliamentary secretary for tax reform; to Chris Bowen's local re-election fund; to the electorate of the then Assistant Treasurer David Bradbury; and $10,000 to—guess who?—Senator Cormann. These were not donations towards good public policy, as Senator Cormann would have you believe, but rather they were donations targeted and tailored towards influencing the people who had the power to make decisions about financial policy in this country—policy which could influence their members' profits. Two of the four people, Senator Cormann and Mr Smith, who authored the coalition's dissenting report into the FoFA changes, received sizeable donations from the Financial Services Council.

I encourage all members of this place and the public to read the coalition's dissenting report on FoFA reforms. Seemingly, the Financial Services Council wrote it. Their views are mentioned often enough in it. I am not saying directly that the coalition's position on FoFA is entirely due to donations; I am sure there is an unhealthy dose of free market ideology thrown into the bargain as well. But it sure looks bad to those watching us on TV. How could the public draw any other conclusion? The Greens have long been calling for greater transparency with donations and with lobbying. The public has a right to know the target of donations or lobbying efforts that seek to influence decisions on public policy.

Maybe it is not the Truman show today, rather it is groundhog day. Again, we are debating legislation brought in by this government to look after the big end of town. We have now had months of debate on the carbon bill repeals. It is legislation that is designed to prop up the big, dirty polluters and their profits that are threatened by a jobs rich, emerging, clean energy industry—all in the face of the dire need for immediate, strong and real action on climate change. And then there is the repeal bill for the tax on mining industry superprofits. Again, the Liberal-National government are looking after the big end of town, their mates and their donors, and are supporting the rent-seeking, profit-chasing obsession of the big miners, who are determined to put the tens of billions of dollars of profits they make, most of which goes overseas and does not stay in Australia, ahead of small businesses, superannuants and the broader Australian community.

And let us not forget modern trade deals, the so-called free trade deals under negotiation, and the push by the biggest, most powerful global corporations in the world to have Trojan Horse clauses added to these trade deals—the ISDS clauses or investor state dispute settlement clauses. These give corporations legal rights to sue sovereign governments if their future legislative changes impact on their future profits. Even the Howard government would not consider the inclusion of such clauses in their trade deals. Under this government, where anything goes if you are a wealthy corporation and have influence, such dangerous clauses are on the negotiating table.

Zed Seselja (ACT, Liberal Party) Share this | Link to this | Hansard source

Mr Acting Deputy President Edwards, I rise on a point of order that goes to relevance. We are hearing about trade deals. That is not the matter before the Senate at the moment in this MPI.

Sean Edwards (SA, Liberal Party) Share this | Link to this | Hansard source

There is no point of order.

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

I must have hit a nerve there. And now we have this: the government's proposed changes to FoFA regulations. These changes are designed to help make more money, fee income, for the big banks and financial services companies such as AMP. As I have stated previously in this chamber, banks and financial services companies no longer make most of their income and profits from simple deposits and loans. They make the majority of their income from selling financial products and financial services. While these FoFA regulations are about protecting consumers and the reputation of the financial planning industry, who oppose these regulations, they are designed to help the profits of the big end of town.

What next, I wonder? I remind the Liberal-National Party, the government, that the public expects that the job of government is to protect the public good, not just the profits of big corporations that are determined to put the interests of shareholders ahead of the interest of the Australian public. It easy sitting in here all day listening to debate to forget the really important point that there is a world outside those doors and windows. We live in a society not in an economy. Contrary to what this government believe, they are not always the same thing. We need reform in this country. We need reform to drive clean energy transition. We need reform for a fairer tax system. We need reform to protect consumers. It takes bravery and courage to push through reform. We need legislation that strikes a better balance between the profits of the powerful and the people—consumers, Australian taxpayers and small businesses.

Ursula Stephens (NSW, Australian Labor Party) Share this | Link to this | Hansard source

I too rise to contribute to this debate this afternoon, concerned, as we on this side all are, about protecting consumer interests in relation to the farce that has become the Future of Financial Advice legislation and Senator Cormann's pause that he announced today to those regulations, which he suggested was for the purpose of more consultation. We would be very pleased if there were genuine consultation about this issue, because it simply is a fact that the proposals, as developed by former Minister Sinodinos—the draft regulations and the legislation—were issued with literally no consultation at all. They absolutely reflect, as Senator Whish-Wilson just said, the interests of the financial industry, not the consumer in any way, shape or form.

I was thinking, as I was listening to the debate, about the events around the collapse of Storm, Westpoint and Trio. I was a member of the Parliamentary Joint Committee on Corporations and Financial Services when the collapse occurred, and I was part of the investigation that that committee undertook.

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

So was I.

Ursula Stephens (NSW, Australian Labor Party) Share this | Link to this | Hansard source

Senator Williams, you were not here at the time.

John Hogg (President) Share this | Link to this | Hansard source

Through the chair, please.

Ursula Stephens (NSW, Australian Labor Party) Share this | Link to this | Hansard source

I just wanted to make this really important point: we travelled quite significantly and time and time again we saw the extent to which the financial advisory industry was so poorly regulated. All we could do was listen with jaws dropping to stories of people who were being advised—in good faith, they thought—to do the most extraordinarily unwise things, risking their financial future. I know Senator Williams has a particular interest in this. We have shared many stories about how people in the bush have been caught in exactly the same kinds of situations. The proposals that we had to consider and the recommendations that were made out of that inquiry really reflected the horrible circumstances that were part of the evidence to the inquiry. We really felt that the government and the opposition knew that there was a need for some critical action to be taken.

I will give you just one story—perhaps I might share two. One story is of the Doyles—Barry and Deanna Doyle—from Townsville. They were an ordinary couple in their 60s who were not particularly wealthy and not particularly sophisticated financially either. Mrs Doyle was retired. Mr Doyle was still working part time. As a result of financial advice that they never should have been given, they ended up owning a share portfolio costing over $2 million, with debts to match, on which their annual interest payments eventually rose to nearly $200,000. The Doyles had been modestly secure before they were advised by Storm Financial. They had paid off their mortgage. They had about $600,000 in superannuation. But Storm's investment advice was to borrow against their home and use the cash to raise yet more money to invest. They increased their borrowings—or exposure to the stock market—on the advice of Storm Financial 11 times in two years and ended up not only losing their super and their share portfolio but also with a debt of over $450,000 on their previously unencumbered house and with not enough income to make the repayments. Quite frankly, their situation was that they were completely financially wiped out.

We heard story after story. There were thousands of people who, on the advice of the financial service industry, entered into high-risk transactions in which they were likely to lose their money and even their homes—and they did. I was particularly taken by a story that we heard in Wollongong from another gentleman, a very articulate but desperately angry man who had been the victim of a car accident. He had received a compensation payout which he had been advised by the insurer needed to be invested wisely because this insurance payout meant he would not be eligible for any kind of Centrelink payment until he reached retirement age. He was in his late 40s at the time. With the advice of a financial adviser, he invested all his money in a particular strategy and was completely wiped out. He was, at the time we spoke to him, almost homeless, living on the charity of friends, not eligible for any kind of social security support and not eligible for any kind of compensation for the way in which the financial adviser had completely ripped him off not only through gouging of fees but also through poor investments. The total unfairness of this man's situation was enough for us, as committee members, to say, 'Something must be done.'

The things we recommended in that report which were brought into effect in the Labor government's legislation are now being systematically challenged and wound back. The idea has been raised of dumping the opt-in demand that requires financial advisers to ask their clients whether they want to continue with an investment. The removal of that opt-in requirement would mean that they no longer need to ask the client's agreement before collecting fees automatically every year for financial advice that the clients have never sought. Any existing fee arrangements would continue to exist unless the arrangement was terminated. The opt-in requirement sounds like something being done in all fairness for transparency and good financial practice, one would have thought, but it is something that the financial services industry has resisted from the beginning and has systematically campaigned against to ensure that Senator Sinodinos was prepared to accept their advice.

The other issue is fee disclosure. The legislation that the government is now moving actually removes the requirements for advisers to disclose fees to all customers who entered into a fee arrangement before 1 July 2013, when FoFA commenced—so all existing clients can be kept in the dark. This is what the government is talking about as a reform. There is a trend that I want to flag, which I am going to come back to very shortly on this issue, and that is the influence of the financial services industry on the government's approach to the administration of charitable trusts, where we are seeing the same kind of insidious insistence that fees and charges be hidden from the clients. What happens if you are a trustee of a financial organisation, managing what is now called an orphan trust where there are no living trustees other than the trustee manager? We are seeing the same kind of approach that will hide financial charges and gouge the management of financial affairs in these kinds of financial investment mechanisms.

This issue is really about the financial industry's influence on this government. It is certainly not about protecting the interests of consumers in any way, shape or form. It will lead to pensioners and other people in their retirement years losing their savings all over again. It is poor policy, it is bad policy and it is going to leave the most vulnerable people, who are not financially literate enough to understand their superannuation, at the mercy of a gouging financial industry. It is just outrageous!

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

I must make some comments about Senator Whish-Wilson's contribution on this MPI. He talked about donations to political parties. I want to again put on the record that, when the former Greens leader, Senator Bob Brown, was here and there was debate on the Triabunna mill in Tasmania, he wanted reforms. He wanted changes. He wanted this done and that done. Then a short time after—I was listening to it on radio—we heard the declaration of the largest donation to any political party in Australia's history—$1.58 million. I will repeat the number: $1.58 million. It was donated to the Greens by Mr Graeme Wood, the owner of Wotif. All of sudden, the Greens were batting for the business and interests of Mr Graeme Wood. Now we hear all of the holier than thou Greens saying: 'These donations are terrible.' Come on, get off the cat's tail! This is hypocrisy at its greatest level. It was a $1.58 million donation.

I have just listened to Senator Stephens's contribution on this MPI. I was on the Parliamentary Joint Committee on Corporations and Financial Services inquiring into the Storm Financial crash. In fact, I started this job on 1 July 2008, and in January 2009, seven months later, I went to Redcliffe. I was the first politician out of the 226 politicians in Canberra who went to meet with the Storm Financial victims up there in Redcliffe in order to see what I could do to help them and to get a parliamentary inquiry into the Storm Financial crash.

Of course the Greens like tree planting. The managed investment schemes of Timbercorp and Great Southern involved buying farmland and claiming the purchase of that land off their tax. The farmer cannot do that, but those managed investment schemes could do it on the basis of planting trees. Of course Timbercorp and Great Southern went belly up—and there were other big crashes. But as far as Senator Stephens's comments go, she has missed one point: the products on the market were wrong. Storm Financial was destined to fail—full stop. People were so heavily geared, so leveraged with debt, that, once the stock market turned down, they went down. This is where it is ASIC's job to see that financial products on the market, that are out there for people to purchase, are strong, solid and viable. It is why there is an ASIC inquiry at the moment. I am pushing for ASIC to have stronger powers in order to call for a stock-loss audit so that they can phone up a financial planner and say: 'From this minute you are no longer a financial planner. You can go to the AAT'—the Appeals Tribunal—'and appeal our decision against you, if you wish.' That is what I want to see put in place so that, when financial planners do the wrong thing, they are simply struck off in the instant of one phone call.

I have some concerns, I admit, with any changes to FoFA, but then I had a good look at the detail of the proposed legislation. The first recommendation, which was a unanimous one by the committee which I was part of, was that the interests of the client must come first. We are simply making a small adjustment to section 961B(2) so that legal uncertainty for advisers will be removed. So 961B remains and 961J clearly states that the interests of the client will come first—and, if it does not, I want to see ASIC with the powers to just kick that financial planner straight out of business so that people get good, strong, solid advice that is in their best interests. This is exactly what we are doing.

There is the opt-in test. We received more than 400 submissions at the PJC inquiry and only one suggested the opt-in test. Guess who it was? It was Industry SuperFunds. Guess who they are in bed with? The Australian Labor Party. It is why the opt-in was put forward. It is why the opposition are defending the opt-in test. Treasury is projecting $190 million costs a year, with a further $90 million savings a year. I want to make this point to the chamber: if you add costs to how financial planners do their job, who is going to pay for it? I tell you who is going to pay for it—the client, the person seeking the advice. If it gets too expensive then people are not going to seek advice, and that is a real worry. When we have almost $1 trillion in superannuation funds, with almost 30 per cent of those being self-managed, we need good, strong, solid advice to protect the best interests of the clients—and that is what we will get.

I commend Senator Cormann for the work he has done on this. The opposition have done what is expected. The Ripoll report went further than what the committee agreed on. At that time, the coalition, then in opposition, put in a dissenting report. We made it quite clear before the election and after the election that we were going to introduce the recommendations made in the dissenting report. That is the reason we are pursuing this line.

To say that the commissions and the remunerations will be put back in place is simply wrong. That is not the case. With respect to personal advice, that cannot be the case. Senator Cormann has made that quite clear. There is nothing worse than seeing people who have worked hard all the lives lose their money. I was the first politician to meet with Storm Financial victims. The whole program was destined to fail. My colleague Senator Macdonald joined us in Townsville, and Senator Brett Mason was involved in the hearing as well.

It was a sad story. Let's say you have an expensive house, worth $1 million. You borrow half a million dollars against your house and use that for a deposit on a marginal loan and buy another $2 million worth of shares. You would have $2½ million worth of shares. The dividends on those shares are supposed to pay the interest on the $2½ million and give you $50,000 or $60,000 a year on which to live. You cannot do it. The capital growth in the share market might help you for a few years but when the share market turns down—history shows that it always does at some stage—then you are gone. The Storm Financial product was destined to fail. I feel so sorry for those people who went through so much, fearing that they would lose their houses.

ASIC did come to the fore. They put a lot of money into fighting court cases to see if an unregistered managed investment scheme was being promoted. Unfortunately, the court never made a decision. ASIC made settlements. They told me at Senate estimates that they spent that money to pursue settlements. I will go to my grave believing that it is not ASIC's job to pursue settlements in financial discrepancies and disagreements. It is ASIC's job to enforce corporate law, and they should get a judgement. Whichever way the mop flops, people can determine what they do after that.

Senator Bilyk interjecting—

We will not go into mops, Senator Bilyk. The point I was making was that ASIC should have pursued judgements. There have been settlements and some people are a bit happier than they were, but these changes to FoFA are to get rid of the costs so that people can afford to get good advice. The rules will be in place; they will not be removed. The clients' interests will come first and foremost. To say that anything will change is simply wrong. There has just been a big scare campaign from those opposite as far as these changes go.

Deborah O'Neill (NSW, Australian Labor Party) Share this | Link to this | Hansard source

I, too, rise to take part in this debate this afternoon. It is a matter of genuine public interest. It is a matter of considerable concern. In my former role as the member for Robertson—and also as chair of the Parliamentary Joint Committee for Financial Services and Corporations—I had the incredible privilege of hearing the awful stories, particularly with regard to Trio Capital. I learned about Trio when I picked up that committee. People were advised very poorly—we have heard number of those stories here this afternoon—and ended up in the most desperate situations.

I can remember one Saturday morning when the sun was shining and, for all intents and purposes, it was a great day in Australia. I walked down the street in Kincumber and knocked on a door. A gentleman approached me. He had never been doorknocked by a politician before. The story that unfolded about the loss of his entire life savings of $800,000 was the first that I heard of the terrible impact of the Trio Capital range of advice that was given to people.

I do not want to paint the entire financial services sector in a negative light. That is the risk of a debate like this. There are people who are doing a great job, helping Australians to earn money, grow their wealth and improve their retirement. But that sector is very divided on this issue. I want to put on the record, before I go any further, the comments of Matthew Rowe in response to Emma Alberici, who asked the question about a point that has been much debated here this afternoon—the consumers' best interests. Let's be clear about what that means. When I go to a doctor, I expect the doctor to give me advice in my best interest, not his or hers. When I go to a lawyer, I expect the lawyer to give me advice in my best interest, not his or hers because they are subject to some sort of corrupting influence or financial incentive. When Australians today go to a financial planner, they want to know that they are going to have information given to them that will be in their best interest. That is what this legislation is going to pull apart. The FoFA reforms that the Labor government put in were seeking to ensure, for all Australians, that the advice they are given is in their best interest. But that is what is under discussion at this point, and ready for dismantling. Emma Alberici asked the core question:

Reintroducing the ability for planners to accept commissions, is that in consumers' best interests? We've talked about the interests of you and businesses like yours, is that change in the best interests of consumers?

Matthew Rowe, who is the chair of the Financial Planning Association, made it very clear. On behalf of the industry itself he said:

I don't believe it's in the best interests of consumers. I think it's a retrograde step.

That statement reveals two very important things. Financial planners who wanted to do good work for Australians are very happy with the FoFA legislation that the Labor government put through, because it is an effort to professionalise an industry where there have been sharks and shonks—people of avarice and greed—who have ripped families apart and ripped people's savings away from them, knowingly acting in their own interests instead of their clients' interests. That is what all this FoFA talk is about.

Often people listening to these debates wonder what legislation in this place does. I was intimately associated with the FoFA legislation. I want to acknowledge the great work of the member for Oxley, Mr Ripoll, and his committee. The legislation was about ensuring that Australians can have confidence when they go to secure information about their financial future. We implemented a best-interest duty. We said that people should be able to opt in. Every two years they should have a choice put before them: do I really want to stay with this person or not? There should be annual disclosure statements provided to let you know exactly what it is that you are paying for so that you can make an informed decision about sticking with it or moving off. Conflicted remuneration was the most insidious of all elements that needed to be removed, but it is up for grabs again now because of this legislation that has been introduced by Senator Cormann.

The problems we face with the legislation that came through from the then Assistant Treasurer, Senator Sinodinos, are that it removes best interests, scraps opt in and gets rid of annual disclosure, and there is only a partial lifting, but a dangerous one, of conflicted remuneration. These things put Australians' hard-earned savings at risk and put the financial sector at the edge. Instead of being a critical profession, they become marginal boundary riders and a shonky profession. We cannot allow it to be that way. I urge the government in its reconsideration to hold up the FoFA reforms as they were— (Time expired)

Sean Edwards (SA, Liberal Party) Share this | Link to this | Hansard source

I rise to contribute to this debate today. I just want to confirm to everybody who is listening to this our commitment on the government side to the FoFA reforms—the Future of Financial Advice reforms. I must comment on a number of things that have been said in this chamber. I have listened to banks and the financial advisers industry being vilified in here by Senator Bishop. It is almost as though if you are a bank teller providing general advice you are a criminal.

I think that Senator Cormann has made a very bold and courageous move in embracing further debate on this legislation. The government remains, as I said, committed to implementing these improvements to the future of financial service laws, and we took that to the last election. When I look at the inquiries in 2011 prior to the implementation of this, there was broad support, and as far back as August 2011 when in opposition we raised the fact that we did not like what we saw. We went to the election and said that we would change this. The people of Australia are expecting us to implement the election promises that we took to them, and this is no different.

Unlike the Labor Party, who do not like to have a policy debate, we are going to have a policy debate. There are sections of the community that are not entirely happy and we will embrace them. We heard in question time earlier today that the superclinics in Western Australia are a dismal failure. That is a policy that they did not want to listen to advice on. We argued with the government at the time about the folly of what they were proposing. That policy never got proper scrutiny. They rammed it through, and what do we have? We have one empty GP superclinic in Western Australia, and six were promised. Typical of Labor: the policy is big and bold but they do not deliver. We do not intend to do that.

While we are talking about debating policy, the changes to the FoFA policy came about because the industry said it is going to cost so much money. While we are talking about policy, wouldn't it have been good to have had more policy debate on the pink batts program? Wouldn't it have been good to have had policy scrutiny on the cash-for-clunkers program? Wouldn't it have been good to engage and exercise a little bit of caution on GroceryWatch? What happened to GroceryWatch? And there was the mother of all policy failures: the NBN. Reportedly, it was put together on the back of a serviette on a VIP flight with the then Prime Minister—with the revolving doors of Labor's Prime Ministers—and Senator Conroy. Wouldn't it have been good if that policy had suffered a little bit more scrutiny—in fact, if that policy had had a business plan? It was the $40 billion infrastructure project of the century. What a failure that has been, yet here we are left to pick up the pieces and clean up the mess.

We are not going to do that. Like Senator Brandis, the Attorney-General, announced today, we are going to put out an exposure draft on section 18C. That is because we want to engage the community. There will be an exposure draft so that all the backbenchers, the opposition, the media and all the interest groups can have a say. That is the same scrutiny that Minister Cormann is going to apply to this. We are committed to ensuring we have the right balance between appropriate levels of consumer protection and ensuring affordable access to high-quality advice. What Labor did in government was regulatory overreach, because they do not understand—it is just easier to regulate than try and solve the problem. They just want to talk about the problem; they do not want to fix the problem. They imposed way too much unnecessary and costly regulation which ultimately has to be paid for by the people saving for their retirement. That $190 million of ongoing operational costs are going to have to be paid by the same retirees who want their money invested. Wouldn't it be much better if that $190 million a year was left in the pockets of the people who earned it and they were not burdened with this regulatory claptrap—that is the word that comes to mind—that Labor just lazily overlaid on industry.

I have a lot of sympathy for what has been going on. This is a highly technical area. The more technical and harder the argument the easier it is to knock it off its feet. The simple play from the other side is, 'We'll be ruined,' but we will not be because otherwise you will not stop fraud, you will not stop criminal activity and you will not stop the Bernie Madoffs of this world who are systematically corrupt. The rules and regulations will be there for the benefit of all the people who are good and have proper intentions. In the meantime, there is an inquiry underway, which is due to report in the middle of June. I urge all members of the public and of the Senate and the other chamber to have their input into that important inquiry.