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

The President has received the following letter, dated 23 June 2014, from Senator Moore:

Dear Mr President

Pursuant to standing order 75, I move that, in the opinion of the Senate, the following is a matter of urgency:

"The actions of the Abbott Government in undermining consumer protections by weakening the Future of Financial Advice (FoFA) Laws."

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.

Sam Dastyari (NSW, Australian Labor Party) Share this | Link to this | Hansard source

I move:

That, in the opinion of the Senate, the following is a matter of urgency:

"The actions of the Abbott Government in undermining consumer protections by weakening the Future of Financial Advice (FoFA) Laws."

Last Friday, the Minister for Finance and still acting Assistant Treasurer, Senator Mathias Cormann, took initial steps to remove important consumer protections from Labor's Future of Financial Advice reforms. Make no mistake, if the minister is successful in pushing through these changes, the Abbott government must take full and unambiguous responsibility for the scandals that will inevitably result. Labor in this place will vote down the proposed changes in their current form and use whatever Senate tools, be they disallowance motions or other, available to ensure that these important protections are not watered down. Labor will use whatever power it has to ensure that consumers are protected against a handful of criminals operating in the financial services industry who have given the many good financial planners out there a bad name.

When the Hon. Bernie Ripoll, now Labor's financial services spokesman, drafted the FoFA legislation in the wake of a series of horrific and costly collapses, it was after an exhaustive period of detailed public consultation. Throughout 2009, everyone from indebted victims, financial experts through to the big banks were given the opportunity to participate in developing these laws. But, last week, we had the co-author of the 'budget of broken promises', Senator Mathias Cormann, supported by a Liberal Party-dominated Senate committee, push for a repeal of this legislation.

I have spent much of the short time that I have been in this place listening to people who have been ripped off, often by fraud, deception and collusion, and left penniless by a financial advice industry that previously had no firm legal obligation to act in the best interests of their clients. I have sat on the Senate inquiry into the performance of ASIC and heard the horrific stories of fraud, abuse and utter dereliction of a basic fiduciary duty by players across the financial services industry—all the way from the boiler rooms to the nation's biggest, and supposedly respected, banks. Thousands of families were left out-of-pocket by the collapse of Storm Financial. The names Timbercorp, Opes Prime, Fincorp—

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

Great Southern.

Sam Dastyari (NSW, Australian Labor Party) Share this | Link to this | Hansard source

Great Southern, Trio and Commonwealth Financial Planning are synonymous with the abuse of trust that happened under the flimsy legal framework that existed before FoFA. All of these scandals have resulted in losses of almost $6 billion and have cost over 100,000 clients—many of them mum and dad investors—their savings, their homes and, in many cases, saddled them with debts that continue to grow. In the case of Timbercorp, the victims have been left paying double-digit interest rates on loans which, unfortunately, they had no idea they had taken out.

Before FoFA, for the financial advice industry the living was easy! It was easy to make a living ripping off the little guys. Unfortunately, a minority of financial planners used that opportunity to rip off thousands of hardworking, decent Australians. But the introduction of FoFA created a clear and long-overdue legal barrier to end dodgy schemes being pushed, with sales commissions or remuneration structures that ignored the best interests of the client. It is the slipperiest of slopes when the incentives are stacked in favour of selling a product rather than providing impartial advice in a client's best interest.

It is not just the sharks who are guilty of this; the big banks would prefer FoFA were changed to allow them to quietly whittle away at their clients' savings, with fees from those little extras that bank tellers were once able to pitch over the counter. Those tiny amounts add up quickly. The big banks' profits in this country totalled $29 billion last year—a lot of money that is no longer in the bank accounts of ordinary Australians. This is the secondary effect of commission based advice: in addition to taking money from clients, it is also money that does not go into the national savings pool. The current FoFA laws have been estimated to add $144 billion to our aggregate savings by 2027. This massive national windfall will be directly jeopardised by the repeals proposed.

Bernie Ripoll's FoFA reforms provided a strong legal framework to distinguish advice from sales. Our financial advice industry will not gain the trust of ordinary Australians until it makes a firm commitment to planning and tailoring advice, and explaining the possible risks to each client, whether they are saving for their first car, paying off a second mortgage or refinancing to grow a business. Of course, those who stand to gain financially from the old system want to go back to clipping the ticket, without the hassle of basic consumer protections. But their incentives should not dictate how our laws function. This is already bad policy and, with the government's proposed reforms, we now await some fascinating politics.

The minister, Senator Cormann, is an interesting character. While he favours some of the government's more extreme policies, he is also one of the government's shrewdest political operators. He knows that they are bleeding viciously after budget. Will he follow his ideological instincts and belligerently plunder the consumer protections in FoFA to appease a handful of sectional interests, who would love nothing more than to be taking fees and commissions once again? Or, as this debate progresses, will Minister Cormann be smart enough to back off?

It took Prime Minister Howard nearly 10 years before he over-reached and destroyed his own government. Will Minister Cormann, Treasurer Hockey and Prime Minister Abbott smash this record, by both plodding forward with a deeply unpopular budget and pushing changes to FoFA that will hurt ordinary Australians and present a clear and present danger of the kinds of collapses that triggered the changes in the first place? These reforms were put forward for a reason, and that reason was to protect consumers. They do not need to be watered down. This is not simply a matter of removing little bit of red tape. This is a wish list from the industry, who want nothing more than to go to the good old days, when they could set their own fees.

Today I met with Naomi Halpern, a victim of the Timbercorp collapse and a spokesperson for the Holt Norman Ashman Baker Action Group—a group of people who unfortunately were the victims of dodgy, crude and incorrect financial advice that they were wrongly provided.

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

And financial products.

Sam Dastyari (NSW, Australian Labor Party) Share this | Link to this | Hansard source

And financial products. Ms Halpern is intelligent, articulate and incredibly well informed, but she was taken for a ride by a crook—a crook who continues to play golf around Melbourne, who continues to drive a sports car, who continues to live in a mansion—who has got away relatively scot-free, considering the pain and anguish that has been caused. We need to make sure that we have the toughest, strongest, highest set of standards, so there are no more victims like Ms Halpern in the future. What worries me so much about these proposals is that the exact events that occurred and resulted in people like Ms Halpern being ripped off are the same things that will once again be possible if the minister's reforms are adopted.

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

I start by saying that there has never been any issue whatsoever—and I look in the direction of Senator Whish-Wilson—about the tripartisan support that exists in this place for addressing the matter of financial advisers who seek to rip off their clients or to sign them up to dodgy products which are not in their interests and which really serve no purpose other than to line the pockets of those giving the advice. That is why, when we were in opposition, we actively participated in the Ripoll inquiry, which was referred to by the previous speaker. That inquiry came up with a unanimous suite of recommendations to address the issues that arose from issues like Westpoint, Storm, Trio and even Timbercorp. That suite of recommendations was unanimously adopted by the committee after looking at these issues, reflecting the tripartisan support of all parties involved to try to address these issues.

But FoFA went further. The legislation that the government put forward following the Ripoll inquiry went further than the inquiry's recommendations. We are seeking to make changes to the FoFA legislation to better reflect the unanimous recommendations of the Ripoll inquiry. In that sense, when Senator Dastyari talks about the Bernie Ripoll FoFA reforms he confuses me somewhat. I am not sure whether he is talking about the FoFA reforms or the Ripoll inquiry, because they are not one and the same.

Before the election it was clear that if elected we were going to make these changes. In government we are now seeking to put in place the changes that we took to the election, which were based on our dissenting report in the inquiry to the FoFA reforms. The opposition now seeks to scaremonger. They seek to beat up the idea that we are removing the best-interests requirement that is contained in the legislation and that we are removing all the reforms that were put in place to increase consumer protection in the previous government's FoFA legislation. This is absolutely not the case.

Facts are important when we are looking at this issue, so let us look at a couple. Interestingly, I note today that Alan Kohler, who has been a bit of a critic of what the government is trying to do on FoFA, has put out an article headed, 'Why Cormann is now right on financial advice'. In that article he notes:

The other parts of the government’s amendments will make very little difference now that Mathias Cormann has 'clarified' his undying commitment to banning commissions and making advisers act in the best interests of their clients. Having clarified that, the Minister and his drafters must now focus on de-complicating financial advice, and genuinely making it cheaper for people to get a single piece of advice.

That, in itself, is one of the reasons that we are doing this. We want to make sure that financial advice is both accessible and affordable to Australians. I think the chair of ASIC at one of the earlier hearings that the Senate committee conducted into ASIC's performance made the comment that only about one in five Australians over their lifetime receive the benefit of financial advice. He thinks that that should be one in two Australians, but you are not going to see one in two if you make financial advice more expensive. We need to work out what can be done to ensure that financial advice is both of a high quality and accessible to ordinary Australians. Financial advice is no good if you make it so expensive that only those who have buckets of money in the first place are able to afford the benefits of advice on how to invest. You need to broaden the accessibility and ensure that advice is affordable to all Australians. When it comes down to it, it is often people who do not have a lot of money who really need the advice more than anybody else.

Interestingly, a few weeks ago ABC Fact Check, which is not well known for drawing conclusions in the government's favour, conducted a fact check on Chris Bowen's comments about financial advice, which are summed up in Senator Dastyari's closing comments on the motion. Fact Check looked at the commentary that the financial planning and advice industry is about to return to the bad old days when retirees lost their life savings in dodgy investments that paid big commissions to their advisers. They asked whether that is really the case and after looking into the issue in some detail they conclude:

Mr Bowen is scaremongering. The proposed changes to the conflicted remuneration provisions do not bring back the type of commissions that financial advisers could receive before FOFA was introduced.

It is important to remember that that fact check was undertaken prior to the changes that Minister Cormann announced last Friday, which make that conclusion even clearer.

Let us look at the reality of what we are doing. The underlying objective of FoFA, as I said before, was to improve the quality of financial advice whilst building trust and confidence in the financial advice industry. Whilst the government agrees with the policy intent of FoFA, from the government's perspective it is quite clear that the legislation in parts went too far and impacted the balance between consumer protection and accessibility and affordability of advice. The objectives of the government's improvements to FoFA are to unwind the regulatory overreach created by the current FoFA legislation, which, in the government's and others' opinion, went beyond the original recommendations of the 2009 parliamentary joint committee inquiry; to reduce regulatory costs, thereby placing downward pressure on the cost of financial advice to consumers; and to provide certainty to the financial services industry by clarifying the operation of FoFA.

It is really important to clarify, because this is where scaremongering comes into the debate, that the key consumer protections and the objectives that were placed into FoFA when Labor first introduced it will remain. I emphasise that the key consumer protection objectives will remain in FoFA and I will go through them. Advice will continue to be in the best interests of the client. This is contained in section 961B(1) of the act and it is not changed at all. That makes it absolutely clear that the advisers must act in the best interests of their client. In addition, the advice must be appropriate to the client. That is contained in section 961G and also does not change under our proposed amendments. An adviser must provide a warning if there is any incomplete or inaccurate information. That is contained in section 961H and does not change under our amendments. An adviser must prioritise their clients' interests ahead of their own, which is contained in 961J.

Interestingly, at the Senate Economics Legislation Committee inquiry, senior legal advisers gave evidence that the primary obligation contained in the legislation, and of a much higher standard than the best-interests requirement, was that the financial advisers must prioritise their clients' interests ahead of their own. Legal advisers thought that was a much higher standard than the best interests. I think it is. If you have to put your own interest behind those of your client when you are providing advice then it is quite clear who comes out of that in front.

Further, conflicted remuneration structures, including commissions, that have the ability to influence advice are banned. That is important: financial advisers are banned from accepting remuneration that might influence the advice that they give. That will remain under the changes that we are making. Consumers will also continue to have access to high-quality financial advice, which is clearly one of the objectives of FoFA.

I have mentioned the Senate committee report. The Senate Economics Legislation Committee was asked to look into this and on 16 June 2014 the committee released its report. Overall, the committee found that the proposed amendments achieve a proper balance between providing adequate consumer protection and sound, professional and affordable financial advice. The committee recommended that the bill be passed after the government give consideration to two recommendations: firstly, that the explanatory memorandum include a paragraph to clarify the best-interest obligations and the level of consumer protection that they provide and whether any further strengthening is required to ensure that these obligations cannot be circumvented. Secondly, the government should consider redrafting the conflicted remuneration provisions to ensure greater clarity.

The government has since agreed with these recommendations and has responded by introducing parliamentary amendments and making changes to the explanatory memorandum to address the committee's concerns as expressed in their recommendations

Other findings of the committee included: that the best-interest duty remains robust and comprehensive; that clients receive scaled advice without diminishing their protections; that conflicted remuneration provisions redressed the problem of legislative overreach created by the original FoFA legislation, which essentially banned activities and remuneration structures that could not possibly influence the advice that was being provided to their clients and as such caught up in the net things that were never intended to be caught by FoFA. The committee also found that the amendments were not intended to bring back commissions in any form, which—contrary to some people's opinions or conclusions—was always the intention. Clearly, the wording, in the view of the committee, needed some tightening up to make that clear, even though the intention was that commissions were always intended to be banned in any form, whether upfront or trailing. Looking at general advice and conflicted remuneration, which is one of the hot spots here. The government made an election commitment to amend the law to enable incentive payments which do not conflict advice— (Time expired)

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

Having worked in the financial services industry and having been part of this inquiry, I say that it is a very complex area. I see the FoFA laws that were implemented is that as trying to simplify a very complex area, although some say they had overreach or overkill. During the inquiry we were told that if financial planners, for example, were to exhaust the list of things they needed to do to act in their client's best interests, that list could potentially be 30 or 35 checklists long. That is why the catch-all provision was put in, as it has been for other professional industries: to make sure that everything had been exhausted. But it was not to go into the legislation because that would have been very complex. When it comes to scaled advice, even the experts disagree as to where it kicks in and where it does not. We still have problems with defining 'personal advice' and 'general advice'. All these complexities are the reason we needed a simple set of laws that achieved a balance in protecting consumers in this country.

Senator Bushby said the impact went too far and it tipped the balance. It was designed to increase confidence in the financial planning and financial services industry. It was designed to get more people to go to financial planners, and that is a good thing. I met a lot of really good financial planners during this inquiry, and I must say that a lot of the smaller financial planners who charge a fee for service do a great job and that they have amazing relationships with their clients. That is not the issue for the Greens. The issue is the large vertically integrated financial services companies that we know have a conflict of interest inherent in their business models. The Australian Bankers' Association said on the record during the inquiry that they wanted these FoFA laws changed before 1 July so that they did not have to put in place costly compliance mechanisms in their back offices. To me, the real issue here is the opportunity costs of their lost income; the big financial services companies make so much money out of cross-selling products to their client bases. It is that lost income that is the elephant in the FoFA room. Why have the Bankers' Association and the financial services associations, representing the big end of town, lobbied so hard for these changes before some of them are even implemented?

I think the Greens have taken an eminently sensible approach to this inquiry by saying that, in areas such as opt-in clauses or best-interest duty or scaled advice, we should give it some time to see whether there is an increased cost for provision of financial advice—whether there are problems with increased insurance premiums, et cetera. We have not had time to see this through yet; all we have is speculation. Choice, Seniors Australia, with 200,000 members, and Certified Practising Accountants, one of the biggest lobby groups in financial services, did not want to see these laws weakened. These are very important stakeholders in this country who want to give these laws a fair go—it is not just the Greens or Labor.

Only now are we seeing the wash up of the GFC—whether it was the collapse of Storm Financial or whether it was the CBA in the media or whether it was Timbercorp, as we have seen this week—our toxic debt from the GFC is now washing through the economy. This is not the time to be weakening financial advice laws. We need to keep them strong and we need to send a very clear message to not only a few bad apples but also the big end of town that it is a cultural issue that we have to tackle through strong regulation.

Catryna Bilyk (Tasmania, Australian Labor Party) Share this | Link to this | Hansard source

I will start my contribution with a quote:

Each one of these is what I feel: persistent feelings of sadness, feelings of failure, feeling overwhelmed, loss of interest, withdrawal from family and friends, frequent anger, lack of confidence, poor concentration, tiredness, sleeping problems, feeling sick and changes in appetite.

All those is what I’ve been feeling in the last few months since we’ve been sold out of the market and just realising that it’s an impossibility to restore.

This quote comes from Storm Financial investor Phil Green when he was interviewed by the ABC. The interview formed art of a 2009 episode of the Four Corners program, entitled 'The Perfect Storm'. Phil Green told Four Corners that he earned $50,000 a year while trying to pay off a $1.8 million debt. Business commentator Robert Gottliebsen was also interviewed for the Four Corners program and told reporter Paul Barry that Australians had lost billions of dollars in margin-lending schemes. Like WestPoint and Timbercorp, Storm is an investment scheme that collapsed, destroying the lives of ordinary Australians who invested their life savings expecting their investments to be safe.

These tragedies occur because Australians receive bad financial advice. They receive bad advice because that advice is conflicted by commissions and vested interests. The only way to protect Australian investors from this exploitation is to make sure that they receive advice with one beneficiary in mind—and that is the investor. That was the principle which underlined Labor's Future of Financial Advice legislation, and that is the principle which is being fundamentally undermined by the Abbott government's attempt to dismantle our reforms. Rice Warner Actuaries' modelling predicted that by 2027 the reforms would boost private savings by $144 billion, double the provision of financial advice and almost halve the average cost of advice. You see, Mr Acting Deputy President, what small investors need is genuine financial advice given by financial advisors, not a sales pitch given by marketers. They need advice which is in their interests, not in the interests of the people selling the product.

Submissions to the government's exposure draft of the bill and to the Senate economics committee inquiry into the bill reveal the breadth and depth of community opposition to the changes the government has proposed. The consumer advocacy group CHOICE, which is highly regarded, noted in its submission to the Senate inquiry that:'FoFA was a compromise between the interests of consumer protection and industry, and the proposed bill tilts the balance further away from consumers.' In evidence given to the Senate inquiry, CHOICE described 'the best-interest obligation, the changes to rules about conflicted remuneration, the removal of the requirement that clients opt in to fees and the removal of the requirement for annual fee disclosure statements' as 'pretty basic consumer protections and, indeed, signs of basic good practice in business that any financial adviser should be happy to sign up to.' National Seniors Australia, an organisation which represents people over the age of 50 and has over 200,000 members, said in their exposure draft submission that the government's legislation would 'remove essential consumer protection measures and expose older Australians to greater risk and uncertainty'. The Council on the Ageing, another group representing seniors, told the Senate inquiry: 'We believe the cumulative effect of these changes is to seriously weaken the reforms, giving less consumer protections and ultimately undermining confidence in the financial advice sector.'

The criticisms from various professional, consumer and other community groups were nicely summed up in an opinion piece by experienced financial journalist, Alan Kohler, in which he wrote: 'Under the cover of streamlining the laws and removing red tape to lower cost, the government is proposing eight changes to the law that will allow banks to once again use licensed financial advisers to sell investment products while pretending to provide independent advice.' In the detail of many submissions not only on the exposure draft but also to the Senate inquiry are criticisms of the government's proposal to weaken the best interest test; criticisms of the government's proposal to scrap the opt-in provisions; and criticisms of the government's changes to the annual disclosure and conflicted remuneration provisions. All these provisions were put in place by Labor as part of the FoFA reforms for one major reason—that is, to protect consumers.

Scrapping opt-in provisions means that most people will pay fees for services they do not get—some will pay fees without even knowing. The government's changes to the best interest obligation would effectively weaken that obligation to a tick-box approach. In fact, the government's changes will weaken this provision to such a degree that they may as well scrap it entirely. As for the changes to conflicted remuneration, various stakeholder groups including financial planning industry associations have raised concerns about the potential for this to lead to unethical practices. In its evidence to the Senate inquiry, Industry Super Australia pointed to research which estimated the cost to consumers of this change alone would be more than half a billion dollars a year. This is almost three times the estimated savings to business. Mark Rantell, Chief Executive Officer of the Financial Planning Association of Australia, said in his evidence to the Senate inquiry that there were several risks in allowing commissions for general advice. In particular, he mentioned: the difficulty for consumers in distinguishing personal financial advice from marketing; the potential to shift licensees and representatives away from the provisions of personal advice in order to earn commissions; and the erosion of public confidence in Australia's financial system. With the government's legislation removing so many basic consumer protections, is it any surprise that there is such widespread opposition to these laws?

The Abbott government's attempt to dismantle FoFA has very few remaining supporters. As with anything else this government does—if you want to see who they represent, it is instructive to see who supports their actions. The few remaining supporters of this legislation are the big banks, AMP and the Financial Services Council. The FSC is essentially a proxy for the big banks, given that it is controlled by them. It is run by former New South Wales Liberal leader, John Brogden, and its political donations—at least those reported up to 30 June last year—have heavily favoured the Liberal Party. The acting finance minister, Senator Cormann, received $10,000 from the FSC in August 2012, and the Treasurer, Mr Hockey, received $11,000 through his—I might call it somewhat shady—fundraising vehicle, the North Sydney Forum.

Is it any surprise that this government would push a reform that is overwhelmingly opposed by groups representing seniors and consumers, while being supported by a small group of powerful vested interests? It is just one more of the many examples of how this government represents the big end of town; just like they represent the big end of town with their budget of cruel cuts and broken promises. This is the government which would tax ordinary Australians when they get sick, when they need medicine and when they need to go to the doctor—while giving a tax cut to billionaire mining magnates. This is the government which would cut payments to struggling families, and cut vital childcare assistance—while giving up to $50,000 to millionaire mums who have children. This is the government which would increase taxes on petrol—while cutting funding for public transport concessions. And this is the government which has the audacity, and the cruelty, to deny young jobseekers an income for up to six months—while increasing university fees and cutting money from education.

We know that this is a dishonest government; an unreliable government. We know that this is a government that lied before the election, and that delivered a budget full of broken promises. But there is one thing in which this government will always be consistent; there is a pattern of behaviour that this government can always be relied upon to adopt—and that is, given a choice between standing up for the least powerful or the most powerful in our society, they will always side with the powerful vested interests. They will do so even when it is at the expense of ordinary Australians.

These laws are not about removing red tape; they are about dismantling Labor's reforms and leaving consumers at the mercy of shonky and unethical financial advisers—dismantling the very laws that Labor designed to protect consumers from disasters such as the Storm Financial collapse. They are essentially the same laws that were proposed by their original author—do you know who that was, Mr Acting Deputy President?—Senator Sinodinos. And I would suggest that, just as Senator Sinodinos might have been sent to the back blocks for quite a while, so should the Prime Minister also send this reform to the back blocks for just as long.

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

Mr Acting Deputy President Sterle, might I say how good you look in the chair's position there, and I hope that in the short future you are nominated for Deputy President; I think you would make a fine Deputy President.

I take offence to Senator Bilyk saying that those on this side just look after the big end of town. I started this job at the same time as Senator Bilyk and Senator Cameron, on 1 July 2008. In January 2009 I went to Redcliffe to meet with the Storm Financial victims. I was the first politician to meet with them, and I guaranteed them that I would do my best to get a Senate inquiry, which we had the numbers here to do. However, it went to a parliamentary joint committee. So, Senator Bilyk, do not come in here and tell me that I do not stick up for the battlers around this place, because I think I have done more for the battlers—those who have lost their money through shonky products and bad advice—than anyone else in this chamber.

I want to make it quite clear that I follow this very closely. I went on to the PJC, chaired by Mr Ripoll, and was on it right through that inquiry. And I will tell you what was wrong: the product was wrong. Storm Financial's product, as soon as there was a drop in the share market, was doomed for failure. The customers were geared so heavily with their debt that there was no way that the return on those shares and the capital growth in those shares could pay for the standard of living and all the interest on the debt for their house and their geared investments. It was a shonky product, and we need to see that more of these products are not out there.

But let me just talk about this whole FoFA modifications issue. The underlying objective of FoFA was to improve the quality of financial advice while building trust and confidence in the financial advice industry. We need an ethical financial planning industry with ethical products. Why is the government seeking to amend some of the consumer protections contained in FoFA? The amendments to FoFA seek to navigate the fine line between ensuring that unnecessary and burdensome regulations that drive up the costs of business and ultimately of consumers are removed. Just one in five Australians seek professional financial advice. We need to raise that. We need to raise that enormously, especially for the some 30 per cent of Australians who now have self-managed super funds—around $600 billion worth of money out of the $1.8 trillion worth of super. I am not going to see shortcuts in that advice.

This week Senator Bishop will deliver the report of our inquiry into ASIC that was supported by all around the chamber, especially Senator Cameron. I have made it quite clear on the public record that I want to see more. I want to see every financial planner licensed in this country—not just one licence for a big institution that may have 300 planners, but the whole 300 licensed. I want to see their history on the internet so that people can research them—whether they have been consistent in their employment, whether they have stayed in the one job for so long, what their record is like. And I want to see ASIC have the power to automatically suspend that licence—just one phone call; when ASIC receives information on wrongdoing, of not putting the interests of the client first, ASIC can call that financial planner and say: 'Charlie Brown, as of this minute you are out of your industry, your licence is suspended. You can go to the Administrative Appeals Tribunal and make an appeal, as everyone has a right of appeal, but my advice would be that perhaps you should go down to Centrelink, because we have the clear evidence that you are not putting the clients' interests first.'

And it is in there in black and white: the six points. The key consumer protection objectives of FoFA will remain. Advice will continue to be in the best interests of the client, full stop—not negotiable. The advice must be appropriate. An adviser must provide a warning if there is any incomplete or inaccurate information. An adviser must priorities their client's interests ahead of their own. Conflicted remuneration structures, including commissions, that have the ability to influence advice will continue to be banned, and consumers will continue to have access to high-quality financial advice. That is what we are doing, and that is a protection of the general public, which is such an important issue to protect.

Regarding general advice on conflicted remuneration, I might add that in a division in here just last week Senator O'Neill said to me, 'Why are you bringing back commissions for general advice?' We are not. They are banned. They are not coming back. But let me say this: you can plug every hole in the wall as far as giving incentives to employees is concerned, but another hole will develop. I see nothing wrong with giving an incentive to workers for doing their job well and performing well, as long as they are not ripping off the people. For example, if a bank teller at the front counter talking to the public cannot get an up-front payment or commissions on it, that is fine. But what is to stop the bank from saying to that person, 'If you refer at least 50 clients to professional advice, we can knock 20 basis points off your home loan, or we can give you a company car.' You can plug every hole, but holes will still develop when it comes to institutions providing incentives for their workers. And in some cases—probably in many cases—the incentives are very good.

Commissions paid in relation to general advice will not be introduced, despite the scaremongering of many of the people trying to put out false information on this very issue. I come again to that point of ethical advice and behaviour. I mentioned what I would like to see come out about the licensing of financial planners. If they do not put the interests of their client first, regardless of what institution they work for, if they go flogging the products of their institution to get promotions or to get whatever and if that is not in the best interests of their client, then they should be suspended from the industry.

I want to move on to why the obligation to act in the client's best interests is being amended. The bills that are being introduced do not remove the requirement for advisers to act in the best interests of their clients. The requirement is enshrined in subsection 961B(1) of the Corporations Act. We have been through those parts that will remain, and they have to remain. As far as the opt-in goes, we received something like 460 submissions to that Parliamentary Joint Committee on Corporations and Financial Services in relation to the collapse of Storm Financial, Opes Prime, Timbercorp, Great Southern et cetera. The requirements to obtain the client's agreement at least every two years adds an unnecessary and costly layer of red tape. And I will tell you why: new clients will continue to receive a fee-disclosure statement, which will contain the same information they would have had to have to determine whether they wanted to continue the fee arrangement or not. I will repeat: they will continue to receive a fee-disclosure statement. They will know what the fees are, they will know what their planner is charging them. That is the important issue here in this debate.

Stakeholders have indicated that due to the age of the systems involved it would cost almost twice as much to prepare a fee-disclosure statement for a pre-FoFA client than for a post-FoFA client. We cannot just go putting costs out, because, as I said at the start, only one in five Australians seeks financial advice from a financial planner. We need to raise that, and no doubt the ASIC inquiry we have just had has put a lot of smear on that industry—well, not smear, but it has certainly darkened it. And we need to lift that up and improve the quality so that people have faith in it.

John Madigan (Victoria, Democratic Labor Party) Share this | Link to this | Hansard source

Australians know how to use their discretion; they know how to make up their minds when receiving financial advice. We are sceptical of experts but often we decide to trust them. People expect that if they are paying someone to give them advice then that adviser is going to be trustworthy and have their best interests at heart. Is this a fair assumption? From what I have seen in a lot of cases, definitely not. It has not been in the past, and this government seemingly wants to return us to those days. In fact, we have not even left those days. We still feel the effects being played out on the front pages of our papers with the recent Commonwealth Bank financial planning scandal.

I could go on about the mechanics of the bill, but we have heard those time and time again in this place. I have talked to numerous people from all walks of life and with all sorts of backgrounds, and not constrained to one postcode or another, who have been done over by dodgy and/or incompetent advice. We as regulators have a duty of care to people. We need to have credible deterrents, accompanied by credible penalties.

Bad advice affects individuals, families and communities. I have had so many people come into my office who have been affected by bad advice. We hear from the government that we have to free financial advisers to do the right thing. The fact of the matter is that human nature does not change. There are some reputable people and there are some disreputable people. We hoped that the reputable ones would hold the disreputable ones to account. That has not worked. I do not wish to see any more people come in to my office who have had their life savings and properties and those of their families stolen from them, in effect. I do not want to see them end up having to seek welfare. I do not want to see either them or their families with mental health issues, now or in the future.

Doug Cameron (NSW, Australian Labor Party, Shadow Minister for Human Services) Share this | Link to this | Hansard source

I am pleased to participate in this debate. I am really, really unhappy with the contribution made by Senator Williams. Senator Williams and I worked together on the economics committee for a long period of time, trying to get people proper protection in relation to financial advice. It was Senator Williams and I who argued strongly for the establishment of inquiries into Commonwealth financial planning and into ASIC's role as well. Senator Williams indicated that no-one has played a stronger role than him on this issue. Up until now, that may have been true. But now we see Senator Williams capitulating to the finance sector, Senator Cormann and the party—and that is not good for consumers. I do agree that Senator Williams has played a strong role, but that strong role is no longer there. Instead of being Batman, he is now the Joker. He has gone from trying to protect people to actually arguing that things should happen that are going to make it hard for people. I do not agree with the proposition from Senator Williams.

In all the arguments coming forward are two clear groups. You have representatives of consumers and academics who have studied the legislation saying, 'This is bad and it is taking protection for consumers backwards.' Then you have the banks and financial institutions saying, 'This is great. This is what should happen. We should be free to get in there and talk to our clients.' Underpinning that approach is that they think they should be free to continue the rip-offs that have taken place in this area.

The analysis that we saw in the inquiry is that this dilutes the best-interest obligation. It removes the opt-in requirement where financial planners have to renew every couple of years the contract that they sign. It limits the consolidated annual statement of fees to new clients. Also, it waters down the ban on commissions. I, like Senator Williams, have sat in hearings listening to people saying that their lives have been devastated by a financial planner from the Commonwealth Bank or another institution that you would normally think you could trust. But you could not trust them because the legislation was weak and ineffective and the loophole in it was used by the financial planners in the Commonwealth Bank.

I do not think we can have a position either where we have Senator Williams on the one hand arguing that the coalition are protecting the consumer at the same time as they have ripped $120 million out of ASIC's budget. ASIC themselves, the group that is supposed to be looking after consumers, said clearly, 'We cannot do our job the way we used to do it and the people who will suffer are consumers.' We are talking about $6 billion worth of rip-offs that have been identified over the last few years—ABC Learning, $2.5 billion; Kleenmaid, $82 million; Opes Prime, $630 million; and Storm Financial, $830 million. If that is not an issue that we should take seriously then I do not know what is.

We have seen the coalition establish a number of royal commissions based on attacking their political opponents and payback. If there is one royal commission that should be established, it is a royal commission into the finance sector. We should look at the protections and safeguards for consumers, the role of remuneration including bonuses and executive salaries, the role and resourcing of ASIC, the role of election donations and legislation, the impact on consumers, the impact on the economy, the issues for business regulation and the licensing and qualifications of financial planners, just to mention a few issues. If you ever needed a royal commission, it is a royal commission into the finance sector to protect the Australian public.

Sue Boyce (Queensland, Liberal Party) Share this | Link to this | Hansard source

We should at least find it refreshing that the opposition has moved on from budget scaremongering about the government kicking grannies and starving students and beating up the unemployed. They are trying to develop a whole new scary monster at the bottom of the bed concerning the future of financial advice provisions. I remind the Senate that in 2009 the Joint Committee on Corporations and Financial Services, of which I was a member and which was chaired by the now shadow minister for financial services and superannuation, Mr Bernie Ripoll, came up with a bipartisan response on how we might go about improving the integrity of financial planning following the Storm Financial collapse and the terrible problems that resulted from that. It was a bipartisan report, and two of the things it particularly looked at were the development of a best interests test for financial planners to ensure they are acting in the best interests of their clients and abolishing the payment of commissions and conflicted remunerations—commissions both up-front and trailing. This legislation does that, and that is exactly what the committee chaired by Mr Ripoll, with the support of the then opposition, the now government, agreed to and that is what we recommended.

The committee went on to have inquiry after inquiry into the many tranches of Minister Shorten's future of financial advice legislation, and, as Minister Cormann pointed out in question time, only one submission suggested that we have opt-in requirements for clients. That came from the Industry Super Network—they were the only ones who suggested this should happen. Much of what the then government put into FoFA was basically about pleasing their political masters, not about protecting consumers. I would like to refer briefly to the dissenting report of the 2012 inquiry into FoFA. The coalition members of that committee, of which I was then the deputy chair, made the point that there were a number of high profile collapses in financial services across Australia, and we cited Storm Financial, Trio and Westpoint. We could add to that Timbercorp and the Sherwin Group in Brisbane—the list could go on and on. The point is that those collapses happened because financial advisers broke the law then—they behaved in a criminal fashion. They did not meet the requirements—which needed tightening up, I agree, but still they did not meet them. I feel nothing but extreme sympathy for people who have been affected by the like of the collapse of Storm Financial, but getting rid of the red tape in the FoFA legislation and making sure it is easy to use will in no way assist those people. I would quite confidently but sadly stand here and say will be another rort conducted by someone, but that will not be someone who is acting within these laws—it will be someone acting outside the laws. I spoke to someone recently who had been affected by the collapse of one of these groups, and they said that we should legislate to stop it. We have done what we can to set up a very strong framework, but asking us to stop collapses happening is like asking us to legislate to stop burglary. The people who instigate those collapses, who con investors, are people who are breaking the law—and that was the law before FoFA was introduced.

In our dissenting report we brought up the fact that the current legislation as it stands around best interest duty is at best confused and at worst unenforceable. The Trust Company, who are not exactly a political body, have said:

The best interest duty as expressed in the Bill is a prescriptive duty and will cause confusion and uncertainty in the industry. It is confusing a duty of care on one hand with a duty of loyalty on the other. The Bill attempts to address a duty of loyalty by using standards and rules which are associated with the duty of care. These two duties cannot be confused. It is the duty of loyalty that underpins the fiduciary obligation and it is this duty that should be met

The Joint Consumer Group have said:

… it may be difficult for courts and external dispute resolution schemes to interpret the duty and there is a risk that their interpretations may not further the government's policy aim.

That being the then Labor government. The opposition can do their damnedest to develop scary monsters at the end of the bed, but in the end these are the expert people who know whether the law relating to best interest duty as the then government put it into place can be enforced. What is the point of a law that cannot be enforced? It is crazy for this scaremongering to continue. This legislation as we have developed it is exactly what we said we would do two years ago. It has been done to assist consumers as much as possible.

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

The Future of Financial Advice reforms legislation under the previous Labor Government was not perfect, but it was one I supported because it addressed some yawning gaps in protections for consumers of financial advice—gaps which turned into a chasm of financial disaster for too many Australians. Scandals involving Storm Financial, the Commonwealth Bank's financial planning arm, Timbercorp and Opes Prime have led to massive losses by more than 100,000 Australians, including many who lost their life savings.

Who wants to go back to the bad old days which saw planners inherently conflicted between earning commissions and giving advice in the best interests of their clients? Last week the government released details of its reforms to FoFA, and the Acting Assistant Treasurer has indicated he wants the measures implemented by regulation. This is not good enough. A legislative framework is preferable to relying on regulations, and I look forward to the release of the interim report of the Financial System Inquiry, headed by David Murray, which is due on 15 July. I also look forward to the release later this week of the report of the Senate Economics References Committee inquiry into the performance of ASIC, partly in relation to misconduct at Commonwealth Financial Planning Ltd.

Experts such as Dr Pamela Hanrahan of the Melbourne Law School have called for better targeted reform of not only financial advisers but also custodians, trustees, responsible entities, brokers and dealers. Dr Hanrahan, a former regional commissioner of ASIC, suggests ASIC should raise the bar for the industry by creating a register of dealers, brokers and advisers that are properly qualified and accredited by a professional body with proper disciplinary powers. She suggests advisers must accept a minimum four duties: a duty of care and diligence; an undiluted duty to act in the best interests of clients; a duty to avoid conflicts of interest (including on accepting conflicted commissions); and a duty of full disclosure.

Dr Hanrahan's approach appears sensible. Scrapping the best-interest requirement will only make consumers more vulnerable to being ripped off, so the government is wrong to abandon that test. In addition, the government has left the door open to big institutions earning commissions off some quite complex products—so long as they don't call it 'financial advice'. The distinction between services and products that do and do not attract commissions becomes pretty meaningless—customers can simply be referred to another department, and the institution will retain the business while another staff member earns the commission. Leaving the door open in this way is also a retrograde step, as is the move to wind back 'opt-in' requirements for advisers. If the industry has nothing to hide from its customers, then it has nothing to fear from requirements to get written confirmation that their services continue. This is important because two-thirds of financial services clients are completely passive, and may not even know they are paying advisers.

The government has already gone back to the drawing board with its ill-considered first round of proposed FoFA reforms. I suggest it needs to go back again in a way that will protect consumers and will best avoid any future financial scandals.

Glenn Sterle (WA, Australian Labor Party) Share this | Link to this | Hansard source

The question is that the motion by Senator Dastyari be agreed to.

Question agreed to.