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

My question is to the Minister representing the Treasurer, Senator Cormann. On 17 June, an ABC 7.30 report covered the government's proposed wind-back of the FoFA laws and how that risks a repeat of the Timbercorp scandal. Why is the government seeking to exempt general advice, execution services, volume rebates and trail commissions on pension products when thousands of Australians are still dealing with the devastating consequences from past financial advice scandals like Timbercorp?

Mathias Cormann (WA, Liberal Party, Minister for Finance) Share this | Link to this | Hansard source

I thank Senator Madigan for that question and for some notice of it, and also for his genuine interest in this important area of public policy. Firstly, let me reassure Senator Madigan that we are not proposing to reopen any loopholes. We are working to ensure that low- and middle-income earners across Australia can have affordable access to high-quality financial advice they can trust, by removing unnecessary and costly red tape which pushes up the cost of advice without delivering proportionate improvements in consumer protections. Secondly, the requirement for financial advisers to act in the best interests of their clients remains in full and unamended. Thirdly, the ban on conflicted remuneration remains in full.

Let me direct Senator Madigan to my release on the Future of Financial Advice law changes last Friday when I said:

The Government has supported the ban on commissions and conflicted remuneration for financial advisers since it was first legislated. At no point has the Government sought to re-introduce commissions or conflicted remuneration for financial advisers.

My announcement last Friday of course also made it very clear that employees of financial product providers could not receive either up-front or trailing commissions as a reward or an incentive for product sales related to general advice they have provided. In fact, we went even further by stating that we would explicitly prohibit, in regulations and the legislation, any payment made solely because a financial product of a class in relation to which the general advice is given has been issued or sold to the client and any recurring payment made because the person has given the general advice. We are not proposing, however, to ban all remuneration for services provided. I do not think that anyone would seriously suggest that we should do this. Indeed, even Minister Shorten, when he introduced the FoFA laws in his second reading speech, said:

If … a particular stream of income does not conflict advice, then these reforms do not prevent them from receiving that income.

All of our changes are consistent with that statement. (Time expired)

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

Mr President, I ask a supplementary question. I refer to the minister's claim that he is not bringing back commissions. If that is the case, why is the government seeking a multitude of exemptions from the conflicted remuneration ban designed to incentivise sales?

Mathias Cormann (WA, Liberal Party, Minister for Finance) Share this | Link to this | Hansard source

As I said in my previous answer, these changes have never been designed to bring back commissions for financial advisers. To remove all possible doubt, the government is prescribing, in both the legislation and the regulations, that any payment related to the provision of general advice cannot be an up-front or a trailing commission. Indeed, any remuneration that would conflict the advice given is to be banned and to remain banned, and, beyond that, we are proposing that parliament give the government regulation-making powers to ban any new form of incentive payment or remuneration which may or may not emerge in the marketplace as a workaround of our financial advice laws, if it is found to conflict advice given and is not covered by the current prohibition. I note, incidentally, that this goes further than the relevant recommendation of the Senate Economics Legislation Committee inquiry's recommendations, and this position will be clearly reflected in all of the associated explanatory materials.

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

Mr President, I ask a further supplementary question. Why has the minister decided to make sweeping regulations this week prior to the legislation being debated and voted on by the Senate? Isn't the minister aware of public statements from crossbench senators that regulations will be disallowed, and won't pre-empting the debate result in uncertainty for consumers and financial planners alike?

Mathias Cormann (WA, Liberal Party, Minister for Finance) Share this | Link to this | Hansard source

The government is making judgements about what is in the public interest, and of course we are taking action to implement our election commitments, consistent with our regulation-making powers in the Corporations Act. As I stated in my media release on 20 June 2014, in order to provide clarity and certainty for both the financial advice industry and investors seeking financial advice, we will give effect to the policy commitments we made before the last election through regulation wherever that is legally possible. These regulations are to take effect on 1 July 2014. Judgements in relation to the matters Senator Madigan raises are of course a matter for the Senate, and I would not be so presumptuous as to pre-empt whatever conclusions the Senate might reach on reflection and having considered all of the relevant information.