Gavin Marshall (Victoria, Deputy-President) 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 Abbott Government's decision to wind back Future of Financial Advice reforms making consumers more vulnerable to dodgy financial advice.

Is the proposal supported?

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

Lisa Singh (Tasmania, Australian Labor Party, Shadow Parliamentary Secretary to the Shadow Attorney General) Share this | Link to this | Hansard source

This is an important MPI, an MPI where the government attempts to wind back Labor's financial advice reforms. These advice reforms give protection to consumers against dodgy advice, reforms that were to come into effect on 1 July this year. Among many other things, these reforms would have banned commissions in any form and required financial planners to write to each client telling them how much money was being silently removed from their accounts to pay ongoing commissions. On Thursday last week, Senator Faulkner asked the Acting Assistant Treasurer, Senator Cormann, a question without notice. He asked him to come clean on his opaque actions with regard to the tabling of the Corporations Amendment (Streamlining Future of Financial Advice) Regulation 2014 and whether the Treasury had issued specific instructions to delay the tabling of them. Such a delay might be used to frustrate scrutiny of the regulations, the subject of much controversy, and be considered an attempt to avoid the exercise of the Senate's power to disallow those regulations.

Senator Cormann was unable to provide any justification for such a delay. Senator Cormann was unable to provide any explanation of why the FoFA regulations were provided to the Senate Table Office on 1 July, ready for tabling on 7 July, the next sitting day; but then, subject to a request from the Treasury, were not tabled. There was no justification in Senator Cormann's answer to Senator Faulkner's question about delaying the tabling of these regulations.

In this case, we saw Labor senator, Senator Dastyari, table these regulations with the support of the Senate and thus ensure that they could be properly considered. This was despite the coalition trying for days to avoid such Senate scrutiny. The opposition is not alone in seeking to hold the government to account for the errors and the bad policy in its FoFA reforms, which, as outlined in this MPI moved by Senator Moore today, clearly outline that dodgy practices will be able to go on if these reforms were to come into effect. Labor is not alone at all. In fact, Labor is joined by a huge sway of civil society, which represents consumers and seniors, including National Seniors Australia, representing some 200,000 seniors or more across the country. National Seniors have called on the parliament to disallow the government's regulations. National senior chief executive Michael O'Neill said: 'These regulations wind back vital consumer protections introduced after corporate collapses left thousands of elderly Australians destitute.' In light of what Michael O'Neill has stated, why would a government want to introduce regulations that do exactly that—that wind back those regulations that ensure that those consumers, those seniors, will be protected from dodgy financial advice?

Michael O'Neill is not the only one joining with Labor in opposing the government's dodgy FoFA reforms. The consumer watchdog Choice is also opposing these provisions. In a media release on 20 June, Choice called on all federal politicians to oppose regulations that will wind back these essential protection for consumers seeking financial advice. The Chief Executive Officer of Choice, Alan Kirkland, said, 'Conflicted and poor financial advice has cost consumers billions and in too many cases led to people losing their homes and their life savings.' This is why consumer protections were originally needed and exactly why they should not be removed. This is why Labor acted. This is why the landscape in relation to financial advice would have, and should have, changed on 1 July. But through attempts by this government we are now left in this situation. And the government has been left in the embarrassing situation of having us debate this MPI today to put on record how clearly backward the government's proposals are—proposals which, as Choice and also National Seniors have outlined, take this country backwards.

Labor's reforms, I want to make it very clear, were introduced in the wake of the collapse of Storm Financial and others and the subsequent parliamentary inquiry into financial advice products and services. They were the most significant reforms in financial services for a generation and included several measures designed to protect investors and help the industry professionalise. That parliamentary inquiry went to great lengths to come forward with recommendations. What came out of that were significant reforms, adopted by Labor, including: the best interest duty, which required advisers to act in their clients' best interests; requiring advisers to get their clients to opt in to receive ongoing services every two years; requiring statements to be sent to clients annually disclosing fees and details of services performed; and a ban on conflicted remuneration such as commissions paid to financial product providers and financial advisers.

The whole basis for introducing the FoFA reforms was to restore faith in a sector rocked by a high-profile collapse, a poor culture of product sales over advice, and now, with some $1.8 trillion of savings, to ensure that Australians are getting advice and services that are in their best interests. During the reform process, over many years, there was extensive and intensive industry consultation that clearly identified the path to achieve growth, protect consumers and restore trust by changing the culture of the last 20 years, by lifting standards and professionalising, and, most importantly, by acting in the clients' best interests.

Then the government announced its changes to the FoFA reforms which basically did the opposite. That is why the reforms have been opposed so strongly by consumer groups and seniors groups. What do they do? They remove the essential catch-all provisions in 'best interest', which adds a loophole for advisers that means 'best interest' will become ineffective; they scrap the opt-in requirement, allowing advisers to continue to charge fees; they amend the annual disclosure requirement such that advisers only have to provide annual disclosure to clients who commence with them after 1 July; and they lift the ban on conflicted remuneration. The ban on conflicted remuneration will only apply to commissions on general advice; other forms of conflicted remuneration will be allowed, including as part of a balanced scorecard approach for both general and personal advice. All the government's words and comments on their changes to FoFA are about certainty for the sector perhaps but not for the consumer; they are certainly weighted in the wrong direction.

The minister says people who are opposed to the changes are vested interests with political motivations. Is the minister saying that National Seniors, the Council on the Ageing, Choice and even Alan Jones are part of some vested interest, some political conspiracy? The government makes much of the fact that it is banning commissions. The commissions were already banned—by Labor—so the way they carry on about banning commissions is nothing but a stunt. Senator Cormann told the Financial Review that 'at no point has the government sought to reintroduce commissions or conflicted remuneration for financial advisers'. Well, a simple glance at page 28 of the explanatory memorandum to the bill proves that reintroducing conflicted remuneration is exactly what the government has sought to do. By getting rid of the opt-in provision the insidious practice of charging fees without people's consent, or even knowledge, is back on to reduce their life savings—and that is immoral. (Time expired)

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

I would like to set the record straight in relation to what Senator Singh has just said. Senator Singh, when you were in government, where was the regulatory impact statement? You were required to do that, but you got an exemption from the Prime Minister at the time—I forget who that was; they changed pretty often. But I want to make this point. Conflicted remuneration and commissions are banned for professional advice and for general advice. That is a fact. There is no removal of that.

Labor's changes to FOFA when they were in government went too far and imposed too much costly and unnecessary red tape. Here is the point. Today, one in five Australians seek professional financial advice. We need to make it affordable and of the highest quality. I wish Senator Singh had been on the ASIC inquiry, with Senator Dastyari. Former senator Mark Bishop did a magnificent job when speaking on that TV program. I cannot understand why he is not still sitting in this chamber; that is beyond me. But, anyway, those are the political games that the Labor Party play.

The recommendations of the Senate inquiry we just completed were: get good advice; provide good financial products; and good, honest financial planners. I believe, Senator Moore, that most financial planners do their best. Sure, there are sharks out there and we have heard a lot of stories about them. When in government, the Labor Party unnecessarily pushed up the cost of advice for investors. Here is the problem: why the opt-in arrangement? That submission was put in by who other than industry super funds. I wonder who industry super funds are very close to. I wonder why, when you brought in your FoFA regulations, you did not have regulations on commissions from some of those insurance products. I look forward to finding out where some of those commissions and rebates on insurance products actually go. Many people say they go to the Labor Party. I look forward to doing some investigation on that.

Labor also introduced changes forcing consumers to re-sign contracts with their financial adviser every two years. The more time you spend, the more it costs. Mr Medcraft, the boss of ASIC, told the inquiry that compliance costs were huge. We had a session of bad advisers in bad products, doing the wrong thing and some even committing forgery and fraud. No doubt you will hear more about that in the future.

But our small changes to the FoFA regulations remove red tape and costs and do away with the opt-in arrangements. To say that the best interests test does not remain is simply outrageous. Look at section 961B—and of course A, B, C, D and F remain. Section 961G is removed because, in some cases, it leaves the legal advisers and financial planners open to being sued, as well as further costs and further regulation.

As I said, the interests of the client remain first and foremost. General advice, personal advice, no commissions—will those on the other side of the chamber please get that into your heads. There are no commissions or conflicted remunerations, whether it be on general, professional or personal advice.

I make the point that we want people across Australia who are saving for their retirement, managing their retirement or managing financial risks and opportunities throughout their lives to have affordable access to high- quality advice that they can trust. This is most important, especially when it comes to self-managed super funds, with almost $1.8 trillion of superannuation funds now stacked away for Australians for when they retire. Almost 30 per cent—around $600 billion—is in self-managed super funds.

Those people managing their money need the best advice to grow their investments, not to have it lost on risky financial products or on bad financial advice. You do not just get advice to put on a favourite at Randwick this Saturday, but some of the advice we have seen has just about been on a par with that. These people need the best advice so that they can collect their money when they retire, collect an income and not be a burden on the taxpayer. This is most important, but ASIC also need to do a job to see that those financial products out there are not shonky products.

I was on the original Parliamentary Joint Committee on Corporations and Financial Services, with Mr Bernie Ripoll. Storm Financial was doomed to fail. It was geared so high. People were mortgaged up to the hilt. And once we had a 15 to 20 per cent reduction in the stock market which, of course, happened during the GFC, in 2008, Storm Financial hit the brick wall. The sad thing is that so many people, particularly elderly people, who had mortgaged their houses and who had worked all their life, reared their children, educated their children, paid for their house, put a nest egg away and saw it was all at risk. The financial stress on them was terrible. I first met with them in January 2009, at Redcliffe, when I had been in this job for just seven months. It was a terrible situation. I believe no-one in this chamber ever wants to see that happen again, regardless of what side of politics you are on.

I would just reaffirm that the best interest test stays locked in concrete. The government are simply trying to remove some of the red tape and costs so that the compliance and administration costs of financial planners do not grow and grow and grow where they get to the stage where they have to charge so much whereby people will simply not seek professional advice. I will give you an example. A good friend of mine is a financial planner. He lives in the Hunter Valley. Recently, a gentleman came to him and said, 'I've got $20,000 I wish to invest.' The financial planner had to charge him $1,000—$600 for compliance costs and a $400 fee. Now, $1,000 is a lot of money out of $20,000. It is five per cent. But there was $600 in compliance costs. As I said to Mr Medcraft during our Senate inquiry, we need to license each and every financial planner. Each and every planner needs to be licensed with their history put on the internet, so you can check them out. Do they move from place to place? Do they keep losing their jobs and shifting organisations? We also need ASIC to have the power where, with one phone call, they can suspend that licence. Of course, a planner can have the right to appeal. Everyone has the right to appeal to the Administrative Appeals Tribunal. But I believe that these measures, in conjunction with the FoFA regulations, will give us a very good financial planning industry out there, because we have damaged them.

Through this inquiry we have damaged the reputation of the financial planners. It is most important that we restore that reputation, because only one in five Australians seek professional advice. I believe, as I said at the start here today, the huge majority of financial planners do the right thing in the best interests of their clients. These FoFA modifications, announced by the Assistant Treasurer, do very little as far as putting people's finances at risk. They do not put people's finances at risk. The best interest test does remain.

You get a financial statement every year. Do you have to see your planner every two years? Do we have to spoonfeed every Australian? Surely, when you get your statement every year, you can see your costs and charges and how you are performing as far as the return on your money paid to that financial planner I concerned. Give the planner a ring, have a chat with him, have a meeting with them. But no, you want it locked in law that the planner has to chase you up every two years. For a start, they have to give you a statement of your costs, of what they have charged. To go totally over the top will just mean more costs and we know what happens when the costs go up, people will not buy the product—in this case, buying the professional advice that so many people do need.

At the FoFA inquiry there were, in total, 16 recommendations in the dissenting report of the coalition. We are adopting two or three of those.

To say that these FoFA regulations have been wound back, leaving it open to open warfare out there in relation to financial advice, is simply wrong. The scaremongering must stop.

As I said—and I am sure Senator Whish-Wilson would be on par with me here—some of the recommendations from the ASIC inquiry that we have just completed, along with the FoFA regulations, will give us a very strong financial planning industry, an industry that the people of Australia can afford to trust—and not only afford to trust but afford to pay for, so people will seek professional financial planning and benefit from it. At the moment, far too many people do not seek advice from financial planners. As I said, four in five do not. As time goes on and that massive wealth of superannuation grows to some $3 trillion, $4 trillion or $5 trillion in the future—and it will—self-managed super funds more than ever will require that advice. So to say that the government is putting people at risk and winding everything back is simply wrong. There are a couple of changes to remove red tape and costs. The best interest test does remain in section 961B. I am sure Senator Dastyari agrees with me totally on that point. Senator Dastyari, I am sure you would. He returns a smile.

Matthew Canavan (Queensland, Liberal National Party) Share this | Link to this | Hansard source

I think it's a yes!

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

The interjection is from Senator Canavan, who said he thinks it's a yes. In summary, we are not winding back the regulations; we are not removing the regulations; we are putting strict regulations in place, and they will stay. (Time expired)

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

I will read from the Senate inquiry report what the original aims of FoFA were:

…to improve the quality of financial advice while building trust and confidence in the financial advice industry through enhanced standards which align the interests of the adviser with the client and reduce conflicts of interest.

So they were pretty simple: to restore confidence and trust in the financial planning industry. I agree with Senator Williams when he says there are a lot of good smaller financial planners out there. There are. These laws were designed to restore trust and confidence in their industry and to grow their industry—to get more people seeking the provision of financial advice. The FoFA laws were not designed to protect the profits of big banks and to raise red tape for financial planners. At the end of the day, they were designed to strike the right balance on what was necessary to get more people in this country seeking financial advice, interested in getting financial advice and financially literate so that they can understand the balances they get at the end of the year on their superannuation.

The problem with getting your annual statement is that a lot of people do not look at it properly or they do not understand it. And a lot of them do not have ongoing relationships with their advisers. In smaller financial planning firms, like the ones I met with in Tasmania, there are a lot of good people that do have good relationships with their clients. You can see that. It is really obvious. But they are fee for service—they charge a set fee and they provide advice. What is wrong with the idea of putting in an opt-in, a box that needs to be checked at the end of every two years, along with your annual statements? What is wrong with actually asking clients to have a look properly at their statements and make a simple decision: 'Do I want to continue with this financial adviser? Am I happy with my returns? Should I seek an appointment with my financial adviser?' What is wrong with encouraging that direct interaction?

You may say that it adds to the costs of the provision of financial services. The Greens felt very strongly, from the evidence that we got from attending the inquiry and meeting over a dozen financial planners in Tasmania, that there is no evidence that this increases the cost of provision of financial services. It may be the case in the future, but, at this point in time, it is all conjecture and speculation. I accept there are some valid concerns that this may increase red tape, but there is no evidence based approach to this, because these FOFA reforms are either very new or they have not been introduced yet.

But we have a government introducing a weakened version of the original FoFA laws specifically to support the big banks. The evidence was there in the Senate inquiry. It is black and white. The Australian Bankers' Association got up and said that they had done a deal with the government to have these laws changed, to have these amendments brought in before 1 July, because that was what they had agreed to in their discussions with the government. Senator Bushby was there sitting next to me when it occurred. They also said they had had discussions with the previous government about getting these changes in before 1 July. They talked about compliance costs and said, if they did not get the changes delivered by 1 July, it would significantly enhance their compliance costs. But the real elephant in the FoFA room is not the fact that the FoFA laws in themselves, without the amendments, would increase compliance costs of financial planners or the big banks; the real elephant in the room is that the big banks especially, and the big financial services companies, believed that the FoFA laws, in their original intention, would impact on their profits. That is it.

When we talk about culture, it was very disappointing to see the previous head of the Commonwealth Bank using Senator Cormann's own slogan, 'a few rotten apples'. That is not the case. What the FoFA laws were designed to do—and I go back to it again—was to increase confidence and trust in the financial services industry, by changing culture. I used to teach a case study to my first-year finance students about the collapse of Barings Bank. Some of you may have seen the movie Rogue Trader. When Barings collapsed, it was one of the biggest financial scandals in market history—a couple of billion dollars wiped off, a bank sold for next to nothing. It was caused by a rogue trader. At least, that is what you think if you see the movie and you do not understand the depth of corporate culture. One guy, Nick Leeson, got away with trading on the one hand and running the compliance of the office on the other hand. He was writing enormous profits for Barings Bank over a long period of time and he was doing a lot of dodgy stuff. The reason it never got picked up by Barings management until it was too late was to do with culture. They were a profit-seeking organisation and he was their star trader, writing tens of millions of dollars worth of profits every year. But nobody stopped to ask the simple question: 'How is it possible to continue to generate these profits given the risk-return of the industry he is operating in?'

That is exactly what we uncovered in the ASIC inquiry around the Commonwealth Bank. Their star financial planner, Don Nguyen—who has been well and truly canvassed in Four Corners and other programs—was writing a lot of business for Commonwealth Bank. The parallels are uncanny. No-one was asking the question: 'How is it possible that this guy'—and not just him; there were others—'managed to write so much business and was their star financial planner for so long?' As it turned out he was committing fraud and acting unethically. He was putting clients into products that they did not know that they were being put into, because he was writing income and generating profits for the banks. Banks have moved into the financial planning industry for good reasons: it diversifies their risk return, it generates non-interest income where banks have traditionally made their money and it generates billions of dollars a year.

Looking across the FoFA laws, particularly the FoFA amendments, and focusing on this idea of conflicted remuneration, I made it very clear at the very first Senate inquiry I went to that we should be using the words 'financial incentives' and that this idea of commissions or conflicted remuneration was too narrow. It is that sales incentive and that culture in vertically integrated large financial service organisations that generates this culture of sales—selling product under general advice to customers. You could argue that that is not a bad thing—and I know Senator Bushby and the coalition probably do argue that a bank should have a right to make profits by selling financial products to customers—but think back to what these FoFA laws were originally designed to do. After a long period of consultation and a long history of financial collapses following, especially, the GFC—and we have seen more stuff wash through our Senate inquiry since then—this series of laws was designed to restore trust and confidence. The fact that consumer groups such as CHOICE and National Seniors Australia do not believe that these FoFA amendments strike is very serious.

The politics of this is very interesting. I hear in this chamber, and I heard it in the Senate inquiry and I actually got it from financial planners, that this is somehow a union industry superfund versus the banks issue. That is not the case. This is about protecting consumers and whether you put protecting consumers ahead of allowing banks to make more profits. That is really what it comes down to. In our dissenting report to the Senate inquiry we said that the Greens believe that all forms of conflicted remuneration should have been banned—not rebadged as Senator Cormann seems to have done. But we believe the other four amendments, such as opt-in and best interest, should be kept and studied and reviewed after five years to see whether they are adding to compliance costs and uncertainty in the industry. There is no evidence that that is the case now; there are only projections and concerns.

If we were bringing these laws in to protect consumers of financial services in this country, we should have at least given them a go. I believe that this sneaky attempt to bring in regulations the day before 1 July needs to be repealed. We need to bring back to this parliament legislation that can be debated in here so that we—including the new crossbenchers, who are now part of this—can have a good, close look at it. We need to go back to the start and look at whether we have struck the right balance between protecting consumers or protecting the profits of big banks that make billions of dollars of profits a year from selling products to clients.

Alex Gallacher (SA, Australian Labor Party) Share this | Link to this | Hansard source

I rise to make a contribution on this matter of public importance—and it could not be a more important issue. With superannuation approaching $1.7 trillion and likely to continue on that expediential growth phase, I think there is nothing more important than making sure that the financial services sector is bound by some prudent guidance and regulations.

Interestingly enough, Senator Cormann categorises it all as red tape—'just a world championship effort at red tape'—but I would like to apprise the Senate of some information put before the Senate estimates on 4 June 2014, where the compliance department of ASIC gave a report on some of the work that they do on a regular basis. ASIC said:

The origins of the work that led to that letter were very broad concerns about the quality of advice being provided across the board in the financial planning industry. We had done a number of shadow shopping exercises that identified that, generally speaking, and it was repeated from one exercise to another, about 20 per cent of the advice was of very poor quality or legally inappropriate.

When asked what shadow shopping was, ASIC—the regulator that reports to the Assistant Treasurer—said:

That is where we engage real potential clients of financial planners and they would go to financial planners of their own choice, generally speaking, to get a financial plan. Then we had a panel, which was really made up of industry experts, that would look at the plans and do an assessment of the quality of them. Each time we did that we produced a public report setting out the results, and the results, to be frank, were very concerning because of the scale of the problem across the industry. It was not that we had isolated pockets of poor behaviour or anything; it was that there was an industry-wide problem of very poor quality advice. A lot of it associated—and this was again in the reports from those shadow shoppings—with problems of conflicts of interest.

So there we have it from ASIC, those who advise the Assistant Treasurer—and he comes into this chamber at question time and repeatedly says, 'It's red tape. It's nonsense. We don't have a problem here; look somewhere else.' ASIC have done consistent and prudent work in this area and they have found a consistent level of poor performance, questionable legality and potential and real conflicts of interest—which have been proven to them with these shadow shopping exercises. So why would we accept what is coming from the government front bench? I certainly do not accept it. It is not often that I would be on a unity ticket on this issue, but Senator Whish-Wilson's comments were very pertinent. This is about the banks grabbing back the big end of town, about wholesaling financial advice and about maximising their profits.

There has been much made of industry super funds. I have got an interest: I am a member of an industry super fund; I have been a director of an industry super fund; I have even chaired an industry super fund for a short period of time. Most of those people in industry super funds are not going to go out and buy a financial plan, not at the early stages of their career when their 9.25 per cent to 12-odd per cent is going in. It is usually the last thing on their mind. They are in a default option, they will get a financial plan when they are ready and usually with competent advice from their industry super fund. The big deal here is the self managed super funds where there is over $500 billion. Reasonably high-net worth people will now be right in the firing line for unscrupulous and dodgy financial advice. They will be out there to make a quid and there will always be someone out there willing to take advantage of the need to make decent return on an investment.

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

I rise to speak this afternoon on the matter of public importance and the FoFA bills here in this chamber. I take up some of the points that Senator Williams made here earlier when he talked about the terrible damage the reputations of financial planners have suffered on the whole for a number of bad eggs. I think it is probably fair to say that financial adviser associations around the country have been obviously keen to ensure that their reputations are enhanced and they stem any flow of any more bad news about their industry.

The Australian Association of Financial Advisers has been involved in this process for many months and it dealt with the previous government dating back as far as 2011.

I heard this quote earlier:

The Abbott government's decision to wind back Future of Financial Advice reforms is making consumers more vulnerable to dodgy financial advice.

This is the very thing that keeps getting said around here. As Senator Gallacher put it, it is a $1.7-trillion industry and there are many hundreds of millions of dollars going in through contributions every year. So this industry is not fading away. It is not going anywhere.

When the previous government announced the detail of its Future of Financial Advice law change back in April 2011, the coalition's position was very clear. We expressed our concern that investors receiving financial advice would face more red tape, increased costs and reduced choice if those laws were passed in full. Our fundamental concern was and remains that over time fewer Australians would be able to access or afford high-quality financial advice under Labor's FoFA. We made it clear that we supported sensible financial advice reforms which increase access to affordable, high-quality advice as well as transparency, consumer choice and competition. Labor's FoFA changes did not strike the right balance. As the then minister, Bill Shorten—now the Leader of the Opposition—must have known they did not, given he refused to put those FoFA changes through the former government's own required regulatory impact and cost-benefit assessment at the time.

We, however, took to the last election: the complete removal of the requirement for an investor to keep re-signing contracts with their advisers on a regular basis; the simplification and streamlining of the additional annual fee disclosure requirements; and the improvement of the best interests duty. I know there have been a lot of mistruths spread about the watering down of the best interests duty. We also took to the last election certainty around the provision and availability of scaled advice. We and Minister Cormann remain committed to implementing the improvements to the Future of Financial Advice laws we took to the last election. That is what we got elected on.

The two areas which have generated most of the public debate on our proposed changes to financial advice laws centred around two key propositions; both are wrong. There was an inaccurate assertion that we were somehow abolishing or significantly watering down the best interest duty for financial advisers. Even the Australian Association of Financial Advisers welcomed Minister Cormann's release, which said that it will be clear that there are some protections that may have been stripped away or that the best interests duty has been removed. Mr Fox from the AFA said:

The best interest duty is enshrined in section 961B1 and it remains unchanged.

Senator Williams sat on the inquiry that delivered the 500-odd page report into these issues which we are now debating.

It has further supported the best interest test by sections 961G, 961H, 961J and 961L. If you want to go and have a look at that, you will get that on the website of the best interest section. There is no watering down of the best interest duty for financial advisers.

We heard from Senator Whish-Wilson about Nick Leeson, and there is the 'wolf of Wall Street'. There is a recent occurrence in Adelaide, my home city, of an accountant who seems to have defrauded some of his clients of money. It is like a lawyer that steals from his trust account. If there is a clear intention to defraud—to take advantage of somebody else's money or take advantage of somebody else's property—you will not be able to stop them. You have to stop them getting into those businesses or you have to monitor them. That ability has not been watered down at all. I know that organisations like the Commonwealth Bank and Macquarie Private Wealth have all been active in reviewing since January 2013, and are going forward. They have actually sacked people that have not complied with the governance or who have not acted in what they felt was the best interests of their clients.

Like all things in life—you have big companies in the business world; you have second-tier companies; you have small companies; you have privateers—people are going to have to try and work through— (Time expired)

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

I rise to address the quite astonishing claims by Senator Cormann in this chamber that the groundswell of disgust with the dismantling of the consumer protections in FoFA is some sort of Labor conspiracy.

Senator Cormann has shifted his lines of attack in the past fortnight. He has pivoted from claiming to be reducing red tape to now claiming that the concerns of consumer advocates such as Choice, National Seniors and the Council on the Ageing are some sort of stitch-up by the labour movement. I can assure this chamber that the pensioners and everyday Australians rallying against Senator Cormann's changes do not have any vested interests—they do not stand to profit—and they do not represent a grand conspiracy against this government. Senator Cormann's allegations are absurd.

I want to take some time this afternoon to put the comments of a broad coalition of concerned consumers on the public record. You will notice a common theme in the comments. Each one is offered in the best interests of consumers. Take Michael O'Neill from National Seniors. In a June 20 media release, he states emphatically: 'The Abbott government has clearly put big business ahead of consumers'. He went on to reinforce that:

Australians should not be paying commissions for advice they do not receive; every investor should see full fee disclosures annually; and we all should know that the nice lady at the bank is being well-rewarded for that product she’s just encouraged us to buy.

I challenge Senator Cormann to stand up here today and to state for the Hansard record that National Seniors are acting as a front for the labour movement.

Alan Kirkland of Choice, Australia's leading consumer advocacy organisation, was equally blunt:

CHOICE is calling on federal politicians to oppose all legislation and regulation that will wind back essential protections for consumers seeking financial advice.

Mr Kirkland reminds senators that:

Conflicted and poor financial advice has cost consumers billions and in too many cases led to people losing their homes and life savings … This is why consumer protections were originally needed and exactly why they should not be removed.

Indeed it has been removed by these regulations. I challenge Senator Cormann to stand here today and state for the Hansard record that Choice is acting as a front for the union movement.

Ian Yates from the Council on the Ageing, known as COTA, put out a statement on 20 June with a headline that summed it up quite nicely: 'Wind-back of FoFA protections still threatens future of financial advice industry and older Australians' assets and income'. Indeed, to avoid the slurs we have heard from Senator Cormann, COTA went to great lengths to state:

To be very clear, COTA is not siding with any special interests in this debate and resents any such suggestion - we are acting on strong legal advice about the impact of these reforms and deep concern expressed by members, and we would oppose the FoFA changes whether proposed by the government or Labor …

COTA went on, calling out very clearly who wins and who loses from Senator Cormann's sweetheart deal with the big banks:

The Big Four Banks and their push-selling business model will be one of the major winners if the legislation is watered down at the cost of their customers being vulnerable to less than optimum financial outcomes.

Is Senator Cormann happy to come into this chamber today and say, just as he has been saying with everyone else, that COTA is somehow part of some grand conspiracy of the labour movement? Alan Kohler, one of the most respected financial journalists in the country, today said:

The system of financial advice is inherently and deliberately deceptive because the most effective sales environment is where the customer doesn’t realise he or she is being sold to. Banks use the term ‘adviser’ or ‘planner’ as a synonym for ‘salesperson’; clients think an adviser advises. It is, at heart, simply a matter of semantics.

The Coalition government is in on the caper. Finance Minister Mathias Cormann has made some changes to the proposed Freedom of Financial Advice (FoFA) amendments to clarify his undying opposition to sales commissions for advisers/planners, but there are still plenty of carve-outs that allow banks to reward them for selling.

Is Senator Cormann going to come into this chamber today and claim that Mr Kohler is acting as part of a grand conspiracy in the labour movement?

There is Simon Hoyle from Professional Planner Magazine, who last week talked about the absurdity of the 'trade off' underpinning the government's logic for dismantling FoFA. He said:

The interests of individuals are being traded off against “business”, against the enrichment of individual financial planners, and against bank shareholders. At some point someone has to stand up and say that the most important people in this saga are the people who own the money. Not financial planners. Not financial planning businesses. Not the banks. And not the banks’ shareholders.

I do not think anybody could be any clearer.

Criticism of Senator Cormann's actions does not stop with those acting on behalf of consumers, even though not a single consumer organisation in this country responsible for dealing with victims of a financial crisis has supported it. Professor Dimity Smith from the University of New South Wales Faculty of Law concluded in February:

There is a big gap between requiring an advisor to act in a client’s “best interests” and that the advice be merely “appropriate”.

Paul Latimer, an Associate Professor at Monash University, in his submissions to the Senate Economics References Committee, plainly stated:

The proposed amendments to weaken the best interests duty have been barely noticed by the public not aware of what might be at stake for standards of professional advice on their investments and their life savings.

Senator Cormann's slur against the good people of these organisations is as offensive as it is ridiculous. What does Senator Cormann think is going on here? That these comments are the result of some kind of sweetheart deal with the labour movement, the ACTU perhaps, and every other conspiracy? As I said before, they are ridiculous and offensive.

Make no mistake: there is only one side of this place that is acting on behalf of a handful of vested interests. These regulations are expressly and blatantly designed to enrich the bottom line of the big banks at the expense of the bank balances of ordinary consumers. This is the best deal the banks could ever have imagined, courtesy of a government that will do anything to placate their mates, no matter who loses along the way. It is doubly offensive that Senator Cormann has decided to introduce these changes just a week after a devastating Senate report into the scandalous behaviour of Commonwealth Bank financial advisors.

The regulatory changes introduced by Senator Cormann will see the return of many of the practices that we on this side of the chamber—and at one point both sides of the chamber—tried to end. It is little wonder there is a queue a mile long of regular concerned citizens, pensioners, consumer advocates, financial journalists and law professors calling on the government to abandon these changes.

The people in this chamber have a responsibility to those who do not have voices for themselves—not the big banks, not the big financial planners, not the handful of people who are eagerly awaiting a return to the good old days of financial planning, where they could clip the ticket on the way through. We have greater responsibility than that. It is unfortunate and sad that Senator Cormann has decided to make this some kind of debate about a Labor conspiracy. There is no Labor conspiracy. You have CHOICE, you have the Council on the Ageing and you have National Seniors. Every consumer organisation in this country is opposed to these changes. I call on all senators to do the right thing by their constituents, disallow the government's changes and make sure that the voices of those who cannot be heard are heard. (Time expired)

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

I listened closely to Senator Dastyari's comments. Clearly, he did not listen closely to the comments that Senator Edwards and, before him, Senator Williams made, because it is absolutely clear that the proposals that the government have in relation to FoFA will not dismantle consumer protections, do not wind back essential protections for consumers on financial advice and specifically and deliberately do not allow the return of practices outlawed under FoFA, which caused very dire outcomes for many victims due to the misconduct of financial advisers that we saw in recent years.

Similarly, I had listened to Senator Gallacher. He talked about the shadow shopping exercise undertaken by ASIC. The FoFA reforms do not impact on the quality of the advice that financial advisers give. Those reforms were aimed at impacting misconduct or incentivising poor, deliberate behaviour that was not in the best interests of clients. Quality is a matter of competence and, unfortunately, there remains in most industries issues of competence with professionals. I would note in that regard that some of the recommendations that were contained in the recent economics inquiry report into the performance of ASIC, referred to by Senator Dastyari not long ago, will help to address some of the issues of competence in the financial services industry.

That raises the threshold question in this debate about the value to Australians of the financial advice industry. We have to question whether we want to have good quality advice available to as many Australians as possible. The chair of ASIC, Mr Greg Medcraft, had an opinion on that. He noted that only about 20 per cent of adult Australians over their lifetime have access to financial advice. He thinks that more like 50 per cent of Australians would benefit from having quality financial advice. I tend to agree with him. I think Australians having access to good quality financial advice is a good thing and, if they can get hold of that, it makes their financial lives while they are working and also in retirement a lot easier. If you accept that is the case, then you have to look at the question: what regulation do we need to maximise the likelihood that we will have good quality advice? As I mentioned, some of the recommendations in the economics committee inquiry into ASIC addressed some of those things. But, a few years back, the Joint Committee on Corporations and Financial Services held a very detailed inquiry into the financial advice industry, following the very high profile collapse of financial advice firms such as Storm Financial, Trio and Westpoint which resulted in many victims losing an awful lot of money and in almost all cases we saw misconduct by the people involved. That inquiry was very comprehensive, in-depth and went on for some time. I am pleased to note that the inquiry's findings of the joint committee were unanimous. All senators and members who took part in that inquiry came up with the same conclusion and a long list of recommendations of changes that could be put in place which would improve the operations of the financial advice industry and increase the likelihood that Australians who receive advice from financial advisers would get high-quality advice that is of good value to them.

What happened subsequently? Well, subsequently, the government took the recommendations from the joint committee, which were unanimous, supported by the coalition, the then opposition, as well as the then Labor government. They turned that into their Future of Financial Advice legislation. But the Future of Financial Advice legislation differed significantly from the recommendations of the joint committee—differed significantly in ways that mattered. As a result, the then opposition, the coalition, did not join in with the majority chair's report on that legislation and put in a dissenting report. Essentially, that dissenting report reflected the differences between what the unanimous joint committee report decided and the changes that the then government put in place in their legislation. One example of that is the opt-in requirement that is now in the FoFA laws. That was not included in the Ripoll recommendations. Indeed, there was only one submission that even raised the possibility of opt-in with the joint committee inquiry, and that, of course, was Industry Super Australia, who clearly got their wish when the government put it into the legislation.

We delivered the dissenting report on the government's legislation at the time, which, at its heart, reflected the differences between the recommendations of the joint committee, commonly known as the Ripoll inquiry, and what the government actually delivered in terms of its legislation. Subsequent to that, we took to the election the promise that we would make changes to the government's FoFA legislation as enacted in order to get it closer to what we indicated in our dissenting report, which would better reflect the findings of the Ripoll inquiry.

What are we talking about here? What are the concerns that our senators had in the dissenting report—the concerns that are reflected in our election promise that we took to the last election—and what we are trying to achieve here now? We are concerned about the level of misinformation about the government's improvements to FoFA by Labor and the Greens on our changes. The government's FoFA improvements do not water down consumer protections. That is an absolute fallacy. The government is keeping the consumer protections that actually make a difference to consumers, such as the requirements for advisers to act in the best interest of their clients, which remains specifically in the legislation, and the ban on conflicted remuneration continues. The remuneration that is offered, which has any potential at all to affect the advice that is being given, is banned and remains banned under the changes that we propose. The government is removing unnecessary and costly red tape and uncertainty to ensure there is access to high-quality advice that people can trust and that is affordable. That is important—if we are ever going to get to the 50 per cent of the Australian population receiving financial advice, we need to ensure that it remains affordable.