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

I move:

That the Senate take note of the report.

The inquiry by the Joint Parliamentary Committee on Corporations and Financial Services into the standards of financial planners was a very, very important inquiry. It was a result of the inquiry that the Senate had into the Australian Securities and Investments Commission. ASIC's Regulatory Guide 146 is just amazing. The committee received frightening evidence that someone could go online and do a course of a few hours and be qualified to be a financial planner and advise people how to invest their tens of thousands, hundreds of thousands, even millions, of dollars, simply by doing a brief questionnaire on the internet. Some say it was an eight-day crash course of study. It is vital that this parliament, including the other house, change these regulations. It is a bit like a surgeon who does a crash course on the internet or an eight-day crash course being qualified to perform operations on a human. That would be totally unacceptable. In this case, we looked at the savings of Australians to see that they get proper financial advice and see that the advice is in their interest first and foremost, as those opposite did with FoFA and which we left in FoFA.

It is amazing that, on 3 July last year, the CEO of the Commonwealth Bank of Australia, Mr Ian Narev, said in a statement:

Trust goes to the heart of a relationship between a financial institution and its customers. At the centre of the matters which a recent Senate Committee reviewed, is the very disturbing fact that some people working for our Commonwealth Financial Planning (CFP) and Financial Wisdom (FWL) businesses breached that trust. They failed in their primary obligation – to act in the best interests of our customers.

That of course was in response to the damning Senate inquiry into the performance of ASIC, and both the CBA and Macquarie Private Wealth were collateral damage. CBA announced two weeks later that it was adopting new minimum education standards for Commonwealth Financial Planning Ltd financial planners, supervisors and managers of planners. I welcome this decision by the Commonwealth Bank. Likewise with NAB, ANZ, Westpac and many other financial institutions: the standard must be raised.

CBA identified around 400,000 people who could have received shoddy advice. Macquarie Bank is writing to some 160,000 people. We are talking about more than half a million Australians who may have received bad advice. The worst aspect was the lack of oversight of these advisers, who were in many cases allowed to run rampant. If I achieve one thing in my time in the Senate, it is to see that ASIC, the overseer of these people, carries out its duties much better than it has done in the past.

Going back to 2009, the Corporations and Financial Services Committee undertook an inquiry into financial products and services in the wake of the collapse of Storm Financial and Opes Prime. I was a member of that committee. We all remember those disasters. CBA had to pay out over $250 million in compensation and the Bank of Queensland agreed to $17 million compensation over the Storm Financial debacle. Many fights are continuing in the courts.

With the terrible financial pressure on families, the cost to the taxpayers where people were retired, owned their home and had a nest egg and who in many cases are now renting and on a pension. It is disgraceful that people who are in the twilight of their lives are relying on a pension, when they had owned assets and were self-sufficient.

During that inquiry the committee heard that the cost of poor financial advice over the past decade could be as high as $37 billion. The alarm bells started to ring then: were the financial advisers working in the best interests of their clients or the financial institutions? FoFA was a result of that inquiry.

Other scars on the financial landscape have been the collapse of Trio Capital and Westpoint, let alone Timbercorp and Great Southern, and some of those other, crazy, managed investment schemes.

The common factor in all these was bad financial advice and, in some cases, fraud. The analogy for investing in bad financial products I use is: these financial planners were selling cars without brakes, and the people who bought those cars went downhill and crashed into trees. We cannot have this go on in the future.

I would like to thank the committee chair, Senator David Fawcett, for his great work and all the members of the committee. I would hope that, when these changes come to this place, they are supported unanimously—to lift the education standards of financial planners so that it is no longer the farce it has been for many years. I am very confident we will get this right to ensure that in the future hard-working Australians with, in many cases, self-managed super funds, worth some $600 million or $600 billion—I may have the figures wrong—get good advice and grow their retirement nest egg so that they can retire with the financial security and the lifestyle they have worked for all their lives and so that they are not a tax burden on the taxpayers of Australia. That is the whole idea of superannuation.

Could I thank the secretary and everyone involved in the committee and I look forward to the changes being brought forward—hopefully very soon in this place. I seek leave to continue my remarks.

Leave granted.

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

I would like to take this opportunity to bring to the attention of the Senate and those listening to the broadcast this very important report, and its recommendations, from the Joint Committee on Corporations and Financial Services which was handed down on 19 December last year after the parliament had risen for the Christmas break. I do endorse the comments Senator Williams has made about the committee and its endeavours to address this critical issue for Australians. This is a bipartisan report, and it is important to put that on the record.

The committee was tasked with inquiring into the professional, ethical and educational standards in the financial advice industry. It is a sector that deals in units of billions of dollars and involves the savings of millions of Australians. It was Labor's vision that grasped the importance of building a national savings space as a counterweight to the economic pressure an ageing population would bring to the economy in future generations. We believe Australians have the right to live their retirement in dignity with savings built by investing in their superannuation. Labor had the foresight under Prime Minister Paul Keating in 1992 to recognise that such a demographic swing would place an unbearable strain on the economy if it was not addressed. The voluntary savings of Australians—the money they put away and invest for their retirement—is one of the three foundation pillars of the superannuation philosophy, along with employer contributions and the age pension. Wealth management became a growth industry in response to this initiative, and a whole new profession grew up around managing and growing people's savings. Labor created this industry.

To give some idea of the sector's size and importance, financial services account for 9 per cent of GDP, and more than $1.8 trillion in super funds are currently under management. But the development of this industry opened door for cowboys and shysters, as is typically the case when the opportunity to use someone else's money arises. Labor believes these vital private savings must be properly protected. While there is always a threat to investments from market forces and global economic crises, we can take away the threat from the cowboys above and beyond the legislation in place to protect consumers. Recent experience has sadly shown that the savings can too easily fall prey to fraudulent or incompetent financial advisers. The level and efficacy of protection for consumers when dealing with the finance sector came to a head with the shocking 2009 collapse of Timbercorp and the Great Southern agribusiness investment scheme with losses estimated at $3 billion.

It also has to be acknowledged that the committee's hearings were conducted in the context of revelations of the Commonwealth Bank of Australia financial planning scandal, to which Senator Williams alluded. As we know, large sums of money were involved and large numbers of investors lost on these occasions. Individuals' lives were ruined and, sadly, some of the largest institutions in this country were implicated. We have a problem with the professional standards of our financial services industry, and that was addressed in this inquiry and report. There was another large loss on the small side of the equation—the small investors, the mums and dads, the retirees who banked a lifetime of earnings, often risking their homes and property only to have their lives shattered by poor financial advice. It was incentivised in many ways by bad practices in the industry. The losers were not the big guys in this; they were the little ones—the ordinary investors. The majority of these people were left with nothing of their investment—no financial security and little in the way of wherewithal to fight for the return of their money. They had their lives ruined by an act of fraud in some cases on a massive scale and others lost their savings just because of inefficient and incompetent practitioners.

While the inquiry heard submissions dealing with the misery these collapses and scandals inflicted, I believe there is a positive message to take from the report's recommendations, which, as deputy chair of the committee, I wholeheartedly support. The message is one of opportunity to secure the financial future of investors, for the mums and dads, and restore integrity to the vast majority of the sector that acts responsibly. The message to take away is in essence a road map to redress the wrongs of the past and to establish a new professionalism in this burgeoning sector. It is not of great comfort now to those who have lost their life savings, but I know there will be some comfort if this report can be enacted to prevent it from happening to other Australians. It is an opportunity for real and genuine change to bring about vital improvements to the industry. The overarching theme of these recommendations is that those offering financial advice have responsibilities that are life-impacting on a significant scale. They need to act in a professional way. They have the power of professionals; they need the skills, values and attitudes of professionals—just as doctors and lawyers are assumed to act in their clients' best interest. People managing people's life savings are viewed in the same way and, sadly, that has been misplaced up to now on too many occasions.

The government's announcement on 24 October of a register of financial advisers was a step forward, but that that has also been uncertainly changed over a number of occasions by the minister. What we are proposing is that an industry based, independent financial professional education council be established to set the standard of qualification, and these standards would increase to meet degree standards, and a competence for financial advisers would follow. The move supports findings of previous reviews of the sector that called for an independent body to be created to formulate and oversee the education standards of those who are or will be giving vital advice to consumers.

The make-up of the professional education council would include representatives from each of the professional associations approved by the professional standards council; an agreed number of academics; at least one consumer advocate, whose voice has been too quiet in the past, and preferably two who represent different sectors; and an ethicist, vital to consider the detailed, careful consideration of ethical behaviour in this field. The body would be controlled and funded by relevant professional associations. It would oversee a qualification process that would require the completion of an undergraduate course followed by a structured professional year where the graduate is in the employment of an Australian financial services licence holder for a year before sitting a registration exam that would be overseen by an independent monitor, as in the case of certified accountants. There would be no more of this eight hours off the internet, get an RG146 and off you go, handling people's life savings at the local bank, pretending you are a qualified professional adviser when, really, that sort of a licence is a licence to do danger and to damage people's life savings.

The FPEC would not only set the curriculum for coursework, consisting of core subjects and adjunct sector specific subjects for things like self managed superannuation, financial advice, risk insurance and markets, but also develop a standardised framework for the graduate professional year which would in turn be administered by the appropriate professional associations. But the education and qualification process would not be a set-and-forget proposition and end with registration. It is vital, in the view of the committee, that practice would be continually developed over the course of a whole career, with continuing professional development mandatory and required to be audited and ongoing.

For existing financial advisers, previous appropriate qualifications and experience should be taken into consideration, and they would be given under what we have proposed as a provisional registration from the introduction of the government register until 1 January 2018. There are a number of signposts that we indicated in our report about the orderly way in which this would proceed, with markers in July this year, June 2016, July 2016, January 2017 and 2019 to keep the process on track and keep the sector accountable to the public who have very high expectations. The committee envisages a target date of July 2016 for the second vital plank of the process and that is setting in stone a code of ethics for the sector which would require financial advisers to be members of professional associations. A code of ethics is far different from a code of conduct. Observing external behaviours and practices is a vital part of professional behaviour.

At the heart of this financial services sector we need professionals who have an ethical disposition to put the clients' interests first. A best interest test needs to be passed. The fact that there have been attempts over the years to legislate towards this indicates that for too many years already the best interests have not been at the heart of those giving financial advice, and this report goes a long way to providing a road map which will end, I think, a lot more happily for those Australians who have now the income and the benefit of Labor's vision for investing in superannuation. Thank you to the secretariat for their great work on this report. I seek leave to continue my remarks later.

Leave granted; debate adjourned.