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

In December last year, you announced reforms to the Future of Financial Advice legislation. It was asserted that the previous government's reforms went too far, creating unnecessary complexity, imposing significant burdens on industry, and reducing the availability and increasing the cost of advice to consumers. Can the minister outline how amending the existing grandfathering provisions to ensure that advisers can move between licensees whilst continuing to access grandfathered benefits will assist their current clients to receive the best returns on their financial investments?

Arthur Sinodinos (NSW, Liberal Party, Assistant Treasurer) Share this | Link to this | Hansard source

I thank Senator Madigan for his question, of which I did have some notice. For the benefit of the Senate, Senator Madigan is referring to the Future of Financial Advice reforms, to which this government is to introduce amendments in the near future. I announced those amendments before Christmas. Part of those amendments were to do with what are called the grandfathering provisions and related to conflicted remuneration. This is in relation to commissions and other such payments where there is a potential conflict of interest between the interests of the adviser and the interests of the person receiving the advice. Under the current legislation, adviser movements have been reduced. They have effectively been frozen in the market, because existing conflicted remuneration had been grandfathered. So advisers thought that by moving to work for someone else, or by setting up their own business, they would lose that trail of commissions. What we have done is to say that that will not happen. We will remove that particular provision. But this will not disadvantage consumers because in due course, as the financial circumstances of investors change, under what is known as the best interests duty, the adviser must put the interests of the investor first and change their advice, which means they may put the investor on a new financial platform or provide a new service. In that case, the commission ends and then they are on a purely fee-for-service arrangement.

In relation to what Senator Madigan is asking, we are seeking to promote mobility within the industry because there had been feedback—ever since the previous government's reforms—that mobility was being frozen within industry and that there was indeed a potential shortage of advisers starting to occur— (Time expired)

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

Mr President, I ask a supplementary question. Can the minister outline how the $190 million saving to industry through this legislation is considered to be reasonable, compared to the billions of dollars super members and consumers of financial products will have to continue to pay in commissions through the relaxation of the current laws?

Arthur Sinodinos (NSW, Liberal Party, Assistant Treasurer) Share this | Link to this | Hansard source

We are not relaxing consumer protections; we are removing some unnecessary red tape and costs. The industry itself had indicated that the costs of complying with the previous governments FoFA reforms would be in the vicinity of $375 million and an ongoing cost of $300 million. These costs are not a free lunch. Regulation is not a free lunch. Those costs would have been passed on to consumers. The impact of that would have been to actually reduce the availability and affordability of financial advice. Through our changes, we are reducing those costs of implementation by around $90 million a year and, on an ongoing basis, reducing compliance costs by around $190 million a year. That will actually promote the affordability and accessibility of financial advice. There is no point in having rolled-gold laws which actually make it harder for people to get the financial advice that they need.

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

Mr President, I ask a further supplementary question. Can the minister commit to not introducing any regulations relating to the Future of Financial Advice legislation within the next six months but, rather, allow the Senate to debate its merits through a standard legislative process?

Arthur Sinodinos (NSW, Liberal Party, Assistant Treasurer) Share this | Link to this | Hansard source

In the next month or so, the Senate will have before it the full panoply of regulations and legislation surrounding our amendments to the Future of Financial Advice reforms. We are going the way of regulation initially in order to provide certainty quickly to industry, but that will be backed up by legislation—

Penny Wong (SA, Australian Labor Party, Leader of the Opposition in the Senate) Share this | Link to this | Hansard source

Is it prospective?

Arthur Sinodinos (NSW, Liberal Party, Assistant Treasurer) Share this | Link to this | Hansard source

which will mean, Senator Wong, that we will have an opportunity in this place to fully debate the legislation. Everybody will be consulted. There has been extensive consultation already. We are prepared to tweak the amendments in response to representations we receive, depending on the nature of those representations. I can assure Senator Madigan: in no way will the Senate be disrespected in this process.