Graham Perrett (Moreton, Australian Labor Party) Share this | Hansard source

Yes, in anticipation. As a proud Queenslander, I also congratulate the Queensland Bulls on winning the Sheffield Shield for the first time in six years. I congratulate the captain, James Hopes, a Marcellin student, I think—I think he was at the school I taught at for a while—and the coach, Darren Lehmann, for the team's great effort.

I support the future of financial advice, or FoFA, bill for three reasons. First, it will provide greater protection for consumers and that is a good thing. Second, it is supported by financial planners. Third, it is very strongly supported by the superannuation industry. Those are three big ticks. This bill is about giving Australians greater confidence that the advice they are receiving from financial planners is independent and in their best interests—not their planner's best interests. I am sympathetic to some of the comments about fiduciary duty made by the member for North Sydney, but the legislation before the House is a fair compromise and should be supported.

This change is obviously good for consumers, but it is also good for financial planners. If consumers are given greater confidence, they will be more likely to use the services of financial planners—especially since we will see a sudden growth in this area after the MRRT legislation passes the Senate tonight, allowing the Gillard Labor government to increase the superannuation guarantee from nine per cent to 12 per cent. Sadly, the MRRT legislation was not supported by those opposite. One of the members currently sitting opposite would be on a 15 per cent superannuation contribution rate. But the member for Bowman would be on the equivalent of, I guess, 50 per cent or 60 per cent—whatever it works out to be if you are on the pre-2004 scheme. So it is interesting that we are here talking about an increase from nine per cent to 12 per cent for ordinary working Australians and about the impacts of that on society.

The Gillard Labor government is not increasing superannuation contributions in order to line the pockets of financial planners. Instead we wish to ensure that all Australians have a financially secure retirement. So we want to ensure that financial planners do not take advantage of their clients. That is why this bill introduces a requirement for financial advisers, every two years, to seek the agreement of their clients to continue to charge ongoing fees. That can be sought in quite a simple way.

There are currently some clients of financial advisers who pay ongoing fees for, arguably, little or no service in return. These fees can be in the form of third party commissions, so clients are unaware they are even paying them. Under the old system, it would not be far-fetched for a 20-year-old to be given advice once at the start of their relationship with a financial planner and then have ongoing fees charged for another 30, 40 or 50 years. As a solicitor, I would not support such practice. When a solicitor hangs up their shingle, they say, 'Every time I do work for you, I expect remuneration for the advice that I give.' They do not say, 'I expect to be remunerated for 30, 40 or 50 years into the future for one piece of advice.'

To avoid this scenario of ongoing fees being charged in return for little or no further service, this bill requires clients to make an informed decision about whether to pay ongoing fees for advice. Rather than just having the money siphoned off their investments, clients will instead be able to consider whether they are receiving value for money. While financial advisers are currently required to disclose ongoing fees at engagement, they are not currently required to do so on an ongoing basis. I note that was not raised as a matter of concern by the member for North Sydney in his contribution.

With the passing of this bill, at least once every two years advisers will be required to obtain the agreement of their clients to renew. It means a client has to agree to an ongoing relationship and financial planners cannot rest on the advice they provided years ago, or even—as is currently the case—on the advice provided by somebody else. When financial planners retire, they sometimes sell their books, in effect selling the right to the ongoing fees arising out of the past advice given. So the person who buys the business obtains an ongoing fee without ever having provided advice to the client. Under the new legislation, the person who buys the business will be required to continue to provide a service to the client if they want to retain the business.

I welcome the flexibility in this new requirement with respect to how advisers obtain a renewal notice and with respect to the grace periods that will apply when a client inadvertently opts out by not responding to a renewal notice. In addition to the mandatory renewal notice, advisers will be required to provide their clients with a disclosure statement including fee and service information. These renewal obligations will only apply to new accounts after 1 July 2012, not to existing clients. But the disclosure statement will apply to all clients of advisers.

This bill is all about ensuring that financial advisers act in the best interests of their clients. For most advisers, this bill will not affect their practice at all—not for skilled advisers who have an ongoing relationship with their customers. A good financial planner keeps in touch with their clients, saying things such as: 'The situation has changed. You should consider doing something else.' These good financial planners will continue to provide a quality service to their clients and to reap the benefits of the advice they provide.

This legislation is targeted at the few financial advisers who have not been acting in the best interests of their clients. Those planners might, as a result of this bill, lose some business or face the cost of improving their practices. But either way it will ensure a better service for consumers, and I am happy to stand behind a piece of legislation which does that. Those financial advisers who offer a professional service will get the most business. That is as it should be.

To that end, this bill also imposes a best interests duty on financial advisers—a duty to act in the best interests of their clients. It does not mean an adviser has to give the very best advice, but it does mean an adviser's processes and motivations must be focused on what is best for their clients. It is almost bizarre to contemplate that a financial adviser would not act in the best interests of their clients, but the fact that we have this legislation before us—and that it is not enthusiastically supported by those opposite—tells us there are too many rogues out there.

This legislation will put an end to that. It is very important to do so in the context of the MRRT legislation going through the Senate which will see an increase in the superannuation guarantee from nine per cent to 12 per cent. This will see more working Australians who are not familiar with financial services putting more money into superannuation. The bill also proposes a ban on the receipt of conflicted remuneration by financial advisers. That means advisers will not be able to receive payments from product issuers which could reasonably be expected to influence the financial advice provided to a client. It is common sense.

This is a long overdue reform that is crucial to the integrity of the industry. As people know, you cannot serve two masters and sometimes when giving advice that is going to remunerate people there can be a potential for conflict. You simply cannot have a situation where financial advisers are giving apparently independent advice and, all along, pocketing benefits from the advice that they give. It is massive conflict of interest. Obviously we do not tolerate it in politics, certainly not in Queensland and certainly not under the current Premier, and we should not tolerate it in private sphere either. I understand that much of the industry has already moved on this issue. I note the comment of the chief executive of the Financial Planning Association of Australia, Mark Rantall, who said:

We released our remuneration policy on banning investment commissions to members in 2009, which laid the groundwork for transparent payments, giving our members a head-start for the transition

I understand Mr Rantall speaks on behalf of about 8,000 financial planners—so he speaks with some authority. Obviously, for some financial planners—and I recognise those in my electorate who came to see me about this topic—it is a bit of a change. Change is something which the Labor Party embrace. Change for the good is something that can be tough for some. It will require readjustment and I ask for some tolerance from them because we are doing this for the greater good.

These measures are good for consumers and they are good for the integrity and professionalism of the financial planning industry. I am proud of Labor's record on superannuation and of the legislation before the House that will impact the industry. Obviously, when superannuation came in back in the early 1990s there were trade-offs by common workers and we are seeing the benefits for those people now when it comes to retirement. I think this part of the legislation before the chamber is part of that proud record. I am very pleased to support these bills.

See this speech in context