Teresa Gambaro (Brisbane, Liberal Party, Shadow Parliamentary Secretary for Citizenship and Settlement) Share this | Hansard source

I am happy to stick to the script. These bills are a shambolic set of bills. The coalition believe in a strong and vibrant financial services industry and we made improvements to ensure this when were in government. However, we recognise that in any industry and in any regulatory structure there is always room for improvement. But the way the government have gone about trying to reform the financial services and financial planning industries leaves a lot to be desired. If implemented in their current form, these changes will hurt industry, jobs and consumers in my electorate of Brisbane and across the nation. In particular, the small and medium financial services and financial planning businesses will suffer the most. As a consequence, we can only support these bills if they are amended appropriately by the government accepting the coalition amendments.

Australia is renowned for a number of things. One of the things it is really renowned for is having one of the best financial services industries in the world. A lot of credit must go to the former Howard government for this. According to analysis—not by me but by the Parliamentary Library—the financial and insurance services industry accounts for 9.7 per cent of GDP and employs about 418,000 people nationwide. In Queensland alone, 66,600 people are employed in this very vital industry, and I believe a large majority of them would live or work in my electorate of Brisbane.

The genesis of these bills stems from the Storm Financial collapse and the desire to find out what went wrong and find ways to prevent the terrible catastrophe. The parliament then asked the Parliamentary Joint Committee on Corporations and Financial Services to conduct an enquiry, which was chaired by the member for Oxley, Bernie Ripoll. This became known as the Ripoll inquiry, which reported back to the parliament in November 2009. This report made some very, very sensible recommendations and provided a plan for reform which the government could have implemented—again, with bipartisan support. It is interesting to note that one of the findings of the report was:

The committee is of the general view that situations where investors lose their entire savings because of poor financial advice are more often a problem of enforcing existing regulations, rather than being due to regulatory inadequacy. Where financial advisers are operating outside regulatory parameters, the consequences of those actions should not necessarily be attributed to the content of the regulations.

However, as per usual, the government allowed the FoFA reform package to get hijacked by vested interests and instead decided to introduce new regulations as opposed to enforcing existing ones, as the Ripoll inquiry stated.

These bills were introduced into the House and referred to the Joint Committee for Corporations and Financial Services which received submissions, held hearings and handed down its report. The coalition members on the committee handed down a dissenting report. I must commend all the coalition members of that committee, and in particular the shadow minister, Senator Cormann, for the superb job they did on that committee and the comprehensive report that they produced.

One of the key outcomes of the inquiry was the concern from many, many stakeholders regarding the excessive regulation that these bills would impose on the industry. They will make Australia the world champions in red tape for the financial sector. Through the opt-in, best practice and fee disclosure requirements in these bills the regulatory costs to industry have been conservatively estimated at hundreds of millions of dollars. What Labor members have never understood is that more regulation on business means that those costs are ultimately passed on and borne by the end users, the consumers.

In fact, the Office of Best Practise Regulation noted to the committee that an adequate regulatory impact statement, or RIS, was only provided for one of the proposed FoFA changes. At one of the committee hearings Mr Jason McNamara from the OBPR stated:

Mr McNamara: Treasury provided a number of RISs in that area. I think that there were six separate RISs in that area. But we found those RISs not yet adequate. They had not met the best practice requirements.

Senator CORMANN: … My question is: why?

Mr McNamara: In regard to those RISs, essentially the impact analysis was not at a standard that we would pass.

So here have these expert witnesses providing this incredible evidence to this committee. But what happens? That is unacceptable, and the government should ensure that regulatory changes of this magnitude go through the proper process and comply with the requirements of its own Office of Best Practice Regulation. But it is not doing that.

Now I turn to the opt-in provisions of these bills. The opt-in requires all clients and financial planners and advisers to re-sign their contracts and engagement paperwork every two years. Given the amount of paperwork and documentation required in this process it is a huge regulatory burden on the industry. This measure alone is estimated to cost between 100 and $120 per client per annum. So a very small financial planning firm in my electorate, which might have, say, 500 clients, will bear an extra $50,000, some of which—or most of which—will be borne by the consumers. There are also penalties that apply if a payment is received after 60 days if the re-signing has not occurred. The much better option would have been the opt-out model, where it would mean the clients take the proactive step to terminate the relationship with the advisor and would eliminate the possibility of a client not responding to requests to re-sign because they are too busy and therefore accidentally terminating the relationship.

It is very interesting to note that there is only one submission to the Ripoll inquiry that advocated for opt-in, and that was the Industry Super Network, ISN. It is not a recommendation from the Ripoll inquiry and was rejected by almost every other stakeholder. It is quite ridiculous that this massive increase in red tape should then be included in the FoFA reforms. But we know that the ISN is a resting ground for former union officials, so I guess this demonstrates once again how the relationship between the Labor government and the union movement can adversely affect government policy. Compounding this is the fact that there is not one other country around the world that has this sort of requirement. There were repeated requests put to Treasury during the inquiry into these bills and they could not point to any other example were opt-in has been successfully introduced. All it does is create unnecessary regulation that will not add one iota to the quality of the advice received by consumers.

These bills also put in place a requirement for advisors to produce an annual fee disclosure for clients every year. We support this in principle; however, we do not support the making of annual fee disclosure retrospective. A practical example of this is a constituent of mine who runs a very small financial planning business out of his home in Clayfield. He has approximately 350 clients. He has advised me that with the opt-in requirements and the annual fee disclosure requirements he will have to employ another person to deal with the extra administration that this bill will impose on his business. So that is an extra $60,000 a year that this small business in my electorate is going to have to cop. And of course he is going to have to pass that extra burden onto his clients.

The second concerning area of these pieces of legislation is the definition surrounding the 'best interest duty requirement'. The coalition supports the introduction of a statutory best interest duty for financial advisers; however, it is really important to get the drafting and the definitions right. It is very clear that the government has failed to come up with an appropriate definition for what is 'best interest duty'. One wonders how it will in fact police this. The coalition also have serious concerns around the catch-all provision contained in section 961B(2)(g). The Law Council of Australia has also raised serious concern about this clause. We believe that the best interest duty should be amended to permit clients and their advisers to agree to limit the scope and subject matter of the advice.

These bills also ban what is known as the 'conflicted remuneration'. The coalition supports the banning of conflicted remuneration structures such as product commissions, and we commend the industry for taking proactive steps to abolish such structures. However, I do wonder what the point of it is when the best interest duty and the annual fee disclosures already ensure the appropriate and ethical conduct of financial advisers. I am not sure how conflicted remuneration will impact that best interest requirement and vice versa.

These bills also put a cap on the amount of non-monetary benefit that can be received by an adviser from a product provider. An example of this might be the product provider taking an adviser to the rugby, to dinner or to the races et cetera. The current drafting and the explanatory memorandum indicate that this limit is an aggregated amount of $300 per company, but we believe it should be $300 per adviser. The bill and the explanations should reflect this.

I also note the concerns by the tourism industry, the timeshare industry, which will be caught under the conflicted remuneration provisions of these bills. I hope that the government will adopt the recommendation contained in the main report of the committee to exempt or carve out this industry from the requirement.

In conclusion, these bills are an exercise in reregulation. The way to keep an industry strong is not to regulate the life out of it. Our financial sector did not become one of the best in the world by bearing the burdens of excessive red tape. The industry and many constituents in Brisbane will be hurt by this bungled reform. The government need to go away and start again or, at the very least, amend these bills, addressing the points I have just mentioned.

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