Wednesday, 4 August 2021
Financial Sector Reform (Hayne Royal Commission Response — Better Advice) Bill 2021; Second Reading
The Financial Sector Reform (Hayne Royal Commission Response—Better Advice) Bill 2021 itself is unobjectionable. It finally implements recommendation 2.10 of the banking royal commission, recommending that a single disciplinary body be established for financial advisers. I say 'finally' because this recommendation is now three years old; it's taken the government that long to get the legislation here, and there's great concern that the government is not actually serious about implementing the royal commission's recommendations.
Their heart was never in the royal commission—26 times in this parliament Labor attempted to get the government to back our calls for the royal commission and 26 times the government said no. The now Prime Minister told us that it was a stunt, that it was just going to be hot air and that it would undermine confidence in the financial system. Aha! Apparently, so the Liberal Party thought, it was better to let the rorts, scandals and dodgy schemes that the banks were pushing onto their customers just continue, leaving a winner-takes-all culture humming along—letting Australians continue to be ripped off blind by sales agents, masquerading as advisers and reaping huge commissions, and having their lives wrecked.
Eventually, of course, Labor prevailed—a couple in the coalition weakened and forced the Prime Minister's hand—and the royal commission was exactly what the banking sector needed. As the shadow minister has said previously, there's nothing like a royal commission. It's a unique form of inquiry—it's a form of truth-telling unlike anything else. At the heart of Commissioner Hayne's report, underlying nearly every instance of misconduct, lay the pursuit of personal profit or gain rewarded through a system of bonuses and incentives. That was the system the Liberal Party fought so hard, year after year, to protect.
So we could excuse Australians and members on this side for being a little sceptical about the government's genuineness in implementing the royal commission's recommendations. Indeed, the government has never actually committed to implement the recommendations. They used tricky words. All they said was, 'We will act on them.' It's not the same thing. This shape-shifting Prime Minister cannot be trusted when he uses tricky words like that, and our concerns have been well founded. Three years on, we've seen ongoing delays in actually bringing legislation here; the rejection of core recommendations; a weakening of parliamentary oversight—the House Economics Committee now being misused and the chair running an interference racket to prevent the bank CEOs accounting for the recommendations and instead wasting the committee's time in pursuing ideological frolics against superannuation funds; and backflips, like on recommendation 1.1, the responsible lending obligations, which this House has debated. I do have hopes for the Parliamentary Joint Committee on Corporations and Financial Services. I won't tell anyone, Deputy Speaker Wallace, but I think the chair is doing a good job—it might wreck his reputation if people heard that! But excuse my scepticism on anything the government serves up.
The bill also winds up the Financial Advisor and Ethics Authority, transferring the power to set professional standards for financial advice to the minister. That sounds interesting—it sounds okay, doesn't it? Except it's the most stunning admission of failure. The government actually established this authority only three years ago and since then it was characterised by a litany of stuff ups and mistakes. Three chief executive officers in just 18 months—that's got to be a clue it's not going well, but, still, on it rolled and standards were released for financial advisers just days before they were supposed to take effect, causing chaos in the sector. People were saying, 'I can't continue to operate.'
It's difficult to fully judge the bill because there have been no drafts regulations published or provided. It is important to scrutinise the regulations when published to ensure they're sensible and that they protect consumer interests, but the government doesn't use them. There's the minister's new-found power that she's gaining from this bill to further water down consumer protections and go back to the bad old days. It is important also that the government listen to consumer advocate CHOICE and make sure that, on the disciplinary panel, there is a consumer representative appointed. It's not in the legislation, but the government have the power to do the right thing and we would expect they would use it. This bill comes in the context of an appalling failure in financial reforms over eight long years of this government. Under the previous Labor government, your predecessor, Deputy Speaker, as chair of the financial services committee, Bernie Ripoll, identified the need to improve standards in the financial advice industry. I think that's a great example of how a committee like that can use its power to delve into a really big problem, shine light on it and propose groundbreaking reforms. This government, though, have bungled the implementation monumentally. If there were an Olympics for implementation failure—actually, I would have to say that I don't think it would be a medal contender when you rank it against vaccine rollouts, quarantine and things that have literally cost people's lives and tens of billions of dollars, but it would certainly make the final. It took the Abbott-Turnbull-Morrison government six years to even decide to legislate for this authority and 11 years later closed it down. Between the government's messed up implementation of the future of financial advice reforms and the latest implementation failure—their own failure—they actually can't blame anyone else for this mess but themselves. In the setting and policing of standards, the industry is in turmoil.
I will make a few remarks about that as the second reading amendment touches on it. The financial advice sector is in serious crisis. The royal commission shone light on and smashed up the old broken business model, which dressed up sales and commissions as financial advice. Rightly so, it's destroyed that model, given what was revealed: the inherent conflict between trying to act in a customer's best interests while receiving huge secret commissions yourself and not telling them about it. There was harm done from that. We've now moved on from, if you like, a conduct crisis to a supply of financial advisers crisis, and therefore it's an access to advice crisis. We went from a conduct crisis to a supply and advice crisis. Quite simply, this means, as many of the government speakers have acknowledged to their credit, although they somehow tried to make it our fault—they're the government; they often forget that—that everyday Australians increasingly cannot afford financial advice. Financial advice has fast become something that only the wealthy can afford, and people have never had more need for decent financial advice.
We're experiencing the first recession for 30 years and it is at serious risk of being a double-dip recession. In this quarter there will be negative growth, which even the Treasurer acknowledges. Small businesses and sole traders are particularly vulnerable, as many of them are struggling to trade through the crisis. For many sole traders in particular, their personal finances are inextricably bound up with their business finances. They need to be able to access decent financial advice in an affordable way. Also, people in this country are now retiring with more money than ever before in the history of our nation, thanks to Labor's superannuation reforms decades ago. Super is of course attacked mercilessly by the government. You have half the backbench waging mad culture wars, ignoring the royal commission's finding which smashed up retail super run by their mates in the banks and found industry super overall has been performing well. Don't let the facts get in the way of a good culture war for the government! Despite this, everyday Australians have greater need for financial advice and it's never been harder to get. There has been the spotlight of the royal commission's report and the consequent reforms, the monumental mishandling of the ethics authority—and we're now dealing with the fallout—the accreditation process, fees jumping by 180 per cent in just two years, and an ageing workforce. All of these things, combined with the government's mismanagement, have driven an exodus of financial advisors from the industry.
The government have treated this profession appallingly, as the shadow minister outlined well in his speech earlier today. Through their sheer incompetence, they've ignored and harmed people they've actually always claimed as part of their own Liberal Party constituency. If that's how they treat their friends! More than 4,000 experienced advisers have left the sector in just under three years. About 50 per cent of advisers have gone, many estimates suggest, with projections that more are yet to leave in the near future. That gap means, with a smaller pool of financial advisers and a higher demand for financial advice, everyday Australians are simply being priced out of the market—or left to TikTok influencers, as we heard in a recent public hearing.
Even ASIC, the corporate regulator, is now concerned about the rise of social media financial influencers. You can just go and get advice on the internet from people on Facebook and TikTok. The minister doesn't think this is a problem. Sure, it's no different from chatting to someone at the pub or a cab driver—except ASIC pointed out they are concerned because these influencers on social media, it seems, are taking kickback commissions. The bad old days are reappearing on social media. That's where the government is leaving everyday Australians to find their financial advice. It's completely unacceptable. Addressing this crisis is urgent. It needs serious work from the government to engage with industry and the regulators and work out how to close this advice gap, because all Australians, not just the wealthy, should be able to access quality financial advice about their retirement, their investment strategies and their insurance.
That point about insurance is important. I'll just make a couple of brief remarks on that. One of the consequences of the decimation of the financial advice sector appears to be the looming problem in the life insurance industry. Financial advisers are a key distribution channel, of course, for life insurance companies, helping clients to access not just life and death insurance but also TPD insurance and income protection insurance. Often, they provide better policies or point people to more appropriate policies than the default ones run through the superannuation funds, which certainly have their place but aren't based on an assessment of someone's individual circumstances.
I know the importance of life insurance firsthand. My dad died when I was four, and, frankly, we were only able to keep the house because Dad had life insurance so Mum could pay off the house. We didn't have much else after that, but it was only because of that foresight, the conservative approach of having life insurance to protect your family, that we kept the house. I stress that we have greater coverage now because of superannuation, but, without the role of financial advisers pointing people towards appropriate products, we may see further problems emerge.
I note the royal commission recommended a conservative approach—not to decouple commissions from the sale of life insurance but to undertake a further review, which I think the government has just kicked off. I think the royal commission was right to be cautious, and I hope the process will be robust and will carefully test the claim that commissions should be retained in this area. The default question for the sector should be why they shouldn't be abolished, but I do acknowledge that there are perhaps different arguments in the cases of life insurance and financial insurance. That needs to be tested carefully through the process and a conclusion reached. I see the Government Whip shaking his head. I'm not expressing a view. I'm acknowledging the point, just to be clear there.
Not all the solutions to the crisis of advice may be found in the private sector. If we're thinking about how people can access financial advice, particularly people with very low incomes, there needs to be a role for government or not-for-profits, at least in providing financial literacy programs, as has happened in other countries. In some places, that's the best way to access financial advice for people who can't afford to pay but do need that basic information to make informed and sensible choices about their savings and finances.
The point remains that impartial and affordable retirement income advice should be available to all Australians, including low- and middle-income earners with modest savings. In doing that, making whatever changes are necessary, we can't go back to the bad old days. Sales have to remain decoupled from the provision of advice. That inherent conflict is gone, but serious reflection and changes are needed. The bulk of the answer lies in the private sector—the professional advisory sector. We need to think of how to rebuild this sector and support it to adapt. Labor has raised some sensible suggestions. We've called for the reform of the ASIC funding model and we've called for greater recognition of specialisations in the education and examination standards for financial advice—practical things. As the shadow minister also said, hundred-page statements are not always the best consumer protection. They create a whole lot of red tape, which I think everyone acknowledges. Red tape is very different from guardrails and basic consumer protections.
These are issues which the government needs to look at, and indeed perhaps the parliament, as in years past, could play a useful role in that. Certainly, under your chairmanship, Deputy Speaker Wallace, so far we seem to have moved away from ideological frolics on litigation funding and superannuation, so the early signs bode well. Perhaps we could use that committee to look at these more serious issues in a bipartisan way.
So, I'm hopeful that the government will act—although, if history is any guide, I'm not optimistic that the government will rise to the challenge, because for eight long years they've failed this sector, and ordinary Australians are now living with the consequences. The wealthy are doing fine; it's everyday Australians who now can't get advice. The government mucked around for years and did nothing. They fought against the royal commission and are now implementing its recommendations in a half-hearted way. The authority that we're now abolishing they built three years ago from the ground up, giving it the wrong direction and the wrong leadership. And now they admit their failure in this bill, which abolishes their own creation.
Time will tell whether they can learn from their mistakes and deal with the crisis in the financial advice sector. But, despite the criticisms, I hope you've heard from many of the opposition speakers a genuine acknowledgement of the seriousness of the problem and a desire to try to work with and support the government where they come up with good suggestions to reform the sector.