Stephen Jones (Throsby, Australian Labor Party) Share this | Link to this | Hansard source

As I was saying, there is flexibility as to when and how advisers obtain the renewal notice in relation to their ongoing financial advice. The bill also provides additional grace periods if a client inadvertently opts out by not responding to the renewal notice. The disclosure notice is an important supplement to the renewal requirement and supports fee transparency. It includes fee and service information about the previous and forthcoming 12 months and assists clients to understand whether they are receiving a service from their adviser that is commensurate with the ongoing fee that they are paying. The measure is about the focus being on the client and what is in the client's best interest. Advisers need to ensure that they are in regular contact with their clients if they are charging them regular fees—not unreasonable. Not only is this a fair thing for the client but it is also professional best practice. There has been a lot said about the cost that this measure will impose on financial advisers and, with this, a variety of estimates of the cost. For advisers, on a pure fee-for-service basis—that is, per hour or piece of advice—the renewal measure will impose no cost whatsoever.

Secondly, the bill enhances the capacity of ASIC to supervise the financial services industry and protect investors. Providers of financial services must be licensed by ASIC as part of facilitating investor confidence that those persons are competent and of good fame and character. Licensees also have representatives who act on their behalf. ASIC has powers to protect the public, including applying a variety of administrative remedies against a licensee or its representatives that breach the law.

During the PJC inquiry, ASIC raised concerns about its ability to protect investors by restricting or removing unscrupulous operators from the industry. A number of factors were impacting on the exercise of ASIC's powers, including decisions of the Administrative Appeals Tribunal relating to when someone will breach the law; the difficulty with removing individuals, given the focus on licensees in the Corporations Act; and the lack of scope for ASIC to remove licensees in certain circumstances such as where they are not of good fame and character.

The changes include the PJC's recommendations and will strengthen the gatekeeping function of the licensing regime and extend ASIC's power to remove unsatisfactory persons from the industry. The changes to the licensing and banning thresholds include that ASIC can reduce or cancel a licence or ban a person where that person is likely to contravene—rather than 'will breach'—the law. ASIC may also remove representatives if they are not competent and of good fame and character or if they are involved in the licensee's breach of the law. The changes generally align the thresholds for licensing and banning with similar provisions under the National Consumer Credit Protection Act, which ASIC also administers.

As with the exercise of any administrative powers, an ASIC decision will be based on the individual circumstances of each case but would generally take account of factors such as the nature and seriousness of the misconduct, the internal controls on the licensee or the person and the previous regulatory record of the person.

Existing review rights in relation to ASIC decisions about licensing and banning continue to apply, including to the AAT. These changes should result in ASIC exercising its administrative powers more efficiently and effectively to protect investors.

In summary, the measures in this bill support the key public policy objectives of FoFA to improve consumer trust and confidence in the financial advice they receive, and to improve professional standards.

As I said at the outset, it is not unreasonable, in my view, that if you are going to charge a fee for a service then you get permission for charging that fee. If you have conflicts of interest then you should disclose those conflicts to those people to whom you are providing a service.

Finally, if a person's life savings are at stake then the government and the advisers should tread with great care. On these principles the proposed bill succeeds and I commend the legislation to the House.

Steven Ciobo (Moncrieff, Liberal Party) Share this | Link to this | Hansard source

I rise to speak on the Corporations Amendment (Future of Financial Advice) Bill and the Corporations Amendment (Further Future of Financial Advice Measures) Bill of 2011. These are important bills because they go to an issue that affects the community at large: the ability of people to provide for their retirement.

There is no doubt that one of the principal channels that enable people to provide for their retirement is well-informed advice over a long time about what they should be doing with their money to best equip them to live as comfortably as possible for as long as possible. In that respect, financial advice and the responsibility that financial planners have to their clients is tantamount. Good government policy should create an environment that maximises the opportunity for people to obtain good advice and that ensures there is in place a legislative framework with appropriate safeguards to ensure that consumers—the clients of financial planners—are not adversely affected by, for example, conflicted remuneration.

In this respect I think it is important to deal with the fact that historically in large this has been an issue with in many respects bipartisan support, with the bona fides of all sides of government and opposition to deal with the issue. In 2011 the former coalition government made a whole host of reforms with respect to financial planners and financial advice.

I had the good fortune, as a very new member, of sitting on the Joint Standing Committee on Corporations and Financial Services in the latter stages of that round of reforms, and hearing from an array of different stakeholders in the industry who provided their input about the reforms that the coalition was undertaking then.

There has, of course, been much water under the bridge since then. One of the biggest issues that have afflicted the world since then is what is referred to as the global financial crisis, the GFC. There is no doubt that the GFC shook to their core very many people in Australia—literally millions—and around the world hundreds of millions of people, if not billions, who thought they were approaching an age when they would be well equipped and well established to live a life in retirement drawing down on the funds that they had set aside for exactly that purpose.

The GFC has seen significant erosion in asset values and in returns from financial investments. This has raised the level of anxiety, not only in the Australian community but globally, among people who thought that they were well equipped for their retirement but now find themselves hundreds of thousands of dollars short. This is coupled at the same time with a very real erosion of government ability to provide pensions to what is a growing, ageing population.

These two events have culminated, effectively reaching a crisis point in many countries, where there is an inability of the state on the one hand to provide for their citizens in a way that many citizens thought they would be and on the other hand an erosion of the very real balance that people had provided for their retirement. At that point it is little wonder that there has been a very high level of scrutiny on the financial planners who are working in the community and who are ideally partnering with their clients as they undertake life's journey by providing for their retirement funds.

Mindful that that is the context in which the community finds itself looking at the issue of the advice provided by financial planners and mindful that there is a requirement for financial planners to provide good advice—not conflicted advice, but bona fide advice—that does ensure that the clients' needs are met by the investment protocol that they take, there has been a further round of analyses, examinations and now recommendations to ensure that financial planners do the best things by their client.

In 2009 the member for Oxley, Bernie Ripoll, undertook as chair of the Joint Committee on Corporations and Financial Services an inquiry into what was happening in financial planning. It was commonly referred to as the Ripoll inquiry and it looked very closely at all the issues that I have just touched upon. It examined the best legislative way to ensure that clients had the best opportunity to match their investment profile with their particular needs. Obviously the needs of someone who is 55 years of age, has a paid down mortgage and has adult children who have left home would be radically different to a person who is 25 years of age and maybe recently married—someone who is at the very beginning of the journey of paying down their mortgage and someone who might be expecting to have children in the foreseeable future. The needs of both of those clients are very different stages of their lives, but ultimately they culminate at the point where they are hoping to be in a position at their retirement where they can live a comfortable and well-funded existence, one that ideally does not need to draw upon taxpayer support and one that ensures that those people can have an adequate retirement they are comfortable with.

Mindful of those differences, it is crucial that financial planners know their clients and are in a position to provide advice that accord with their respective needs. The Ripoll inquiry looked at this in great detail. Importantly—and this is perhaps the most significant point—the inquiry found there was not a legislative lacuna; there was not a problem with the regulations and the legislative framework that applied to financial planners, where there were examples of failure of financial advice for clients. Rather the Ripoll inquiry found that the problem was that there were financial planners who operated outside of the legislative parameters and did not do the right thing by their client. There was not a problem with the legislation or the regulation, rather there was a problem with those operating outside it—in other words, the issue of enforcement. That is not to say that the system was perfect, but just to say that there was no glaring or obvious example of widespread failure in regulatory oversight.

That notwithstanding, the bills before us today attempt to address some perceived shortcoming in the financial legislation and regulatory oversight such that a raft of new regulatory burdens will be imposed on the financial planning industry at the behest of this particular government, at the behest of this particular Labor minister and on the basis of the arguments put forward—that is, it is in clients' interests. It is the coalition's view, and I certainly subscribe to this, that this is simply not the case.

The Ripoll inquiry, I would remind the chamber, was headed by a Labor member. The Labor member in that particular example did not find a massive shortcoming in regulatory oversight. One of the principal and most contentious initiatives that the Minister for Financial Services and Superannuation is undertaking is the decision, through legislation, to enshrine an opt-in provision. This is an example of massive regulatory overreach. This is an example of bad practice when it comes to red tape and additional compliance burden on the industry. Opt-in will require clients, on a regular basis, to opt back in to obtain financial advice. In other words, financial planners will be required to constantly go back to their clients to encourage or ask them to sign back on with them for a further period.

Where did this idea come from? We know that opt-in does not apply anywhere else in the world. We know that opt-in was not a recommendation of the Ripoll inquiry. Perhaps a bulk of submissions to the Ripoll inquiry said that opt-in would be one of the panaceas to ensure good financial advice. The reality is that that is simply not the case. Only one submission dealt with opt-in—and that was from the Industry Super Network. The Industry Super Network was the only group that called for opt-in. And, lo and behold, the minister for trade unions, the minister with a strong background—

Ms Anna Burke (Chisholm, Deputy-Speaker) Share this | Link to this | Hansard source

The member will refer to ministers appropriately. You will use his—

Steven Ciobo (Moncrieff, Liberal Party) Share this | Link to this | Hansard source

Madam Deputy Speaker, I would argue that it was appropriate. For protocol reasons—

Ms Anna Burke (Chisholm, Deputy-Speaker) Share this | Link to this | Hansard source

No, you cannot argue that that was appropriate. I am still willing to use my 15-minute chuck from the chamber. Find his right title or we may sit you down.

Steven Ciobo (Moncrieff, Liberal Party) Share this | Link to this | Hansard source

For protocol reasons I will refer to the minister as the minister for financial services. He is the person who took the decision that opt-in was in the best interests of financial planners and their clients. It is, to say the least, farcical. This particular requirement will significantly add to the red-tape burden that financial planners face. This significant initiative will add a great deal of extra complexity and extra burden on financial planners. It is not just the financial planners; it is also their clients, who will now be constantly harassed to re-sign with financial planners.

But it is more than that. There is the implementation date that the government is attempting to roll out. This again underscores the shambolic and, I would argue, incompetent manner in which the government has approached these particular reforms. The minister seeks to have these reforms commence on 1 July this year. That is less than four months away. The notion that we could have such significant reform to a sector, commencing in four months, is ludicrous.

For some time the coalition has been calling for the reforms not to commence until 1 July 2013, which incidentally aligns with the introduction of MySuper, knowing full well that rolling those two out concurrently provides maximum opportunity for a more thorough approach to be adopted by industry and more time for systems to be put in place. But, again, the government has not listened. The government insists that 1 July this year will be the start date. I note that, because of the widespread angst in the financial planning community about the consequences of the government rushing headfirst into this and trying to do it within four months, the minister has now indicated that there will be, to use his words, a 'soft launch' of the reforms on 1 July—whatever that means! I believe that the minister has foreshadowed that there will in fact be, as part of this soft launch, further legislation that comes into the parliament in the winter sittings to deal with this issue.

An area on which we can agree—I will touch upon this and conclude on a good note—is the implementation of best interest duty. It is the view of the coalition—and we support the Labor Party on this—that the implementation of a fiduciary duty with respect to the relationship between financial planners and their clients is a positive step forward. We note that the financial planning community itself agrees with this point. It is good that we have consensus. It underscores the bona fides of the coalition in arguing the case that, where good policy is rolled out, we will support it. Where good policy can be implemented, we will not stand in the way; we will do what we can to assist. For that reason, we think decisions to implement the best interest duty is a step in the right direction. That said, of course the devil is always in the detail. In that respect, the first exposure draft that outlined the provisions that would apply to the best interest duty were convoluted and it was not clear to industry or to consumer advocates how it would work.

There will be impacts as well with respect to the opportunity for scalable advice—that is, a need for clients to not have to adopt a whole-of-life plan if a client does not want that. If a client goes to a financial planner and seeks only to have financial advice on one discrete area, the coalition's view is that it is ludicrous to argue that that should not be available. We think it is without basis to say no, that it should only be on a whole-of-life basis, on a know-your-client basis, to such an extent that effectively you achieve overservicing as a consequence of the government's reforms.

My final point is with respect to regulatory impact assessment. We know the government's Office of Best Practice Regulation said that they did not have adequate information to determine whether the FoFA changes and their impact on business and consumers were appropriate. We think that is a great shame. We are committed to less red tape. We are committed to less complexity. The reality is that the amendments the coalition have put on the table are good amendments that should be supported by the government, recognising not only that these are going to be appropriate safeguards for consumers but also that the sector should not be unduly and inappropriately burdened with additional compliance costs.

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

Following the contribution from the member for Moncrieff, I also rise to stand up for my constituents in Brisbane and speak on the Corporations Amendment (Future of Financial Advice) Bill 2011 and the Corporations Amendment (Further Future of Financial Advice Measures) Bill 2011. These bills are the latest exhibits in the 'how to totally destroy the process of reform' presentation being put on by the Gillard government. I have many financial services practices in my electorate that employ many thousands of people. Many of them are small and medium financial businesses. I have received an enormous amount of correspondence about these bills. Overwhelmingly, the feedback from the industry has been hugely critical of these bills. An email I got from Mr Brian Mallon, a financial planner in Ascot, says:

This bill, as currently drafted, will have a catastrophic impact on my business and that of many, small, independently owned, financial planning firms like mine, that cannot afford the additional and unnecessary administrative burden this legislation will demand and will place the cost of obtaining professional and objective advice from an independently owned adviser, out of reach of the average Australian family.

Another email from a planner in the CBD states:

After advising for 30 years can I say, the proposed reforms will remove financial planning advice away from ordinary Australians and make it unaffordable.

I can advise the House that to date I have not received one positive piece of correspondence supporting these bills—not a single, solitary positive letter supporting these bills.

Ms Hall interjecting—

The member opposite can argue with me all she likes, but the coalition believe in a strong and vibrant financial services industry—

Ms Anna Burke (Chisholm, Deputy-Speaker) Share this | Link to this | Hansard source

The member cannot argue all she wants; she will be silent.

Ms Hall interjecting—

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

This is hurting them. They know that these bills are flawed. They know that these bills—

Ms Anna Burke (Chisholm, Deputy-Speaker) Share this | Link to this | Hansard source

The member for Brisbane should stick to the script.

Teresa Gambaro (Brisbane, Liberal Party, Shadow Parliamentary Secretary for Citizenship and Settlement) Share this | Link to 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.

Paul Fletcher (Bradfield, Liberal Party) Share this | Link to this | Hansard source

I am pleased to speak on the Corporations Amendment (Future of Financial Advice) Bill 2011 as well as on part 2 of this compendium, the Corporations Amendment (Further Future of Financial Advice Measures) Bill 2011. These bills are intended to be the culmination of the reform process, kicked off following the Ripoll inquiry into financial products and services. They deal with such matters as introducing a requirement for advisers to act in the best interests of clients; banning conflicted remuneration such as commissions, volume payments and soft-dollar benefits; requiring advisers to obtain client agreement to ongoing advice fees; mandating greater disclosure of fees; and giving ASIC greater powers.

In the time that is available to me, I want to make three points. Firstly, the key recommendations of the Ripoll report are uncontentious. To the extent that the bill adopts the uncontentious recommendations, we welcome them. Secondly, this bill, somewhat surprisingly, includes many changes which were not canvassed in the Ripoll report and they appear to be there largely because they were asked for by the Industry Super Network. Given the very cosy relationship between the parliamentary Labor Party and the industry super fund sector, the minister appears to have been very eager to respond to the policy agenda of the Industry Super Network. Thirdly, the implementation arrangements for this substantial package of reforms are hopelessly impractical and, once again, reveal that we have a government which has, amongst its key figures, people with virtually no experience of the practical complexities of running a business.

Let me turn firstly to the point that the key recommendations of the Ripoll inquiry are uncontentious. We are all agreed that the financial services and advice industry provides a very important service, helping Australians with their financial health and wellbeing. We also know that there have been some very unhappy episodes in recent years with the collapses of companies like Storm Financial, Trio and Westpoint. Emerging from these collapses, the Parliamentary Joint Committee on Corporations and Financial Services was asked to conduct a comprehensive inquiry into Australian financial products and services. The inquiry reported in November 2009. In the view of the coalition, the recommendations of the inquiry, in the main, were well considered and are sensible. The key recommendation, the centrepiece recommendation, is to introduce as a matter of law a fiduciary duty for financial advisers, requiring them to place the interests of their clients ahead of their own. It is very interesting to note that the inquiry did not recommend the introduction of a large and detailed set of complex new regulatory measures. Quite the contrary, the inquiry in its final report specifically noted that it was not an absence of regulation that was the problem, rather an absence of enforcement. Let me quote:

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.

There was a very clear direction from the Ripoll inquiry that the solution to the problem was not the introduction of a complex new superstructure of detailed, prescriptive microregulation.

This brings me to the second point I wish to make to the chamber. There are very detailed regulatory changes contained in the bill which were not canvassed by the Ripoll inquiry at all. Let me mention three of them: retrospective fee disclosure, banning of commissions for insurance inside superannuation and what are colloquially known as the opt-in provisions. The retrospective fee disclosure provisions impose a requirement to introduce additional annual fee disclosure. The important point to note is that clients already receive regular statements provided by financial services product providers. There is now to be an additional requirement to produce an annual statement. It was initially understood that this would apply to new clients, those who became clients of the financial services adviser or provider post the implementation of the legislation. But at a late stage it emerged that the intention was that this requirement would apply to all clients. This greatly increases the cost and complexity of implementation.

If a product is 10, 15 or more years old, the consequence of this measure is that there will be a need to open up the legacy IT system which supports that product. As anybody who has had any exposure to IT systems in large corporates would know, that is always a risky, expensive and deeply fraught process. This is a regulatory measure which imposes substantial costs for very little public benefit. It is entirely typical of the kind of thing this government does again and again, because this government, the Rudd-Gillard government, is composed of people with zero practical private-sector experience. Naturally the last thing it would ever think about is the complexities of implementing updates to a sophisticated information technology system.

I turn to the question of the banning of commissions for insurance inside superannuation. Many people choose to obtain life and income insurance, and total and permanent disablement insurance, through their superannuation fund. It is a cost-effective way to obtain this important insurance because they are able to pay with pre-tax dollars. Typically they do this based upon advice from a financial adviser. The Parliamentary Joint Committee on Corporations and Financial Services, on which I serve, heard from the Corporate Super Specialist Alliance, which comprises financial advisers who specialise in this area. They had this to say:

Our major concern is that CSSA members will not be able to be remunerated for the work they perform once FoFA is implemented, as commissions are to be banned on both Superannuation investment and Group Insurance within Superannuation. There is no proposed model for fees to be charged for services provided on a group basis, and we believe that this needs to be addressed.

This measure will effectively discouraged the operation of an existing and proven distribution channel under which many people today are educated about the most cost-effective means to obtain insurance—that is, via their superannuation fund. Given that Australians are seriously underinsured, what is the possible policy logic for a measure which is likely to reduce rather than increase the number of people taking up insurance via superannuation?

The third area that I want to focus on is what is colloquially known as 'opt-in'—that is, the requirement contained in this legislation for every financial adviser to obtain written confirmation from a client every second year that he or she still wishes to retain that adviser. In substance, this is a restriction on all Australians, who are now to be barred by law from contracting with a financial adviser on terms that the contract stays in place until such time as the client determines otherwise. Instead, they will be prohibited by law from contracting for more than two years. This is an extraordinarily intrusive burden being placed upon both financial advisers and those wishing to retain financial advisers. It has been done at the request of only one organisation, the Industry Super Network, which is the lobby group for industry superannuation funds, the biggest of which is the $43 billion Australian Super. ISN provided to the original Ripoll inquiry the only submission arguing in favour of opt-in.

It is very interesting to reflect on the cosy ties between the parliamentary Labor Party, Australian Super and the Industry Super Network. The Minister for Financial Services and Superannuation, who has carriage of this legislation, is a former director of a predecessor organisation of Australian Super. So are two other current members of the Labor Party, Minister Combet and Senator Cameron, as well as the failed Labor candidate for Melbourne in the 2010 federal election, Cath Bowtell. So it is perhaps not surprising that this legislation is so responsive to the specific agenda of the big industry funds. But in so doing this legislation will bring substantial harm to financial advisers and their clients. Let me give two examples, provided to me by a financial planner in my own electorate. He told me of a client, in his mid-60s, who had just retired. When the adviser called his client for the annual review, the client said that his focus was on competing in the Bosphorus cross-continental swim between Asia and Europe. All his efforts would be going into training for that swim and that that would be his personal focus for a long period. He did not want to be distracted by his finances. He asked the adviser to manage his affairs, as he had been doing for some years. Only after the swim had been completed did the client want to come in for a more formal review. Perhaps unsurprisingly, this period of training, given the nature of the swim, extended to more than a year. As a consequence the adviser was essentially left with carriage of the client's affairs throughout that period. Under the proposed FoFA opt-in rules, contained in this draft legislation, the financial adviser would have been barred by law from doing this, even though it was his client's specific request, because the consequence would have been that he would have gone for more than two years without seeing the client.

Let me give a second example, provided to me by the same financial adviser. He has a client who is in her early 50s, who has recently been divorced, moved cities and changed her job. To compound her troubles she was then diagnosed with breast cancer. She called her financial adviser and gave him very clear instructions. She did not want to worry or even think about money for the foreseeable future as her only focus, which is perfectly understandable, was on dealing with her cancer and getting through it. In the end the cancer turned out to be a severe one. The surgery, chemotherapy, radiotherapy and then other complications took some two years to work through. If the opt-in rules had been in place the financial adviser—my constituent—would not have been able to respond to his client's specific request.

This is a disgraceful piece of policy. It is a transparent attempt by the big industry funds, on a competitive basis, to nobble independent financial advisers, and it is disgraceful that this government has agreed to it.

In the brief time that is available to me I wish to point out that yet again, as with just about everything this minister brings forward, the implementation arrangements are a complete mess. They are hopelessly impractical. The consistent theme from every stakeholder in the financial services sector to whom I have spoken over the last six months—and I have spoken to a very large number of them, because they come and see people who are members of the Parliamentary Joint Committee on Corporations and Financial Services—is that the implementation time frame proposed by Minister Shorten is wholly unrealistic and completely fails to understand the complexity of the task of refreshing and updating the very complex IT systems that are required to support products which may have several hundred thousand or even millions of customers. This is compounded by the fact that the FoFA changes were originally intended to take effect from 1 July 2012, and the MySuper changes, which affect the same group of stakeholders and involve another major round of IT changes, were due to take effect from 1 July 2013.

It is true that just last week the minister at last saw sense and announced that the implementation of the FoFA measures will be voluntary until 1 July 2013. But it is quite extraordinary that it took him until 15 March this year, slightly more than three months before the implementation date, to make this announcement. In the meantime, financial institutions have been facing huge pressures as they have tried to devise IT change programs without even knowing what their precise legal obligations are going to be. Even with this decision, the time frame that has been allowed is highly unrealistic.

In conclusion, the original recommendations in the Ripoll inquiry are widely accepted, but this bill expands greatly beyond those original recommendations and it is hard to avoid the suspicion that a key objective in this bill is to advance the agenda of one section of the superannuation industry. The interests of those seeking financial advice have come a distant second. (Time expired)

George Christensen (Dawson, National Party) Share this | Link to this | Hansard source

I associate myself wholeheartedly with the comments of the member for Bradfield, who obviously is in touch with his electorate on this matter. I welcome the opportunity to speak on the Corporations Amendment (Future of Financial Advice) Bill 2011. This bill has been widely anticipated by the industry but is considered with increasing concern. What should have been a considered approach to preventing potential financial disaster for this government has turned into nothing more than an attempt to destroy an entire industry while rewarding union mates for their support of the Labor Party. If this is the future of financial advice, then the future is pretty grim.

The original intent behind this bill was commendable. It was necessary. The Storm Financial collapse during the global financial crisis was a huge blow to the industry and an absolute financial catastrophe for the families who lost their life savings. In some cases, seniors lost all their life savings and their family home and are now in debt. What happened with Storm, with Trio and with Westpoint provided an opportunity to review the industry and an opportunity to create a regulatory framework to prevent the same thing happening again.

The unfortunate outcome we have is the result of a Labor government with absolutely no understanding of any business or any industry and which is completely out of touch with the real world. At least, I hope that is their excuse, because the alternative reason is that they have deliberately constructed legislation that will condemn an industry to the scrap heap and condemn low-paid Australian families to a poorer financial future. Under the pretence of preventing situations like Storm, the Labor Party have managed to throw the baby out with the bathwater. As baby boomers transition to retirement, the government have focused more and more on encouraging individuals to take responsibility for their own financial future and retirement. That being the case, we have millions of Australians in need of financial advice to ensure they get the best value out of their savings. They are not financial experts; they are plumbers, welders, receptionists, farmers, miners and perhaps even doctors and lawyers. Any regulations introduced today will deny these people access to expert financial advice or make it unaffordable, or even less affordable. It is a direct hit on the hip-pocket of tomorrow's retirees.

There was originally some good intent behind this legislation, and I hope those opposite will appreciate the benefits to all Australians of the amendments to this bill that the opposition are proposing. If the government just come out and say no to those amendments, as is their custom, they are admitting that the damage they are doing to the industry and to the future of Australian workers is actually intentional. An attack on the financial advice industry is an attack on professional people who provide an important service. There has been considerable regulation of this industry already and what we are looking at with these amendments are regulations for the sake of regulation. They do not serve a purpose other than making life difficult for individuals and the industry.

I invite this government and any members considering supporting this bill, or planning to vote against the coalition's amendments, to ask themselves a question: what are we doing this for? If the bill does not make the industry better, if the bill does not protect people from disasters like Storm Financial, then why are we interfering? If we fail to identify what went wrong and if we fail to create regulations to prevent things like the Storm collapse happening again, all we are doing is killing off an industry. That is much worse than throwing the baby out with the bathwater.

As Martin Lambert, a local in my electorate from Stamford Financial in Mackay, says, 'The proposed changes would not have prevented things like Storm.' So this is actually throwing out the baby and keeping the bathwater. This situation arises because the government refuse to listen to advice from the industry. This is what happens when the government's actions are driven by their need to do anything but what is advised, what is needed and what is proven to work.

Why would the government take the recommendations of the Ripoll inquiry and throw them out the door? One of the key recommendations from the Ripoll inquiry 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 regulation, 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.

The Ripoll inquiry tells us that new regulations are not the answer. More red tape is not the answer. More onerous regulations that grind business to a halt and drive Australians away from getting expert financial advice is not the answer. We in this place find ourselves—and the Australian people generally—asking the same question, again and again: How do the government manage to get things so spectacularly wrong? It boils down to the same old thing: they refuse to listen. They have taken the recommendations of the Ripoll inquiry, which on their own were worthy of support, and they butchered the entire blueprint.

This government has deleted the good bits, changed what was left and then added some rubbish to produce the most negative outcome it could possibly contrive for the financial industry. One of my constituents, Nigel Thomas, from Avalon Financial Services in Mackay, likened the process to the transformation of Medusa in Greek mythology. Medusa was a beautiful maiden and priestess in Athena's temple. She attracted many suitors but her tryst with Poseidon caused the jealous Athena to transform Medusa's beautiful hair into a crown of snakes and made her face so ugly that onlookers would turn to stone. Mr Thomas points out that this is what is happening with financial planning. He writes:

Once a beautiful thing, which attracted many suitors (advisors) to the industry to assist with clients' needs, FoFA now seeks to transform the industry to something less attractive to advisers to practise and more difficult to access for most people, creating a generation with ill-informed financial understanding.

Unfortunately, the government has allowed this process to be hijacked by vested interests who stand to benefit from making the industry as ugly as possible. Part of this bill is designed to ban commission on risk insurance. I can understand imposing a ban on conflicted remuneration, such as product commissions in the financial services industry. But commission on advised risk insurance is a different kettle of fish. The Ripoll inquiry did not say to ban these. I wonder why there was an inquiry in the first place? This ban would increase costs and remove choice, making people worse off, especially small business owners who manage their own superannuation. This measure is nothing more than a means of distorting the market in favour of the superfunds and industry superfunds. In effect, this regulation encourages people to enter into risk insurance, inside superannuation, with no advice. This regulation discourages people from getting expert advice.

I received a letter from another financial adviser who points out the effect that the ban will have on the industry. Mark Dunsford writes:

The Labor Party is making a deliberate push to get money into union funds by deliberately legislating through ridiculous reforms. After advising for 30 years, can I say, the proposed reforms will remove financial planning advice away from ordinary Australians and make it unaffordable. The massive under-insurance problem we have in Australia will not be remedied by removing commission from the product. The is 99 per cent of our clients still want us to be paid via the product, rather than writing out an additional cheque.

Another financial adviser, Brian Mallon, put it a little more bluntly, saying the proposed legislation was:

… a thinly veiled corroboration between trade union controlled industry superannuation funds and the trade union controlled federal government to create, for the Industry Superannuation Network (ISN) a monopoly in the superannuation industry.

Similarly, Mark Kerr does not mince his words in telling how it is. He says:

It does absolutely nothing towards protecting investors but goes a long way in giving a 'free kick' to the Minister for Financial Services' buddies in the union movement and the industry super funds.

It is interesting to note just how much weight the Industry Super Network actually carries with this bill. The network provided the only submission to the original Ripoll inquiry that argued in favour of opting in, and that inquiry rejected the proposal—rejected it!

The government, despite being unable to cite an example anywhere in the world where this kind of regulation actually exists, went against the expert advice to introduce a mandatory requirement for consumers to re-sign contracts with their financial adviser on a regular basis. This move defies all logic and smacks of another grubby deal between a grubby government and the union grubs that they answer to. The union based super funds know that forcing this red tape down people's throats will encourage them not to opt in. The government knows red tape will encourage people not to opt in. The people know it also and they are desperately waiting for the opportunity not to opt into another term of this government. Mike Goggan from Australian Capital Financial in Mackay told me:

The opt-in is insane; in my opinion this will be the decline of the financial planner-adviser industry, which will cause a bigger under-insurance problem than exists now.

There are three more areas of this bill that I would like to focus on. The first is about implementation. The bill sets out an implementation date of 1 July 2012—that is about 100 days from now. Given that we are only now starting to debate this bill, and knowing that passage through this place and also the other place will take some time, we are looking at a very tight lead time.

I might provide some assistance to the government by pointing out what should be obvious—and this is why it keep stuffing things up: if you let a bad government implement bad policy, you can expect bad outcomes. When you do all this in a rush, you are destined for disaster. Poor government and rushed implementation is what gave us the pink batts debacle, with houses burning down; the school halls fiasco, where tuckshops cost a million dollars or more, and a long list of other spectacular failures. It is almost as if this government is in a hurry to see what it can stuff up next.

The people who work in the financial advice industry are the next ones who will pay the price of a bad government in a hurry to stuff things up. The working families who will be denied the benefit of expert financial advice are the ones who will pay the price of a government desperate to ignore sound, expert advice that it itself sought. If this government had the slightest bit of business nous it would move to delay the implementation by a year to align with the changes to MySuper.

Another point on timing is this bill's requirement for retrospective fee disclosure statements. There is no benefit to be derived from this whatsoever. It was not recommended by the Ripoll inquiry. It was not part of the consultation process. It was not even in the government's plans until the last minute. According to the Financial Services Council, the cost of fee disclosure statements will be $54 per new client and $98 for existing clients, for no benefit and on no-one's advice. What is the point of having a consultation process if the government is just going to make things up on the spot?

The final aspect of this bill that I would like to address is the introduction of a best interest duty for financial advisers into the Corporations Act. While I do believe that looking after the best interests of the client should be a matter of course for any service business, I have no problems with the concept being enshrined in legislation. Unlike other components of this legislation, the best interest duty can be introduced without a huge cost and without the introduction of huge amounts of red tape. However, there is some scope for improvement. The coalition is concerned about the uncertainty for clients and advisers that would be created by the catch-all provision in clause 961B(2)(g). Removal of the clause would improve the introduction of the best interest duty provisions.

I would like to make one further comment on how this bill could be altered to provide better outcomes for people. With reference to what happens in the real world—what real people with real financial situations actually need—financial advisers must be able to offer scaled advice. The current wording of the best interest duty does not allow financial advisers to offer a specific service that the client needs at an affordable price. It should not be necessary to provide a full financial plan if a client neither requires it nor can afford it. To avoid putting expert advice out of reach for many families this legislation should allow advisers to limit the scope of their advice to a series of discrete areas identified by the client.

These are concerns that have been raised with me by financial advisers, many in my electorate of Dawson. They include people such as James Wortley from Magnitude Financial Planning, Damien Arboit from Progressive Wealth Solutions, Kim Evetts from Whittaker Macnaught, Gareth Hall from Lifestyle Financial Services and Kerry Neyland from RBS Morgans. If the government were serious about genuine reform it would be listening to these people, it would be listening to the industry. If the government were serious about genuine reform it would address all of the participants in Storm, including ASIC, the banks, the insurance companies, the producers of investment products, the fund managers, the investment industry, accountants, auditors, the legal profession and research houses. This is the very advice that was given to the Minister for Financial Services but it simply was not taken. Perhaps the minister should have chosen to opt in on that advice, on what people were telling him, for the sake of this industry but also the sake of the government's own credibility.

Scott Buchholz (Wright, Liberal Party) Share this | Link to this | Hansard source

I rise to speak on the Corporations Amendment (Future of Financial Advice) Bill 2011 and the related bill. When I first saw this bill I thought it was an oxymoron, or an interesting juxtaposition, for a Labor government, with its current handling of the economy, to be trying to give financial advice. Look at the financial advice given by our Treasurer when it comes to trying to forecast deficits and surpluses. You need look back no further than the MYEFO documents for 2010-11, when the Treasurer forecast a $12 billion deficit. And in the budget papers last year he forecast a $22 billion deficit for the same period, and that was recently adjusted to a $37 billion deficit. So, this government has no credibility to advise the financial services sector on how they should best be conducting their operations.

The coalition cannot support the future of financial services bill in its current form. However, the legislation can be significantly improved if the government accepts a series of amendments to be moved by the coalition. Only when those moments are supported will the legislation be worth supporting. As it currently stands, the bills are unnecessarily complicated. They are likely to cost about $700 million to implement and a further $350 million annually to comply with. Most significantly, they are likely to cause an increase in unemployment as the burden is put on the financial sector. For Australians seeking financial advice it will mean increased cost and decreased choice. Could anything be more Labor than that? You can see it in most of the bills that come through this House. It is about extra layers of bureaucracy and compliance. It normally has an associated price tag which at some time is going to come out of the pockets of mums and dads. This is just another example of how Labor does its business.

The coalition will be moving a series of amendments which will require: most importantly, that the government table in the parliament regulatory impact statements assessed as compliant by the government's Office of Best Practice Regulation; that the opt in be removed from FoFA; that the retrospective application of the additional annual fee disclosure requirement also be removed; that the drafting of best interest duty be improved; that the ban of commissions on risk insurance inside super be further refined; and that implementation of FoFA be delayed until 1 July 2013 to align it with MySuper. These are good and necessary reforms and I urge both the minister and the members of the crossbench to support them.

The financial services and advice industry provides an important service helping Australians with their financial health and wellbeing. In doing so, financial services providers deal with other people's money, which is why it is important to have an appropriate, robust regulatory framework in place. Quite obviously the goal of any legislation affecting this sector should be to balance effective consumer protection with access to high-quality financial services that are both accessible and affordable. Subjected to stress-testing of the global financial crisis, the Australian financial services industry performed well overall. While there is no doubt that Australian financial services reforms, legislated in 2001, provided a solid regulatory foundation for the industry there is always room for improvement. However, in pursuing regulatory change, the parliament needs to focus on making things better, not just making them more complex and more expensive. One of the things we must avoid is regulatory overreach, where additional red tape increases costs for both business and consumers while providing little or no additional consumer protection benefit.

In the wake of the global financial crisis there was a number of high profile collapses of financial services providers across Australia—the well-documented Storm Financial situation in North Queensland, Trio and Westpoint are cases in point. Following on from those collapses, it was important for policy makers to assess what went wrong and what we could do better in the future to prevent—or at least minimise the risk of—such collapses occurring in the future. This is why in February 2009 the parliament asked the Joint Committee on Corporations and Financial Services to conduct a comprehensive inquiry into Australia's financial products and services. That inquiry, known as the Ripoll inquiry, reported back in November 2009 and made a number of well-considered and reasonable reform recommendations.

The centrepiece of the Ripoll inquiry was the recommendation to introduce a fiduciary duty for financial advisers requiring them to place their clients' interests ahead of their own. The report's recommendations provided a blueprint the government could have adopted with bipartisan support. One of the key observations of the Ripoll inquiry 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 than being due to regulatory inadequacy.

Instead of implementing the recommendations of the Ripoll inquiry, the Labor Party allowed its Future of Financial Advice reform package to be hijacked by vested interests. Over the past two years there have been constant and completely unexpected changes to the proposed regulatory arrangements under FoFA, right up until the introduction of the current legislation. Invariably, this was done without proper appreciation or assessment of the costs involved of any unintended consequences or of implications flowing from the proposed changes. Important reforms have been delayed by more than two years so the government can press ahead with a number of contentious issues.

In pursuing regulatory changes, government must rigorously assess increasing costs and red tape for both business and consumers. It is incumbent on the government to conduct a proper regulatory impact assessment to a standard which is consistent with its own best practice regulations requirements. According to the government's own Office of Best Practice Regulation, the government did not have adequate information to properly assess the impact of FoFA on business and consumers or to assess the cost benefit of the proposed changes. This is highly unsatisfactory, given the complexity and the costs associated with contentious parts of the proposed FoFA changes.

Furthermore, the current implementation time frame of 1 July 2012 is completely unrealistic, given that the proposed commencement date is less than four months away. It would make more sense to implement FoFA and MySuper simultaneously. These two major changes require significant changes to the same financial services provider of IT systems. It is symptomatic of the government's chaotic approach to this area and its lack of understanding of practical business realities that it seeks to impose two different implementation dates involving significant and costly system changes in relatively quick succession. The coalition believes that these bills, if amended, should not commence until 1 July 2013.

Opt-in imposes a mandatory requirement on consumers to re-sign contracts with their financial advisers on a regular basis. This is a significant increase in red tape and costs for both planners and consumers. It will make Australians world champions in financial services red tape. We will lead the world when it comes to red tape within the industry. Opt-in was not part of the initial Ripoll inquiry recommendations and it is important to note that the only submission to the Ripoll inquiry which argued in favour of opt-in came from—guess where—the Industry Super Network, which is top heavy with Labor's union mates. More often, we are seeing legislation put through this House that has union fingerprints all over it. It is also important to note that the Industry Super Network proposal for a mandatory opt-in requirement was not accepted by the inquiry. The government have been unable to point to another example anywhere in the world of a government that has sought to impose a mandatory requirement on consumers to re-sign contracts with their financial advisers on a regular basis. With the best interest duty in place, appropriate transparency of fees, charges and an ongoing capacity of clients' financial advisers to opt out of any service relationship at any stage, the coalition believe there is adequate consumer protection without the need to impose additional costs and red tape for both business and consumers.

The Ripoll inquiry made no recommendations to introduce an additional annual fee disclosure statement over and above the current regular statements provided by financial services product providers to their clients. Retrospective fee disclosure adds absolutely no additional consumer protection benefit and it will almost certainly cost. In the FoFA consultation session, it was the industry's clear understanding that the government's proposal to impose an additional annual fee disclosure statement would be prospective—that is, it would only apply to new and not existing clients. The Financial Services Council estimated that implementation of the fee disclosure requirement will cost approximately $54 per client prospectively for new clients and $98 retrospectively for existing clients. This is yet another example of a very poor and deeply flawed consultation process engaged in by the government in relation to FoFA. The government must be held to account for the commitment it made during the consultation process that these additional annual fee disclosure requirements would apply prospectively only.

The best interest duty is an important central part of the FoFA changes. The coalition support the introduction of a statutory best interest duty for financial advisers under the Corporations Act. However, to avoid confusion and minimise the risk of future disputes, it is important to get the drafting right. It is obvious that the government have struggled to come up with an appropriate definition of best interest duty. The version of best interest duty was included in the draft exposure of what became the Corporations Amendment (Future of Financial Advice) Bill 2011, but was hastily removed from that version of the bill when it was ultimately introduced into the parliament. The current version of the proposed best interest duty included the subsequent second FoFA bill and it is certainly an improvement to the version, including the exposure draft.

However, the coalition remain concerned that the catch-all provision contained in clause 961B(2)(g) will create uncertainty for both clients and their advisers. We therefore recommend that this clause be removed from the best interest duty. One of the ways to ensure that clients are able to access affordable financial advice would be to allow advisers and their clients to limit the scope of the advice to a series of discrete areas identified by the client rather than to mandate a full financial plan in everyone's case. This concept of focusing advice on areas specifically identified by clients has become widely known as a scalable service. Numerous submissions to the committee expressed concern that the wording of the best interest provisions in the proposed legislation does not allow for scaled advice to be provided. The legislation should allow the provision of scalable advice where the request for such limited or scalable advice is instigated by the client. This would allow many people to access advice more frequently and it would be a very good starting point for clients to seek financial advice for the first time without being required to undertake a costly and sometimes unnecessary complete financial plan.

The coalition will amend the best interest duty to explicitly allow for clients and advisers to contact for such scalable advice. The coalition committee members support the banning of conflicted remuneration structures such as product commissions within the financial services industry and commend the industry for moving proactively and effectively to abolish such conflicted remuneration structures. However, we do not consider that commissions paid on advice on risk insurance, they may be within policies or individual policies outside superannuation, are conflicted remuneration structures. We agree that the Australians who receive automatic risk insurance with their super fund without accessing any advice should not be required to pay commissions. However, those Australians who require and seek advice pursuing adequate risk cover, whether inside or outside of the super fund, should have the same opportunity to choose the most appropriate remuneration arrangements available to them.

Bruce Billson (Dunkley, Liberal Party, Shadow Minister for Small Business, Competition Policy and Consumer Affairs) Share this | Link to this | Hansard source

I rise to support the very eloquent comments of my colleagues who have covered many of the issues that I will touch on. One of the reasons that I was keen to make a contribution to this debate is that, in my travels as the shadow minister for small business, financial advisory businesses right across the continent have expressed outrage at the nature of some of the changes proposed in the Corporations Amendment (Future of Financial Advice) Bill 2011 and related legislation. Their input in consultation processes has been ignored at best and, in some cases, the government has chosen a pathway that directly opposes the considered advice that the small business financial advising community has provided to government. Another point is that, wearing my hat as the shadow minister for consumer affairs, while these bills masquerade as being of advantage to consumers they actually provide a number of risks for consumers that the government has not properly considered or evaluated.

The idea about proper evaluation and assessment is an excellent starting point for a debate on this legislation. The government proclaims widely that it has outstanding regulatory impact processes. I have listened to and read carefully the accounts of world's best practice, which is the statement made by the department of finance and its officials involved in the Office of Best Practice Regulation. Some of the action steps that agencies and departments are expected to go through seek to address what the legitimate alternatives are for addressing that public policy problem, and evaluate how effective alternative courses of action would be and what the costs are in implementing those changes. That is a worthwhile decision support framework. It is such a shame that this whole package of measures has progressed without any great connection to that very worthwhile decision support framework.

At the heart of the coalition's objection to these bills is that there has not been a proper impact analysis, a regulatory impact statement, tabled for these bills. They have not been evaluated against the Office of Best Practice Regulation benchmarks and requirements as compliant. For those reasons alone this legislative package is poorly conceived. It has not been properly considered. It appears to many, me included, as a knee-jerk reaction to the very devastating impact of the collapse of particular investment vehicles—Storm and Opes Prime are some that are regularly referred to—where in reaction to the financial losses that many incurred the government seems to think it has carte blanche to do whatever it might think it wants to do.

What it thinks it wants to do seems to be overwhelmingly skewed to advance the interests of union controlled industry superannuation funds. There appears to be no other justification for some of the measures that are contained in this bill. Even, as my colleague the previous speaker referred to, in the consultation process absolutely nobody was advocating for some of the measures that are in this bill except for the MySuper industry superannuation group. Apparently, on the strength of just one self-interested advocacy group, the government thought that was a good enough reason to go with what they wanted and ignore all the other submissions about why some of the proposals they are contemplating are not well conceived and actually run against the interests not only of the consumers and investors but also many of the small business advisory firms that have established a very positive reputation amongst their clients and that know that, if they are not providing value for money, the clients will go somewhere else. So I do not know why we are here debating things such as the opt-in requirement, one of the most pointless bureaucratic interventions that no-one thinks is a good idea, save and except the superannuation industry network. Not even the government controlled Ripoll inquiry thought it was a good idea.

I hope Mr Ripoll, who is now the Parliamentary Secretary to the Treasurer, has some influence within Treasury over the direction of these changes and that the so-called future of financial advice is grounded in the considered work of his committee and the very sound recommendations that earned bipartisan support. I say that for a number of reasons. Firstly, they were well thought through. They were not contrived to advantage a particular sector of the financial advice industry—that is, the industry superannuation funds. They were also tested by a rigorous process of committee inquiry, of hearings, of evaluation, where the parliament as a whole could bring forward a bipartisan report that would give confidence to people involved in this industry that there was not going to be some unilateral change to the arrangements under which they operate.

By going down the pathway the government has with this legislation, they are far from building confidence and certainty in the financial services sector because they are actually pursuing changes that no-one else seems to think are a good idea. At some point down the track either Mr Ripoll in his new role within Treasury or, if there is a change of government, an enlightened, pragmatic, evidence based evaluation of these changes is likely to see them changed again because they are not well developed and they have not been properly evaluated.

Look at some of the things that have happened.. Let us look at the global financial crisis. There were some very high-profile cases of investment vehicles hitting the wall and that represented extreme financial hardship for those investors. A number of those investment vehicles were by their very nature more vulnerable to the changes in the global economy and the impacts of the GFC than others because they were offering returns at rates more attractive than other investment options and the risk-return ratios were understood by most. But when hardship arises that is a very difficult time for all involved. My heart goes out to those people who have seen their life savings and their investment nest eggs dissolve through the GFC.

Overwhelmingly, the Australian financial services and advice industry stood up very well during the GFC. It stood up very well because of the changes that the previous Howard government had put in place. So you look at the carnage in investment value and in wealth destruction that happened around the world and, whilst we had some setbacks, they were nothing of the scale experienced by virtually any developed Western market in the world.

Bert Van Manen (Forde, Liberal Party) Share this | Link to this | Hansard source

They had nothing to do with the advice.

Bruce Billson (Dunkley, Liberal Party, Shadow Minister for Small Business, Competition Policy and Consumer Affairs) Share this | Link to this | Hansard source

Those changes also had nothing to do with the advice that people were provided—as my twin brother and my friend and colleague interjects, and I thank him for that interjection—nothing to do with the quality of the advice. If you are going to handle or address these public policy concerns in a sober, evidence based way you should actually look at what the causal factors are of the hardship that you are hoping to avoid—what is the evil you are hoping to address? To understand what has caused it then gives you an insight into what action you might need to take.

This whole package is free of that analysis and instead we see some propositions that the government cannot even defend themselves because they are so incoherent. The coalition again puts forward the framework that was agreed through the Parliamentary Joint Committee on Corporations and Financial Services which said these things should not go ahead in their current form. It said that they lacked some key characteristics that would represent a positive step forward for the industry and for the investors that rely upon the advice that they are given. They represent a great deal of red tape and compliance imposition for no good reason.

I recall my travels to Gladstone. I had a nice flight up there to meet with all the financial advisers in Gladstone. There is a community providing quality financial advice to a number of people not only to the immediate Gladstone community but to quite a lot of fly-in fly-out people and other people earning quite staggering incomes in the mining sector. So the quality of their advice is very important in setting up those people for their future. They all came to me and said, 'Bruce, this opt-in idea: where on earth did that come from?' I was able to point to the industry superannuation funds. The collective groan in the room said to me: 'Well, that'd be right. Here's another regulatory and red tape imposition championed by a very narrow section of the financial services sector to advantage its own interests.' They described to me the example of someone who had been out on a mine for three or four weeks and would fly into Gladstone. They had some time to themselves or they might want to catch up with family and friends. They walk into their place of accommodation and find a mountain of mail you could not climb over. They described to me the things that person would be looking for. Imagine that you are that person: would you be looking for the bills you have to pay? Probably, so you can make sure the phone was not cut off and the power was there. You might look for one that has a sweet scent; that one might be a note from your sweetheart. But if you saw something from your financial adviser, would you know what it was? Given the relationship you have with your financial adviser, who is servicing your interests well in an open and transparent way, you might think this was probably another newsletter with the latest update on what the government is mangling in another area of the policy. That could be it, and you would probably think: 'Gee, I see enough of this dysfunctional and divided government. I'm back and I don't want to be depressed even more about government incompetence affecting my interest and the national interest.' So you put that to one side.

You might then have a lovely few days in Gladstone: you might do some fishing or you might catch up with your sweetheart. You might just go about your life and then fly out again without looking at the letter from your financial adviser. Under these changes, that would be: uh-oh, end of relationship, because you have not opted in again. You have not opted in again because you were bewildered by the burden imposed on you and your financial adviser, even though your relationship has served you well, is open and transparent on fees, the quality of advice and the frequency of engagement and makes sure that your interests as an investor align with the advice being provided by your adviser. Then suddenly, because you have not sorted out some bureaucratic renewal within a 30-day period, the relationship is over. What happens then? What happens with the advice that you hoped you might get while you are out at the mine site? What happens with your investments? This is just one very practical example where this is likely, according to some in the industry sector, to cost $120 per client. It will eat away at their investment nest egg for no good reason and to no demonstrable benefit.

If you look at other areas you will see that certain products with trailing fees and the like—even where they were entered into with full knowledge by the parties involved—will be prohibited under these changes. What will you do? You will have to change them, get out of them or have those arrangements restructured. I read an impassioned plea from a small business financial adviser who points out that not only is he 'being branded a hellraiser out to pillage their clientele because of events involving Storm and Opes Prime over which they had no influence whatsoever', he is 'somehow being victimised and used as a scapegoat for consequences that weren't any of their making'. That is how he starts his presentation to me, and I think he is right on the money. He goes on to talk about what would happen with the trusted relationship he has where, as the shadow Treasurer pointed out—the key tenet is 'no surprises', is how I would characterise it—the advisers are acting in the best interests of the client, there is transparency in the fees, there is an understanding of what support is being provided for those fees and the client can opt out whenever they choose. They can just go if they are not happy. What is wrong with that? Instead we have this very odd set of recommendations.

We also have an example where the government is failing to address the impact not only on small financial advice businesses, but also on consumers. On the trail ban that is being proposed: what happens if you have a client who is in such a product but now cannot be? You will have to go to that client and say, 'I'm sorry, even though you fully understood what you entered into and what the cost structures are, even though the product may be performing very well for you and regardless of what any industry superannuation fund advocate may be stating, you have to hop out of it.' What is the cost of exiting that product, of having it restructured or of trying to materialise the asset value, which you know has taken a hit through the GFC? You would do your money. So in this example, the recalibration that will be needed if you are a Centrelink client, the risk to your capital of materialising a gain or loss, the fact that there may be costs involved in shifting into another product, all seem to have not been taken into account by the government. This is why these bills should not proceed. The industry is not supportive of them and most fair-minded people looking at the measures cannot see a connection between then and what the government proclaims it is trying to do. The lead-up time frame is too short, there are too many uncertainties about the detail of these reforms and the financial services industry is wary of the government that has blamed them for plenty, even though it has not been their responsibility. They deserve to be taken more seriously. (Time expired)

Nola Marino (Forrest, Liberal Party) Share this | Link to this | Hansard source

I rise to speak on the Corporations Amendment (Future of Financial Advice) Bill 2011 and cognate bill. The financial services and advice industry is an essential service of the modern era, protecting and enhancing the financial health and wellbeing of millions of Australians. For people planning their retirement or supporting their children's future, good financial advice is often on a par with shelter and energy as a basic requirement. In this time of global economic volatility, this service has proved to be even more important to Australians seeking to better manage financial risks at the same time that they seek to maximise those financial opportunities.

Australia, as the member for Forde would be aware, may well be a physical island but it is definitely not a financial island. For instance, the instability in Europe in particular means that investors and financial advisers alike are watching the markets extremely closely so that they can provide that advice. Given that financial service providers effectively deal with other people's money, it is important that we have an appropriately robust regulatory framework in place to provide effective consumer protection—and we do have so. As we heard from the shadow minister, that is the case. It is because of the work done by the previous coalition government in 2001.

The dual purpose of protection and promotion comes with the need to ensure that financial advice is not only high quality but also readily available, accessible and affordable. We should not lower standards of service; however, it is important not to price it beyond the means of every day Australians—those who are struggling and working towards financial independence. The House should note that most of these investors are not, as the government seems to claim at times, billionaires—those who are so demonised by the government. Most investors are hard-working aspirational Australians. They could be individuals, they could be small to medium business owners from all walks of life and all backgrounds, including as I said those raising their families and needing to invest in safe but productive investments. In so many cases they are simply self-starting small business people not relying on superannuation alone to get them through. They can see clearly that average superannuation, given the time they entered the workforce, will not be enough to sustain them in later life. Investors are also retiring small business owners who have sold their businesses, be it a cafe, a retail store or a farm. People are prepared to live off those assets in their later life. And it does include that very important group that the government does not value, the self-funded retirees. It is these people who literally save the government millions in pensions and who save and work for their own future. They also need to be considered in this discussion today.

The shadow minister for finance, Senator Cormann, met a group of financial advisers in my electorate when we were discussing the implications of what the government was planning. They are extremely concerned. Like so many other financial advisers in the industry, they act in the best interests of the client. They provide long-term professional services. There may be some who do the wrong thing but what they do know is that trust is critical. Financial advisers in my electorate know that they are in a regional area where clients can vote with their feet any day of the week. If they do not like the quality or level of the advice, if they are not satisfied with it, they can literally walk out the door and find a new financial adviser. Clients do two things: they walk and they talk—and this is particularly relevant in rural and regional areas. I would say to any financial adviser: word of mouth circulates very quickly in regional communities. Financial advisers in my part of the world are very well aware of this, but they are determined to act in the best interests of their clients. Their clients often become their friends, people they care passionately about. So they want to provide quality, effective and affordable advice, and their service reflects this.

Under this legislation, if one of my constituents fails to complete a renewal notice in the 30-day period, they will now be left without financial advice. That is where they will find themselves. We have heard the shadow minister for small business talk about the fly-in fly-out workers and where they will find themselves. I have over 5,000 of those in my electorate. For these people and others—ordinary people, farmers, people in small business, people living in rural and remote areas and even just very busy individuals—that 30-day period carries extreme implications. For instance, if you happen to do your accounts once a month, where could you be left? For small to medium sized business owners, the 30-day period has some pretty significant implications.

One of the key observations of the Ripoll inquiry in 2009, which the coalition committee members continue to support, 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—

that needs to be stipulated strongly in this House—

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.

That is why I really support the concerns of the opposition.

The legislation in its current form is unnecessarily complex, and this has been articulated quite strongly in this place. In large parts, it is unclear. We have heard that articulated. Nobody knows what is ahead—how it is going to work. It is expected to cause increased unemployment in the sector and is legislating to enshrine an unlevel playing field amongst most advice providers, inappropriately favouring a government friendly business model—the big players. It is likely to cost about $700 million to implement and a further $350 million per annum to comply with, according to conservative industry estimates.

We have suggested some amendments, and I support those. They are sensible in trying to improve what the government has put before us. We will move that the government be required by parliament to table a regulatory impact statement, something that has not happened. It is just extraordinary that you would introduce a bill of this nature and yet there is no regulatory impact statement.

Mr Van Manen interjecting—

As the member for Forde says, it is a breach of the government's own requirements. It needs to be assessed by the government's Office of Best Practice Regulation. We will move that the 'opt in' be removed. We know the problems with opt in. We will move that the retrospective application of the additional annual fee disclosure requirement also be removed. We have heard from the shadow minister just what this is going to do in practical terms. We will also move that the drafting of the best interest duty be improved, that the ban of commissions on risk insurance inside super be further refined and that the implementation of FoFA be delayed to 1 July 2013 to align it with MySuper.

Should the government not agree to these amendments, I fear that it will be even more apparent that the primary consideration of the Labor government with this legislation is to increase the union management—the industry superannuation funds. Unfortunately it will be apparent that that is the driving force behind the government's agenda with this legislation. The parliament should note the current debate about openness and accountability in superannuation funds. I think we would all remember who said, 'Let the sun shine in.' That is not what we are seeing with this bill and it is certainly not what we are going to see with the failure to provide a regulatory impact statement. The Financial Services Council, which represents retail super funds, has proposed new policy which requires boards of super funds to appoint an independent chair—they are out there on the front foot—and to have a majority of independent directors defined as those not employed by the company or the fund. These are sensible proposals. The proposals would also require the disclosure of directors fees and wages of senior management and would prevent directors from holding multiple directorships in different super funds—very practical and sensible recommendations.

Retail funds will apply these rules, but I wonder whether industry funds will do the same. Will industry funds apply the same level of accountability and transparency? It may come as a shock to the many union officials supported by industry super funds, but it really should be a minimum standard for accountability, and we will see whether that prevails. I ask the House to note the recent case of the power struggle between the New South Wales and Victorian branches of the Electrical Trades Union. According to the Australian, the Victorian boss of the Electrical Trades Union, Dean Mighell, is suing ETU's New South Wales head, Bernie Riordan, to reclaim more than $1.8 million in fees Mr Riordan allegedly received while serving on four boards connected with their superannuation funds. It would appear that Mr Riordan's ETU annual wage of $133,000 plus super was allegedly supplemented with as much as $264,625 a year in board sitting fees. The dispute allegedly is that according to Mr Mighell the board sitting fees should be funnelled back into the union coffers instead of Mr Riordan's. That is what is happening with regard to some of the sitting fees, which does raise some questions about the content of the bill before us. We will see what the government genuinely intends.

The Australian financial system, including the value of financial advice, was tested, as we have heard, during the 2008 global financial crisis. In that time of extreme stress, the Australian financial services industry did perform overall very well. Quality advice and timely advice was provided to people at that time. That in no doubt was due in part to Australia's financial services reforms of 2001 that provided such a solid regulatory foundation for our financial services industry. I believe that was well recognised around the world. Not that we should be resting on this because there is more that can and should be done, and we are seeing the industry getting on the front foot and taking even greater responsibility. Our focus should be on improving the process not adding more complexity, more cost and more red tape, because this will amount to higher costs. We know that Australia is already overburdened by regulatory red tape and that results in increased costs for both businesses and consumers, and often for little or no additional consumer protection benefit.

As we know, these bills are supposed to be as a result of a number of high-profile collapses. As the member for Forde frequently says, it was not as a result of advice. I know that the reform recommendations from the Ripoll inquiry to introduce a fiduciary duty for financial advisers require them to place their clients' interests ahead of their own. Whilst the current bill seeks to address this, it does so in a clumsy and heavy-handed manner. Unfortunately, this seems to be a constant theme of this government: to find the wrong answer to whatever question and issue is before the parliament or the government. I note that the Ripoll inquiry observed that the committee was of the general view that a situation where investors lose their entire savings because of poor financial advice is more often a problem of enforcing existing regulations rather than regulatory inadequacy. This goes back to the heart of the issue: advice and regulation. I repeat: where financial advisers are operating outside regulatory parameters, the consequence of those actions should not necessarily be attributed to the content of the regulation. That was what was said in the Ripoll inquiry. The wider community, including financial advisers, agree with the principle of applying a best interest duty, and if those financial advisers whom I meet in my electorate are not doing so on a consistent basis then their clients can and do walk out of the door and go to an alternative source for that type of advice. (Time expired)

Scott Morrison (Cook, Liberal Party, Shadow Minister for Immigration and Citizenship) Share this | Link to this | Hansard source

I am pleased to speak on the Corporations Amendment (Future of Financial Advice) Bill 2011 and the cognate Corporations Amendment (Further Future of Financial Advice Measures) Bill 2011. I join with my colleagues in making it very clear that the coalition will not support the bill as it currently stands. My colleagues have gone into great detail as to the failings of this bill. Before I similarly do so, I think it is important to acknowledge what is really at the heart of these measures that are being put forward by the government.

The government and the Labor movement have always been interested in closed shops. The government have always sought to vilify those who have a difference of view—to vilify them in their statements, to demean their motives in the public view and to basically drive them out of being in any form in competition with their preferred business model. It is no surprise that the unofficial head of the union movement, the current minister responsible for industrial relations, decided—I suspect demanded—that he retain responsibility in his portfolio for these matters. There is an absolute, unequivocal linked agenda in the union motives of the Labor Party between superannuation and industrial relations more generally. This is an industrial issue for the union movement, being led by their key industrial advocate in this place, the Minister for Employment and Workplace Relations. This minister is pursuing the unions' agenda not only in his own portfolio of workplace relations but also in this matter, as he did previously when he was Assistant Treasurer.

The coalition has always seen through the government's motives. We have always seen what they are up to and I think the Australian public is also seeing this. What we are standing for here are some basic principles of choice, some basic issues of transparency and a lack of complexity which will enable Australians to make good choices and decisions about where they want to put their money for their retirement. We want to enable them to have the support and advice to do that in a way that helps them make those decisions, not to have the government impose those decisions on them by default and without any other alternative. Whether it is the government's decision to try to channel more money into industry funds, forcing businesses to pay for additional superannuation by increasing the levy, or whether it is at the other end by narrowing the funnel to ensure that all of those moneys flow into union-dominated funds, that is the agenda of this government. We need to bring that under the spotlight, it needs to be exposed and people need to know what the agenda is.

The package of future of financial advice bills before us today is yet another example of Labor's corner-cutting and heavy-handed regulation. The coalition will not support these bills in their current form. This legislation could be substantially improved if the government were to accept the coalition's amendments and were willing to listen. As the bills stand before us today the package is unnecessarily complicated and convoluted. At best, these bills are obstructive and unhelpful. At worst, they threaten jobs, businesses and consumer choice. The regulatory burden they seek to impose will not afford greater protection. All this legislation will do is tie businesses and consumers up in red tape, strangling competition and choice while driving up costs. It will upend the level playing field our financial advisers have previously had, tipping the balance in favour of a government-friendly business model: the union model. Financial advisers help hardworking people to better calculate and manage the risks they encounter and maximise their opportunities to provide for their own retirement. Advisers also play a very important role—as a business in my electorate has stressed to me—in helping the vulnerable, including the elderly and the ill, to make sound financial decisions.

I received a letter from a gentleman who lives in Sylvania Waters and works as a financial planner. He writes that 'our industry is based on trust and relationships—the trust is earned and then a relationship builds'. He makes the point that financial planners go above and beyond the call of duty to provide quality service and support to their customers, often investing additional hours of work that are not clocked. This is a fundamental issue that I think the government overlook. They overlook the bond of trust and the relationship and also the service that flows from that trust to the consumer. This is a value added service. It has a real value, it is valued in particular by those who demand it in their most significant time of need.

The financial advisers I know turn up for their clients and go above and beyond the call of duty, above considering any payment they may have ever received, to honour the commitment and trust they have formed in that very special relationship. That trust is tested at the most difficult and strenuous time in their clients' lives, whether it is through the loss of a lifetime partner, whether it is through some horrific event that has caused that loss or whether it is a debilitating and tragic illness or something of that nature. At your weakest time you need to rely on someone to look after you and your interests and to ensure that what you have invested in will be delivered to you. Your advocate in that case is not some backroom bureaucrat whom you do not know—thankfully, if you have a relationship such as this—but is the financial adviser who has advised you, supported you and counselled you in a decision and is there to turn up to be your advocate when things are really required.

I note the member for Forde at the table. In his professional life before coming to this place, I am sure the member for Forde could list any number of people—hundreds of people, if not more than that—with whom he has been able to establish that bond of trust. I know that is the same bond of trust that the member for Forde now has with his electors and constituents because he understands the issue of trust and I commend him for it.

One of the clients of the man from Sylvania Waters who wrote to me is a lady with advanced multiple sclerosis. She is fiercely independent and still lives on her own but has to budget carefully to meet the costs of medicines that are not covered in her treatment. Shrewd economic management is very important to enable this lady to maintain her independence. My constituent's financial advice assists her greatly in that capacity. He told me:

… the product will pay us—she can't afford to. We will be paid about $800. Currently I have spent six hours on this job and it will probably get to ten by the time I am finished—my accountant would charge $3000 for this job.

Of course, in these matters there are fundamental elements of trust involved. Advisers are paid to handle the hard-earned pennies of others and there must be transparency and accountability in all aspects of these processes. And it is critical that the industry continues to operate with a regulatory framework that is robust and accountable. But it is crucial that above all a level playing field is maintained for big and small businesses alike and for industry super funds and banks to ensure that competition can thrive, these important services can remain affordable and consumers can retain that all-important choice as to who they entrust with their money. I do not want to see the situation where someone who does not have the means to pay big fees upfront, to get the sort of advice they have been able to access for years, is denied that opportunity because of the passage of this bill. But I believe that will be the result. The bill before us today pretends to give consumers further protections by requiring advisers to act always in the best interests of their clients. Yet it falls short of achieving that very outcome. It is just another smokescreen for this government to cover yet another union agenda. Excessive red tape will only stifle business, driving up costs for operators, which will inevitably be passed on to customers. My constituent fears:

FoFA reform is going to sanitise our great industry. Australians are already under insured and FoFA in its current form will worsen that position and make the ever increasing social security burden even greater—

while at the same time, I note, driving up the value of the funds controlled by the unions. Another financial adviser in the shire agrees that without amendment:

FoFA will cause financial ruin to many advisers—

and individual Australians—

who have helped Australia survive to this point in tough global economic times, through their knowledge, skill and experience advising their clients to act rationally and not impetuously as the current Government has acted—

in the way it has spent taxpayers' dollars.

The dual goals of FoFA should be to improve transparency and improve access to advice for all. The bill before us will not achieve either. In 2009, the Ripoll inquiry was conducted in the wake of the collapse of Storm Financial, Westpoint and Trio to identify ways that risks could be better managed. At the heart of the Ripoll inquiry was the recommendation that a fiduciary duty be introduced to require advisers to place the interests of the client ahead of their own. However, the committee also noted 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.

The report sketched out a comprehensive blueprint to enhance our financial services and the frameworks that govern them, a plan the government could have adopted with bipartisan support. But, instead, decisions on important reforms have been delayed by more than two years and hijacked by the union-dominated industry super funds. My constituent complained that the FoFA consultation process has been influenced by 'powerful institutions who only worry about this year's profit and their bonus'. The government has held off on sensible reform to bluster on with contentious changes like the Industry Super Network opt-in proposal. This treading water has only produced profound confusion, uncertainty and upheaval for our financial services. At the end of two years in the wilderness, the government has presented a cobbled-together package that manages to be both unnecessarily complex and vague.

Evidence before the parliamentary joint committee inquiry into FoFA has confirmed the legislation in its current form will be detrimental to consumers, devastating for financial advisers and damaging for the industry. The government's explanatory memorandum to the bill itself admits FoFA will drive the loss of almost 7,000 financial adviser jobs. There will be reduced choice, reduced competition and reduced diversity across the sector. I suppose they are the objectives that the government are seeking to meet—and it would seem they are right on track. Industry estimates suggest that FoFA has a price tag of $700 million to implement, plus $350 million per year for compliance. Worryingly, the government's own Office of Best Practice Regulation has given evidence before Senate estimates that the government has failed to properly assess the impact of the bills. Jason McNamara said the regulatory impact statements did not contain enough information about the potential impact and cost for the government to be able to make informed decisions, especially in relation to the opt-in proposal.

The coalition does not believe it is unreasonable that the parliament should insist on a proper impact statement. It is imperative that regulatory changes of this magnitude go through the proper process. If the government is not willing to follow best practice of its own volition, it should be incumbent upon this place to insist upon it. The coalition has no problem supporting sensible and considered reforms that would bolster trust and confidence in our financial services industries. We value initiatives that increase transparency and competition and allow consumers the greatest choice. Unfortunately, these bills do not meet those objectives.

I have met with financial planners in my own electorate of Cook to discuss this matter over the course of the government's process. They are understandably angry at the time it has taken since the Ripoll inquiry to make any headway, and even angrier with the tranches of bills that are before the House today. One said to me:

If passed without amendment, FoFA will adversely affect all Australians and their choice, as is their democratic right to quality advice … and create a monopoly for advice because only the large financial institutions (Banks and Fund Managers) and Industry Union controlled superannuation Funds will be able to afford the cost of compliance and cheap advice.

That is called creating a closed shop on these issues, something the Labor Party and the union movement have had at least a century of experience in doing. The concerns that advisers in the shire have raised with me centre around four components of these bills, and their fears have been echoed en masse by their colleagues across Australia. I will focus principally on one of them in the time remaining. The proposal of having to opt in every two years is troubling. There is no other country in the world where a government has sought to impose mandatory requirements on consumers to re-sign their contracts on a regular basis. They say there are two certainties in life: death and taxes. I would argue there is a third under this government, and that is increased compliance and paperwork. Ask anyone on the street; they will tell you the last thing they need is to have to wade through another mountain of paperwork every two years. We should not be turning small businesspeople into compliance officers for a regulation-hungry federal government. We should not be turning consumers into compliant drones of the Labor Party and their union dominated policies, which want to make their financial choices for them. That is why these bills should be opposed.

Natasha Griggs (Solomon, Country Liberal Party) Share this | Link to this | Hansard source

I rise to speak on the Corporations Amendment (Future of Financial Advice) Bill 2011 and the Corporations Amendment (Further Future of Financial Advice Measures) Bill 2011. These bills seek to introduce a framework for financial advisers to ensure they provide Australians with accessible and affordable financial services and advice. The purpose of these bills is to require those persons who are providing personal financial advice to retail clients to act in the best interests of their clients and to give priority to their clients' interests.

In addition, the bill applies existing regulatory mechanisms under the Corporations Act in a more direct manner to individual advisers as well as to licensees. Furthermore, the bill seeks to amend the Corporations Act to enact a ban on the payment and receipt of certain remuneration by those persons providing financial advice, where a potential to influence that advice exists resulting from certain financial products.

There are two bills making amendments to the Corporations Act to implement the FoFA reforms announced by the government in 2010. The first is the Corporations Amendment (FoFA) Bill 2011, which was introduced into the parliament in October 2011. Back in February 2009, the parliament asked the Parliamentary Joint Committee on Corporations and Financial Services to conduct a comprehensive inquiry into Australian financial products and services following a number of high-profile corporate collapses, such as Storm Financial, Trio and Opes Prime.

The first bill seeks to improve the disclosure requirements in respect of fees and services connected with the provision of ongoing financial advice. Additionally the bill seeks to strengthen the powers of ASIC pertaining to financial advisers. Furthermore, this bill seeks to put in place a new obligation on financial advisers, which is that they are to act in the best interests of their retail clients and to put a future ban on conflicted remuneration structures.

The Parliamentary Joint Committee on Corporations and Financial Services reported on these bills on 29 February 2012. In a dissenting report, coalition members of the committee discovered that Labor's FoFA proposals will unnecessarily increase red tape and the cost of financial advice and will reduce consumer choice and competition if passed in their current form. Coalition members of the parliamentary joint committee concluded that the FoFA bill in its current form is unnecessarily complex and unclear.

The financial and advice industry is the provider of valued products in terms of a service which helps Australians to manage their financial health and wellbeing. Financial advisers assist by helping Australians through the mire of financial risk and seek to maximise financial opportunities. In reality, they deal with other people's money, which is why any changes in the financial and advice industry must be supported by an appropriately robust regulatory framework. However, we the parliament must be mindful of the need for change—change to improve the existing landscape, not change which makes industry more complex and costly for all involved. The financial advice industry is in the Northern Territory no less than anywhere else in this wide brown land. More and more, the average Territorian is required to seek out the services of this sector, which are necessary to manage and obtain the very best long-term advantage for the management of their own futures. Home loans, insurance and super are all basic commodities in this day and age, which most of us just assume are provided with our best interests at heart. I am by no means full bottle on the products I use. I rely upon services of the financial services sector to steer me in the right direction and keep me on the correct path. I have a background in business and am familiar with financial systems. Sadly, I have learnt the hard way about conflicted remuneration structures. If, with some level of business acumen, I have difficulty, then how is the average person expected to understand without the assistance of exponents within the financial services industry?

The review undertaken by the Parliamentary Joint Committee on Corporations and Financial Services, the Ripoll inquiry, made a raft of well-considered and reasonable reform recommendations, providing a blueprint for the government to move forward. However, over the ensuing two years the value of these recommendations has been usurped and clear direction has been lost. As a result, we find the bills currently being debated today a piecemeal offering and, unless amended, untenable legislation which would seek to increase costs and red tape for both business and the consumer.

It is disappointing that such delays have occurred, particularly for an industry that has such an important function to perform within our society. This legislation has the potential to reduce consumer choice and competition if approved in its current form. The coalition cannot support the FoFA bills in their current form. Therefore the coalition will be moving a series of amendments with the express purpose of addressing some of the current flaws. Our initiatives include a recommendation that the parliament be resolute on the preparation of a proper regulatory impact statement that complies with the government's own best practice regulation requirements. The RIS must be compliant with the government's Office of Best Practice Regulation and be tabled in the parliament before the legislation could be further considered.

The coalition would also recommend removing the government's opt-in proposal. This addition is outside the recommendations of the Ripoll inquiry and proposes to impose a mandatory requirement for all consumers to re-sign contracts with their financial advisers on a regular basis—a measure that will have the likely result of significantly increasing red tape and costs for both planners and consumers.

The coalition is also recommending an amendment to the current draft of the bill relating to the best interest duty, to improve clarity and certainty about its application. Further, inclusion of this measure in the Corporations Act is supported, but this must occur following the correct drafting necessary to remove any confusion and ensure understanding.

Proposed section 961B(2) of the Corporations Amendment (Further Future of Financial Advice Measures) Bill 2011 defines a set of comprehensive steps designed to provide guidance to advisers, yet its subclause (2)(g) allows for any other steps that would reasonably be regarded as being in the best interests of the client. We believe that, if other steps exist, then they should be included in the legislation, not left as a point of confusion or misinterpretation. Without change, this amendment creates uncertainty—uncertainty that will result in test cases before the courts. The coalition also recommends the removal of the retrospective fee disclosure statements. There was no reference to this in the Ripoll inquiry that recommends the introduction of an additional annual fee over and above the current regular statements already provided by the financial service providers to their clients. The coalition concludes that in this instance retrospective fee disclosure adds no additional consumer protection benefit and will introduce further increased costs, ultimately costs that will be passed onto the consumer.

It is estimated by the Financial Services Council that the implementation cost will be around $700 million; the council has suggested that the cost per client for fee disclosure would be halved if it involved only new clients and summary information. Inevitably, any costs associated with implementation of any amendments will be passed on to consumers. The current piecemeal approach is yet another example of the very poor consultation process engaged in by this government. What started out in such a positive manner has devolved to a point where, unless further amendments are made, this suite of proposed changes cannot be supported.

In terms of superannuation, the coalition recommends that, until further refinements are made, a ban of commissions on risk insurance inside super should be in place. Coalition committee members support the banning of conflicted remuneration structures—for example, product commissions within the financial services industry— and we praise the industry for taking a proactive stance to abolish such conflicted remuneration structures. However, it is our stance that commissions paid on advised risk insurance, be they group policies or individual policies, inside or outside superannuation, are conflicted remuneration structures. Banning commissions in this instance has the potential to increase costs for consumers, remove choice and leave many people worse off—especially small business people who self-manage their super.

We the coalition further recommend the implementation of FoFA be delayed from its current due date of 1 July 2012 to 1 July 2013. The existing time frame of now four months is manifestly inappropriate and untenable for industry. Projecting the commencement date of any changes to 1 July 2013 or at very least legislating an introductory time frame to give industry the opportunity to implement change over that comparable time frame is paramount. This date also aligns change with the proposed MySuper. It would make sense to implement FoFA and MySuper simultaneously. FoFA involves significant and expensive changes that would result in large changes to IT systems and adviser training. Rushing the implementation and putting pressure on the industry to act will result in mistakes and inefficiency, which longer term will result in extra costs that are ultimately borne by the customer. We therefore commend to the government that to overcome the potential difficulties with adhering to a manifestly inadequate time frame, this bill, once amended, should not commence until 1 July 2013.

Like many of my colleagues, I have received correspondence and calls from constituents who are practitioners within the financial advisory sector over the past few weeks. The calls from each and every one have been the same. This legislation has fundamental support in terms of intent; that is, to improve the level of transparency within this sector and to broaden access to financial services; however, those in the industry that have contacted me do not support this bill in its current form and without critical amendments. I have been reminded, as a result of these contacts, that the Prime Minister is on the record as saying a key priority for the government is to slash red tape. Need I say any more? We know she does not have a good track record with keeping her promises. This bill, however, will see added complexities, paperwork and red tape for the sector, ultimately resulting in increased cost which will be passed on to the consumer.

In conclusion, the coalition agrees to move amendments to the Corporations Amendment (Future of Financial Advice) Bill 2011 and the Corporations Amendment (Further Future of Financial Advice) Bill 2011 consistent with the 16 recommendations made in the dissenting report of the coalition members of the Parliamentary Joint Committee on Corporations and Financial Services. We will oppose the Corporations Amendment (Future of Financial Advice) Bill 2011 and the Corporations Amendment (Further Future of Financial Advice Measures) Bill 2011 if these amendments are not carried.

Kelly O'Dwyer (Higgins, Liberal Party) Share this | Link to this | Hansard source

We have a Prime Minister and a Treasurer who have said repeatedly that 'lifting productivity is essential to the nation's prosperity'. Yet in the Corporations Amendment (Future of Financial Advice) Bill 2011 and the Corporations Amendment (Further Future of Financial Advice Measures) Bill 2011 we are debating yet another set of government bills that will increase administrative burdens, increase compliance costs and, consequently, decrease productivity.

You must always look at not only what the government says but what the government does through its actions. We on this side of the House, as has been so eloquently put by many of my colleagues, have some serious concerns about this legislation. There are five key areas in which we think the legislation is flawed. Firstly, the legislation is unnecessarily complex and, in many parts, unclear. This in and of itself leads to uncertainty and increased compliance costs. It contradicts the government's claims of a productivity agenda, because, in being so unclear, it will lead to many unintended consequences.

The Association of Financial Advisers have identified proposed sections 961B(2)(g) and 961E as creating uncertainty with respect to the best interest duty. They are concerned that the legislation is so unclear that it will inevitably have to be tested in the courts. This will lead to increases in professional indemnity premiums and, as they point out, 'lead to uncertainty in the application of the transitional agreements that will negatively impact on the value of advice practices'. Obviously, with any increase in professional indemnity premiums, any uncertainty will lead to increased costs for consumers who use the advice of financial advisers.

We think it is very important that Australians be given the very best financial advice. When we were in government, we believed very strongly that consumers needed a strong and transparent set of arrangements that would provide them with the information that they required to make decisions about their own financial future and the products that they purchased. Financial advisers are very important to the wellbeing of so many Australians who rely on their expertise to be able to make decisions about their future and the future of their families. We want to arm Australians with the ability to provide for themselves and for their families. So to put financial advisers out of reach of so many consumers by increasing the cost seems to make very little sense. Secondly, for a government that says it is all about jobs, jobs, jobs, it is pretty clear that the changes as a result of this legislation will lead to massive job losses in the financial services industry as firms try to adapt to the increased costs. The parliamentary joint committee heard testimony from Mr Craig Meller, Managing Director of AMP Financial Services, that these measures could result in as many as 25,000 job losses in the industry. Mr Richard Klipin, CEO of the Association of Financial Advisers, was even more pessimistic, estimating that up to 30,000 job losses would result. Yet this is not something we have heard about from those on the government benches. This does not seem to be a consideration for them.

We cannot forget that many people who are involved in the financial services industry are themselves small business men and women who have risked their own capital to set up a business, to use their expertise, to employ others and to provide advice. This legislation, as I have said, could result in many significant job losses, which does concern us on this side of the chamber.

Thirdly, the bill will legislate what many describe as an unlevel playing field amongst advice providers. As the dissenting coalition report suggests:

… the disproportionate increase in costs to the industry and consumers, the reduction in the number of financial advisers in Australia, the associated additional job losses and the further concentration of financial advice services providers will have detrimental impacts on the cost, availability and accessibility of financial advice across Australia.

Financial advisers have themselves said that they are concerned about the potential decrease in competition in the industry—and competition, as we all know, is incredibly important for consumers. It is through competition that consumers are able to get the best deal and it is through competition that many advisers have to ensure that they are providing the very best advice and service for those consumers.

The fourth point I would like to make today relates to the opt-in provision. We are concerned that the opt-in provision is seriously flawed and not based on any logical or empirical evidence. In the dissenting PJC report it was noted that there was only one submission to the Ripoll inquiry, from the Industry Super Network, arguing in favour of the opt-in provision. The Ripoll inquiry then refused to accept that recommendation, yet the government, in its infinite wisdom, decided that it would defy those findings and set a world-first precedent. This does concern us. I would like to directly read into my speech today a letter that was received by me from a financial provider in my electorate, who specifically notes these concerns. I will quote directly from him. He says: 'A particular concern to us is the direct cost that the opt-in obligations will have on our business. In April 2011 our business was unable to replace a departing employee due to the ongoing contribution of the GFC to our operations. With over 600 active clients, we are now faced with an annual cost to administer opt-in, which has been estimated at up to $120 per client per annum. This could potentially be an additional cost to our business of $72,000 per annum.' This drives up the cost of advice and reduces the opportunity for many within our community to access professional advice services which would otherwise enhance their years in retirement. Noting the increased cost, as I have said before, is something that concerns us and it is something that we think the government has not fully thought through. We think, like so many of the government's pieces of legislation, like so many of the announcements made by this government, they have a thought bubble which they then legislate on. This is no different.

Fifthly, this legislation will greatly increase compliance costs, with evidence given by the Financial Services Council that suggest it will cost up to $700 million to implement in the first year alone followed by $350 million in each additional year. This is, indeed, a massive increase and is completely in contrast to the Prime Minister's calls that she will be addressing red tape and regulation through her belated formation of the so-called deregulation forum, which I note follows a deregulation task force announced by Tony Abbott in December last year, of which I am a part and which is led by Senator Arthur Sinodinos AO.

I have some advice for the government: if you want to reduce red tape then it is very flawed to introduce bills such as this. It is yet another example of the government saying one thing and doing something completely different. This seriously flawed legislation needs immediate attention before it is put to a vote. The coalition, led by so capably by the shadow Assistant Treasurer, Senator Cormann, has outlined many vital recommendations that need to be adopted before the passage of this bill should be contemplated.

This bill must undergo a full regulatory impact statement that complies with the government's very own Office of Best Practice Regulation. According to the dissenting report:

According to the government's own Office of Best Practice Regulation, the government did not have adequate information before it to assess the impact of this bill on business and consumers or to assess the cost-benefit of the proposed changes.

This is a pattern that has formed with this government. It does not assess the impact of the changes that it is making and it is ultimately the consumer, the everyday Australian, who pays. When quizzed at a Senate estimates committee, the executive director of the OBPR, Jason McNamara, admitted that the government did not have an adequate regulatory impact statement in front of it when it made the changes.

We know that the minister, Bill Shorten, has admitted that the commencement date that he was trying to force the industry to meet was completely and utterly flawed and he has had to admit this failure and push it back. As we have argued consistently throughout, we believe the commencement should be at the same time as the My Super changes, and that the rushed introduction of the bill simply did not allow industry sufficient time to adjust to the changes—again, adding to administrative costs.

The opt-in provisions must be removed. There is no other marketplace in the world whereby an opt-in process is implemented. Forcing customers to consistently re-sign contracts is not only cumbersome to the customer but adds huge levels of administrative cost to financial providers. There is no doubt that the increased regulatory and financial burden of opt-in mechanisms far outweighs any supposed benefit it may provide. It simply cannot be explained why, if this is such a brilliant measure, we are the only country that is contemplating introducing it. We are also incredibly concerned about the retrospective nature of this bill. As it stands, the annual fee disclosure statements would be applied retrospectively, again adding huge administrative costs with very questionable consumer benefits as outcomes. As a principle, we on this side believe that an incredibly high threshold needs to be met to be able to apply legislation retrospectively. We think, as a matter of principle, or as a rule of thumb, this should not occur for fairly obvious and good reasons. Yet this is a very common occurrence with this government—that it seeks to impose retrospective legislation to implement its program.

I have much more to say about this bill, but let me simply conclude in the time remaining by saying we are very keen to ensure that consumers have appropriate financial advice provided to them. We are very keen to ensure they have appropriate transparency. We do not think that this bill will in fact assist without significant changes. We think it is inherently flawed and we think the minister himself is responsible for bringing forward a very flawed bill.

Alex Hawke (Mitchell, Liberal Party) Share this | Link to this | Hansard source

It is a pleasure to follow the member for Higgins's fine contribution about the flaws in the Corporations Amendment (Future of Financial Advice) Bill 2011 facing the chamber today. Fifteen minutes is certainly not enough time to go through the problems that the sector will face with the proposals the government has put forward today. It does, however, follow the precedent set by this government, as the member for Higgins pointed out, of not consulting and embracing the sector which they are seeking to regulate. The government is not listening to their suggestions, not taking account of their concerns and not providing a reasonable framework for the sector to be able to have input to the proposals of government. This is a dangerous way to do legislation. I have spoken about this in this place before. Sector after sector in the economy today is asking, 'Why won't the government speak to us about the legislation that they're proposing?'

Here, with these Future of Financial Advice bills we see before us, again the sector are saying that they are not satisfied in any way with the legislation, that the time frames are completely unreasonable, that the implementation of it will be unworkable and that it will have serious detrimental effects on the operation of their sector—par for the course, under this government. Whenever this government has the choice between overregulating or letting off more lightly, it overregulates. If the choice is between more complex or less complex, it says, 'Let's be more complex.' The complexity of this particular set of proposals before us is substantial. When smart financial advisers and operators tell us they cannot understand what the proposals mean, how they will operate and whether they will be effective or not, I take it very seriously.

In my electorate of Mitchell, in the Norwest Business Park, I have hundreds of financial service based businesses, mostly small and medium businesses advising small numbers of clients. These are the businesses coming to see me with great concern about how these proposals will not only threaten the viability of their business, potentially putting them out of business, but also favour the big players. It is another theme we see under this government. It is another narrative that is building—favouring big players in every sector, crunching small businesses and crunching the ability of a business to go from a small to a medium to a large business. It is very much what will happen under this legislation, which is complex and, in large part, unclear.

My colleagues have commented on many of the flaws in the proposals, but I would like to point to something that I have spoken about in this place before and that is the concept of financial literacy. Financial advisers have a key role in this domain of increasing and enhancing financial literacy in Australia today. We see from this government continued proposals that undermine the concept of making a person more financially literate and more responsible for their own finances from a younger age right through their lives to an older age following through to superannuation. This bill, which will remove the ability of an adviser to fairly operate, will lead to lower rates of financial literacy. People will seek less advice; people will be underinsured; there will be greater rates of underinsurance. The very things that a government should be seeking to enhance and expand, this bill undermines.

These broad themes are very important for the parliament to understand. That is the feedback we are getting from the sector. That is the feedback I am getting from the businesses in my electorate. We ought to be taking measures to enhance financial literacy and education and that should be a focus of this parliament, not overregulating and overburdening the sector with unnecessarily complex proposals and regulations. We know that these proposals come out of the 2009 Ripoll inquiry and report which followed a series of financial collapses, of which Storm and Westpoint are examples. We know that in 2009 a series of recommendations were made. What I think is a fine dissenting report was put together by the committee's coalition members. Indeed, Senator Sue Boyce, Senator Mathias Cormann, Mr Paul Fletcher and Mr Tony Smith are to be congratulated on what represents a very substantial dissemination of the flaws in the two bills that are before the chamber today.

It is not just a matter of the costs referred to in their report—the $700 million of implementation costs, the $350 million per annum compliance costs—although these increases are of course very substantial. It is the basic nuts and bolts of the proposals that the government has in these bills, including opt-in requirements, that I think are completely unworkable. An opt-in requirement is something that has not been tried in any other major market in the world today.

With the mining tax we have seen an experimental form of taxation that most tax experts said, 'This is a radical experiment, a departure from all normal forms of taxation'. Now once again we have the government experimenting with a radical model of opt in for the financial services sector that nobody is calling for and nobody is recommending. Indeed, it has the potential to lead to some very undesirable outcomes when customers who have not responded and who think they are covered by advice, after the 30-day period will no longer be covered under an opt-in requirement if they do not respond. So I do not see why we would proceed down such a radical and experimental path when there is no call from any major sector for us to be doing such a thing.

When you look at more than the nuts and bolts you will see other problems with these bills. The member for Higgins spoke eloquently about the retrospectivity aspect, requiring in essence all businesses in this space to go back and seek permission for things that they have already done and advice they have already issued. This is a bizarre notion. I have spoken here about the principle of retrospectivity in law where it is not to the benefit of people or industry sectors, and I think that we should not be requiring this sector or these customers to take retrospective action without a very good reason. Once again that principle appears to be missing from what the government is doing to justify this legislation. It goes back to what we have heard throughout this debate, in which the industry sector has said that there will be thousands of job losses from this legislation, that compliance costs will be immense. Why are we not listening to the very sector that we are seeking to make regulations about? Why are we being punitive and heavy-handed? Why, in relation to government legislation and the government's approach, are we using the stick all the time and not the carrot?

I have received a lot of correspondence from businesses in my electorate, from financial sector services around the country and from various associations, including the Association of Financial Advisers. Their comment is very interesting to note, and I want to read it into the record:

Our view is that FoFA, as it is currently drafted, delivers neither improved transparency or increased access to advice. Minister Shorten has stated on a number of occasions that FoFA is a growth strategy for the financial advice industry and also that there is broad industry support for FoFA. In fact, the financial service industry has many concerns with the current draft of this legislation, much of which has been recognised and addressed in the coalition's dissenting report.

That is from the Association of Financial Advisers, so is why Minister Shorten telling the public that he has broad industry support for this legislation when clearly he does not? Even listening just to the small and medium enterprises in the sector in my electorate, it is obvious there are real, justifiable and graphic concerns with the proposals that the government is outlining. They are concerns that should be addressed by the government and not by the constant Orwellian doublespeak from ministers that, 'Oh well, everything is going to be great, businesses will be better off and we have the support of the sector'—which clearly they do not. Another aspect of the FoFA legislation before us that was not recommended by the Ripoll inquiry, but which somehow has got in, is those retrospective fee disclosure statements that I have mentioned. I have a big concern with this because, when we were speaking about what the association and the industry expects, the government said specifically to the sector that they would not introduce retrospective disclosure statement requirements. It was a commitment, a promise, and we have heard much made of this in recent years. Again, this is why the opposition is so vehemently opposed to this legislation as currently drafted. You cannot provide business certainty when you tell the sector that you are not going to do something and then you go ahead and do it anyway, regardless of what you have said that you would do and regardless of what the sector wants.

In relation to retrospective fee disclosure requirements, the government gave their intention: they said they would not do it. It crept into this legislation, and before us today we have retrospective fee disclosure requirements. If you are operating a business in this sector, you do not have that certainty that you need to operate your business. You are facing now, I think, onerous and complex legislative burdens that will not only add to your compliance costs but also undermine the relationship between client and adviser which is so critical in this financial services space.

We have heard from many coalition speakers about that relationship. This is an enterprise that is built largely on trust between the financial adviser and client. The government's overregulation here is seeking to undermine that essential component of the success of these businesses. Why? We hear that there will be thousands of job losses. When you remove the concept of trust from these relationships, it is difficult to see why someone would take financial advice—when they have to continually opt in to a service, when they have to constantly be advised.

No-one is suggesting here that there should not be regulation in this space or that there should not be quality and valuable regulation. In fact the industry itself accepts it. But what we are saying is that this legislation, in the way it is drafted, is not adequate. I do not think it is unreasonable to say that when you see that the government's Office of Best Practice Regulation said that this was not adequate and not up to its own standards of compliance. That is the most damning feature of all. The Office of Best Practice Regulation said that it was concerned about the ability of this legislation to meet the government's own standards and rigorously assess increasing costs and red tape for both business and customers and that the government did not have adequate information before it when it drafted FoFA. That ought to be of concern for the government. They ought to pause there and say: 'We have already delayed the implementation of this legislation to date. We now have unrealistic time frames built into this legislation that the industry say cannot be met.' John Brogden said that it does not matter when the parliament passes this legislation; they cannot under any circumstance meet the 1 July 2012 deadline. The government ought to pause and re-examine this legislation and consider the opposition's amendments which Senator Cormann has put forward, I think very realistically, to improve the quality of this legislation and limit the damage to this vital sector for our economy.

We know that the 1 July 2012 time frame is completely unrealistic, and there is another issue that is related—that is the changes proposed here by the FoFA legislation and MySuper. It would make sense, you would think, when you are talking about businesses in a serious sector like this, to implement such massive technological changes and complex regulatory changes at once, to limit the amount of expenditure that businesses would have to make. It is symptomatic of this government's chaotic approach to legislation and to handling different sectors of the economy that they are seeking to ensure these dates are not together and that these very substantial implementation changes are not going to be done concurrently.

It is completely sensible that the coalition is calling for the implementation date of this legislation to be put forward to 1 July 2013, and we are seeking those amendments genuinely. Listening to the sector, that is only reasonable and rational. The industry cannot meet the deadlines imposed by this legislation, so it ought to be amended and redrafted. But what you tend to get from this government, as we have seen time and time again with its legislative approach, is that it does not matter if a piece of legislation is weak, if it is drafted inadequately or if it does something bad to the sector, it says: 'Let's just push it through parliament and we'll come back months or years later to try to fix it, add an amendment or do something later.' This is the stage at which the government should be listening to the industry. Any small or medium sized financial business in the country today would tell them this legislation is unworkable, complex, chaotic and unnecessary. It will deliver high regulatory costs to their business and limit their ability to provide financial advice to their customers and clients. If the government were serious it would look at these amendments seriously and adopt them. We know that the Minister for Employment and Workplace Relations is not serious about improving transparency and the quality of financial advice in Australia today. We know that he is the minister for unions and is acting in the interests of unions at the expense of small and medium sized enterprises around this country. Thousands of small businesses will tell you they will suffer increased costs and job losses under this retrograde legislation.

Jamie Briggs (Mayo, Liberal Party, Chairman of the Scrutiny of Government Waste Committee) Share this | Link to this | Hansard source

It is a pleasure to follow the member for Mitchell and what I thought was an outstanding contribution to this debate on the Corporations Amendment (Future of Financial Advice) Bill 2011 and cognate bill. Like him, I have had numerous small businesses—the people those on the other side do not like to hear about—contact me in the last little while to make the point that this is flawed legislation and should not go ahead in its current form. They have also made the point that the amendments proposed by the shadow Assistant Treasurer, Senator Mathias Cormann, should be considered by this parliament because, like much of the work Senator Cormann does, these recommendations are based on the reality of the situation, not just the political vested interests which the minister responsible for this is constantly and forever in pursuit of. The 'Minister for Vested Interests' is all about making sure that people in protected positions in this industry—namely, the industry super funds—are the best looked after. And the protections put in place by the minister in this legislation will increase the cost for consumers. It will be under the basis of 'being fair and protecting people'; it will be under the usual Labor Party pretence that they are trying to look after the small guy. But this legislation will make it much more expensive and difficult for consumers to get the advice they need.

The member for Mitchell eloquently outlined the importance of financial literacy in Australian society. Financial advisers, particularly those small businesses based in communities and accessible to the consumer, get access to that financial advice from people who are expert in the field and are able to provide that advice. What the Labor Party and this minister will have you believe is that somehow a piece of government legislation will protect people from making a bad financial decision. They will have you believe that you can create legislation which protects people always, that you can protect people against a bad employer, that you can protect people against a bad financial decision. This is the nanny state at its worst. Ultimately, the terrible examples that we have seen where people have lost money have occurred because they have been given inappropriate advice. The Ripoll inquiry in 2009 observed that:

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.

That is absolutely spot-on, because ultimately this legislation is based on the premise that a piece of legislation can stop people from making the wrong choices. Therefore we see this massive overregulation, which was outlined by the member for Mitchell quite well, on which even the government's Office of Best Practice Regulation, which is a bit of a joke term in itself, made the comment that in their view this was inappropriate legislation and far too great a regulatory burden. It is a regulatory burden particularly to those small businesses out there who are trying to help their local communities and their consumers understand their financial future better.

We need Australians to better look after their financial future. We have significant cost pressures coming at government services, which was so well outlined by the best Treasurer this country has ever had, Peter Costello, in the Intergenerational report, where he highlighted the details of how much extra spending will be required for the Commonwealth and the states to deal with the ageing population. He also made the point that the revenue implications of a reduced workforce as the baby boomers retire will make it harder for governments to meet what they should do and do well at a minimum. That is why ensuring that Australians have their best financial interests at heart and are planning properly so they can be sustainable in their retirement is such an important goal. There should not be legislation that makes that harder. There should not be legislation which operates under the premise of protecting people from themselves while making it more difficult for that to occur.

I mentioned at the beginning of my speech that this bill inevitably—and it is the case with so many of the superannuation bills before the parliament—is designed to favour people the minister is more particularly inclined to agree with when it comes to these matters. It is no coincidence that the Prime Minister ensured during the last ministerial reshuffle that she kept employment and workplace relations together with financial services and superannuation under the same portfolio. You might wonder what the connection is. It is unusual; it has not been done before. Financial services has usually been in a portfolio outside of workplace relations. This time they have been combined.

You can see that this bill, like two other bills before the House at the moment, is about ensuring that the protected and privileged position of industry super funds in this space continues. There are provisions in this bill which make it much better for the industry super funds at the expense of the small providers. We see it with other pieces of superannuation legislation before this parliament. And you know it is true because these issues were raised last week by the Leader of the Opposition—appropriately, because it is something we will be pursuing if we are fortunate enough to be elected to government. This close link between industry super funds, unions and the Australian Labor Party needs very close examination. There will be—

Ms Rishworth interjecting—

No, there is the old industrial club. There are employers organisations, absolutely.

Sharon Grierson (Newcastle, Australian Labor Party) Share this | Link to this | Hansard source

Order! Member for Mayo, refer your remarks through the chair. The member for Kingston!

Jamie Briggs (Mayo, Liberal Party, Chairman of the Scrutiny of Government Waste Committee) Share this | Link to this | Hansard source

I make no deference in that respect. This is an issue we will continue to push because there is a sensitivity. You know there is a sensitivity because, on the very day that the Leader of the Opposition made some very calm comments, the President of the Australian Council of Trade Unions was out there trying to blow up the whole thing. It is a very sensitive issue when it comes to what these people are doing with other Australians' superannuation entitlements and how it will affect their financial security in the future. This bill makes it worse, it has to be said.

The provision which needs to be closely examined, and Senator Mathias Cormann has done some very good work in this respect, is the opt-in provision. This is where the favour is returned to the industry super fund network. We know that because the only people during the Ripoll inquiry who argued for opt-in were the industry super network. They were the only group of people who argued for it, but somehow they became a major base of the legislation. They became a major point in this legislative reform. Somehow this opt-in provision, which, of course, benefits big advisers to the detriment of small advisers, became part of this reform. This has to be changed, absolutely. This is one of the major reasons the coalition will oppose this bill, unless the Labor Party and this minister wise up and adopt our proposed amendments. Our amendments will make this bill workable. They will create a reasonable piece of legislation, which is what the industry wants. I am sure many members have received their small business financial advisers' views on this, and they are one and the same. They all say, 'Please, don't tie me up in this red tape. Please, don't drag me down and try to stop me from doing the job that I have been pursuing as an entrepreneur, as a small business person and as a skilled artisan in this field, helping fellow Australian consumers understand their financial obligations and opportunities better.' This piece of legislation does the exact opposite. It seeks to favour the big over the small. It seeks to favour friends over those who are not friends of the Australian Labor Party.

It is a real shame that this piece of legislation has come to this parliament in this way. That is why we oppose it. That is why we say there is a better way to deal with this in the future. But, as I said, this is so consistent with what the Australian Labor Party is doing in government. For instance, we see a start-up date, as the member for Mitchell and the member for Higgins so rightly outlined, which is far too quick. With the industry screaming and saying, 'We can't possibly do this. We can't possibly achieve this start-up date,' this legislation, at the very least, should be put off to take that into account so that the industry can deal appropriately with the red tape nightmare that is being thrown their way.

I say again that the coalition opposes these bills. I congratulate Senator Mathias Cormann on the great work that he has done in this area. I urge the minister, who has so many vested interests, to reconsider the pursuit of this and the pursuit of small business which is making it more expensive for Australian consumers and putting at risk their financial security in the future as it becomes harder for them to get advice. This is too important an area to play politics with, and that is what this minister is doing. It is a great shame. The bills should be opposed.

Debate adjourned.

Sitting suspended from 13 : 02 to 16 : 00