House debates

Wednesday, 27 August 2014

Bills

Corporations Amendment (Streamlining of Future of Financial Advice) Bill 2014; Second Reading

11:26 am

Photo of Bernie RipollBernie Ripoll (Oxley, Australian Labor Party, Shadow Minister Assisting the Leader for Small Business) Share this | | Hansard source

I always appreciate the opportunity to speak about the Future of Financial Advice more broadly, and I particularly appreciate the opportunity to speak on this particular amendment, the so-called Corporations Amendment (Streamlining of the Future of Financial Advice) Bill of 2014. What this bill will, unfortunately, do is significantly weaken the Future of Financial Advice reforms, which were put in place by the former Labor government. They were significant and important reforms that dealt directly with restoring a culture of faith and trust in the financial services sector, consumer confidence and consumer protection. They were a very important stepping stone and building block for what can be for Australia part of a financial services hub in the Asia-Pacific and part of a very important and growing services based industry and jobs creator in the country.

But, unfortunately, this bill is just another example of how unfair and out of touch this Liberal government is. It is the Liberal government that has created uncertainty, unfairness and fear, for both consumers and the financial services sector, and for small businesses that operate within it. This bill destroys a range of consumer protection measures in financial advice and is very much retrograde.

There has been a long process around the introduction of this bill, not because of careful consideration or consultation or stakeholder involvement but just because it has been shambolic. The government have lost or sidelined ministers in relation to this bill. They have not been able to manage themselves or manage the process of changes to FoFA. They have struggled with maintaining a consistent position. They have struggled for a comprehensible and even understandable position in the Senate. They have cut deals left, right and centre just to get something through the Senate and are now bringing this complex and already out-of-date bill into this House.

The fact that fewer than 10 members opposite want to actually speak on this bill shows the level of concern in the community around what the government is doing. It also shows the concern of the rest of the coalition—apart from the 10 who plan to speak—about being associated with these changes. I can assure the parliament and people listening that there is a great deal of community concern, for very good reason, about weakening consumer protection in this area. Very unfortunately—and very much lagging behind the FoFA reforms that Labor put in—we continue to see the exposure of bad behaviour. So, before we examine the specific changes in this bill, I think it is important to go through and remind the House of what is actually being changed by this amendment.

Labor's FOFA reforms were introduced in the wake of significant collapses. To name a few—let's say for argument's sake the straw that broke the camel's back—there were the collapses of Storm Financial and others. Storm alone was 14½ thousand clients who either lost all of their life savings with no opportunity to regain those life savings or lost most of their life savings and superannuation. There were many others in the subsequent parliamentary inquiry into financial advice products and services that ensued and the really good bipartisan report, which led to the opening. That was the first step in saying there is a real problem out there in the community. It has certainly been identified by Labor, the Liberal National party, people in the House and Senate, and the community. It was incumbent on the government of the day—a Labor government—to do something about this, and we did.

Labor's FOFA reforms were introduced and were the most significant reforms in financial services for a generation. They included several measures designed specifically to protect investors and consumers, help the industry professionals and help the industry lift a standard which they themselves desperately want, need and should have the opportunity to do. Even though there will be some resistance and change is always difficult—I understand change is difficult—Labor went through a thorough, inclusive process with the community and with stakeholders. Over a five-year period it delayed a hard start to some of the more significant and technically difficult or challenging parts of future of financial advice reforms and allowed for a soft start for 12 months. I think we demonstrated in government our willingness to work with the sector to understand what the sector needed, wanted and deserved. We worked very hard and made many compromises but made sure that the key elements—the core of what FOFA was about—were protected.

It revolved very much around a client's best interests. One of the important elements around that was the opt-in provision. The term may have been demonised by some, particularly in the Liberal Party, who took the opportunity to take the voices of a minor few and demonise what opt-in means, but for any ordinary person opt-in requires an adviser to get your permission for them to continue to take money out of your account for advice they are providing into the future. That is a normal part of life and an expectation we all have as consumers. If somebody is going to take money out of my account, I would like at least the option every once in a while to be reminded of it and agree—opt in—that I want to continue that relationship with my adviser because they are actually communicating with me in some particular way. Once every two years is not a big ask for somebody to opt back in and say, 'I really like what you're doing for me and I think that, yes, you can continue to take money out of my account.'

What is not fair and what consumers do not want is somebody to take money out of their account for a service they are not providing. None of us want that. If the Liberal Party want that then they are living in a very parallel universe. Annual disclosure was the subject of FSR reforms and a whole range of other things that have gone through this House in the past, and disclosure is absolutely important and essential, but let's not misunderstand or misrepresent disclosure, because it is not the solution to quality advice. Often what has happened in the most recent past is that disclosure has become a problem in itself. You can disclose so much and provide documents that are so lengthy that what happens in practice is no-one reads them. As we know from the sector and from everyone involved, it is a trust relationship. You trust your adviser. If your adviser says all these complex things and then tells you what you ought to do in the end, what most people do is say, 'Okay; if you say so.' Then they sign the 80-page documents and go through the rest of it. No-one reads it. It is unfortunate, but that is life. So proper annual disclosure of what you get for what you pay for and what it actually contains is an important part of that and really in the end is no more burden on small business or the financial services sector than what they already do—the disclosure they already provide. It is about continuing the importance of that relationship between a client and adviser.

At the top of that pile—best interests, obligations and a range of things—was the conflict of remuneration. There is no question that commission based selling of products—not advice—played an enormous role in the destructive, poor behaviour of some in the financial services sector, which led to a whole range of collapses and losses. There were catastrophic impacts on people's life savings. You have to remember what we are talking about here. I know there will be some Liberals who will want to shout at me and accuse all sorts of things, but you have to remember who we are talking about. We are talking about mostly ordinary Australians—mums and dads—who have worked their whole lives, saved judiciously and come to a point of retirement. When they are most vulnerable, to have a catastrophic event in your life which means you lose your life savings means you cannot rebuild. That is something this parliament always ought to be concerned about and always ought to be doing something about to protect those innocent people. If we do not do it, there is nobody else.

They end up on a big heap of people who come to our offices—and I am sure ministers on the other side now and when they were in opposition have sat in many meetings with real people crying real tears of devastation for their family because they have lost their life savings not because they made a mistake, not because they were greedy, not because they wanted more than they were entitled to but simply because someone took advantage of them. Somebody sold them a product or products which they should not have been in and placed them in a financial position so devastating that they cannot rebuild. They cannot be compensated. There is nothing that is left for us as parliamentarians to do to help them other than to have a modest safety net called the aged pension system. While I think that is a great system and one of the best in the world, it is not a solution to these problems. But FOFA is. It is not 'the' solution; I do not know that you can ever completely carve out all bad behaviour, but I think you can go a long way to doing it. I think there is lots of evidence. In fact, there are insurmountable mountains of evidence that demonstrate what the course of action should be, how it should apply and what in the end will be of great benefit to the financial services sector itself, to small business and to the way that we receive quality advice rather than being flogged a product. I think all of these things are really at the core.

I am happy to listen to criticisms from the other side and all sorts of accusations, shouting and the usual stuff that is designed to deflect away from the real, central point of what this is all about: that ordinary Australian couple and their most vulnerable years at retirement, when they are at their riskiest point in life, let alone if they are in their 40s or 50s.

During the reform process, over many years, there was extensive and very intensive industry and public consultation clearly identifying a path to achieve growth, protect consumers and restore trust. To some extent that was already achieved by FoFA. Changing the culture over the past 20 years is not easy, but you can work toward that. I understand changing culture and behaviour is really difficult. It is almost impossible to write it down in a way that makes sense, but certainly FoFA did a lot to go down that path of lifting standards and professionalising.

I know something really clearly: there has been a change in the financial services sector. The average age of financial advisers is coming down; their qualifications are going up; and their ethical and moral outlooks toward relationships with their clients are improving, and continue to do so. In large part, the financial services sector is filled with really good, honest, hard-working people who actually deliver appropriate quality advice. I would say that they still deliver that advice for too high a price, but we are working on pricing and cost issues, acting in the client's best interests and a range of things. And I think that is getting much, much better.

I raise the cost and pricing issue because we all understand, and the financial services sector understands, that only 23 per cent of Australians actually pay for financial advice. In a utopian world I would like that to be 50 per cent. That would significantly grow employment and provide much needed professional good-quality advice for consumers, for older people and for everyone who should be getting it. In fact, rather than the average age being 50-plus before people engage with their super, their financial circumstances and independence in retirement, it would be great if people started when they are 20 or when they started work, and realised that the little steps that they take early on can make an enormous difference.

Labor very firmly believes that the overwhelming majority of financial advisers are responsible and that they do the right thing by their clients. Unfortunately, as you might expect in this industry where there are billions of dollars of fees available to be gouged out of people's accounts, and quick and easy money to be made, there are going to be a few bad apples, and they are the ones that we need to target. We need to have really strong, effective regulation and consumer protection to ensure that their clients do not bear the burden. That is what this parliament does not have the guts to do. That is what we need to do in here. We need to be courageous and to make sure that we pull those people in, and not fear the financial services sector. We should not fear the outcomes of this, because it is about protecting consumers and their best interests.

The government's changes that have already gone through the Senate—in a shambolic process and with a fear about actually bringing it to the House and having a public debate—are removing the essential catch-all and best-interest provisions, which adds loopholes for some advisers. Believe me, the first thing that those who want to do the wrong thing will do is look for the out. In anything that is regulated, some will look for the out. They will think: 'Where are the loopholes? Where are the holes? How can we get around this?'

It is always hard for any government—whether it us or the Liberals in government—because there will always be those who will try to deliberately navigate their way around good policy, good laws and good regulation, and we have to be very careful. But scrapping the opt-in provision will allow advisers to continue to charge fees—that is the reality—sometimes without having done anything and without having actively worked on a client's file, in some cases for many, many years. Some will not even know they are drawing fees—it is so automated. Fees are moving between accounts and unfortunately the poor old consumers bear the cost but receive nothing in exchange for enduring that cost.

The annual disclosure provision will be amended so that advisers only have to provide annual disclosures to clients who commenced after 1 July last year—the start date of FoFA. What about all the others? If it is fair for one group, why is it not fair for another? This is an arbitrary start date, where we will only give this stuff that we all acknowledge is really important to people who start a new contract from this point on. Then, of course, the real gaming of this is that nobody will ever start a new contract because the way that you get around it is to make sure that the contract is always ongoing and linked to previous advice. In effect, unless you are a 20-year-old seeking advice for the very first time in your life—which is highly unlikely—you are not caught by this at all.

Lifting the ban on conflicted remuneration has got to be completely nonsensical. The ban on conflicted remuneration will only apply to commissions on general advice. Other forms of conflicted remuneration will be allowed and included as part of a balanced scorecard approach for both general and personal advice. It reintroduces banned commissions on both the general and personal. Again, you can see that the door has been not just opened a little bit but smashed open. This will be the new business model. This will be the new operation for those in the sector who wish to do the wrong thing, or those who look at how they can make more money out of people's accounts.

All the government's language in terms of the FoFA changes is about certainty for the sector. That is all the government has been talking about. I have barely ever heard them mention the consumer. I have barely ever heard them acknowledging the fact that there is a lot of difficult and complex work that needs to be done in this area. The changes that are before us are not about some sort of minor or technical reforms as have often been referred to. They are a complete unwinding of FoFA. It will be FoFA in name only. When you strip away the core of all the elements you do not have anything left. The government—the Liberals—always talk about supporting the principles of FoFA but they do not accept any of the hard work that goes with those reforms.

The lowering of standards and the delay towards professionalising is just a massive step backwards for the entire sector, particularly for consumers. It is a net-net loss for consumers because unfortunately we will see—I hope not—more issues being exposed and perhaps new bad behaviour that we have not yet seen. And that is sad. But that bad behaviour will be as a result of these changes, because these changes will allow that to happen. I am almost certain there would be at least someone out there already contemplating how they might be able to make best use of the new government's changes.

The best-interest duty was, and should remain, a key element of the original FoFA reforms aimed at improving the quality of the financial advice. It provided that an adviser must act in the best interests of their clients. It is hard to imagine that the law did not provide this; that an adviser could act in their own best interests ahead of their client's best interests. So, as the client, you would pay them but they were entitled, quite legitimately under law, to not act in your best interests—and not even tell you—and act in their own best interests. We did not think that was suitable. We did not think that was appropriate. I do not think anyone would. So, we made those changes. Unfortunately, with the way the changes have now been brought forward, some of that will come back in. That is unfortunate and sad.

During evidence given to the Senate inquiry to this bill, Mr Paul Drum of CPA Australia said the best interests duty is the cornerstone of the FoFA reforms, with the ability to drive a cultural change within the financial services industry.

The government through this bill is seeking to remove paragraph (g) in section 961B(2) of the safe harbour provisions—provisions that were put in place to actually provide a safe place for advisers more than consumers—known as the catch-all of the best interests duty as well as section 961E; gone. This government has decided none of that is necessary: just do whatever you like.

There have also been significant community concerns about the removal of the catch-all provision, particularly from the Council on the Ageing who said:

If this last step were to be removed the other six steps become a 'tick a box' checklist and weaken the requirement for advisors to reflect in an overall sense on the advice they are giving and whether it would as a whole be considered in the client's best interest. The inclusion of paragraph (g) provides an extra degree of security for consumers that the advisor is acting for them.

Anyone who carefully reads the FoFA laws as they stood would understand this is exactly what those provisions did and to unwind them in some clever little deal that the Liberal government has worked out, I think, is just an absolute shame.

The best interest duty is driving cultural change without a doubt in the industry, and the removal of 961B(g) and 961E will reduce compliance perhaps—albeit, I am not sure exactly how, because I have looked very closely at this and how that whole process works. What it does do with absolute certainty is reduce best interest duty to a mere tick a box. You turn up with a sheet of paper. You tick the box. You sign it, and it is done, regardless of what actually took place. That again is the tragedy. This is nothing to do with removing red tape or some regulatory burden; it is to do more with the government just doing the bidding of some sectional interest within the financial services, and that is sad.

The key objective of the original FoFA reforms was to facilitate access for retail clients to financial product advice, including scaled advice—I think that is important. I think we ought to have the ability to scale advice up: start small and, as your circumstances in life change and move upwards—that is, personal advice as limited in scope—but that should not be a mechanism for abuse or to introduce some sort of sinister system where that becomes the method by which all advice is provided or to get out of doing the right thing. So Labor agrees with the potential of scaled advice to increase quality and reduce costs—no doubt about that—but what the bill does in its changes is allow the provision of advice that does not fully take into account the relevant circumstances of the client and, in the end, is not in the client's best interests. It is not that everyone will do this but, unfortunately, it leaves the door open for this to happen. This cannot be good public policy. This cannot be good for consumers, because there will be some who abuse that system where the door is left open.

An ASIC shadow shopping survey showed that in several instances particular topics were excluded from the scope of the advice to the potential benefit or convenience of the adviser and to the significant detriment of the client—that is the regulator saying that on some really good research they have done. In effect, this means that the relationship between the adviser who, as the professional, should know everything they are doing and talking about and the client who potentially knows nothing in that area can be abused. The adviser can say, 'Well, we'll just do it this way,' minimising their responsibility or their best interest duties. All this bill does is exacerbate that problem. It does not improve it—that is for certain. There is no question about that. If you were to stand on the middle line and say, 'Which way will I fall?, do this bill and the changes contained in it help or hinder? They absolutely hinder—there is no question about that.

Industry Super Australia said:

… this mechanism would be able to be used by a client and adviser to agree that only the products of a particular provider would be considered in the advice.

It is not hard to see how this insidious change would then have the potential to be more about flogging a product—selling you something, making you pay for it—rather than actually providing any good advice.

The banning of conflicted remuneration, as I said earlier, was a very important step in improving consumer protection. With some minor exemptions from general advice and personal advice, it was a significant factor in reforming the culture and public perception—that faith-trust perception—in financial advice. This bill, unfortunately, seeks to lift that ban. It is going to allow conflicted remuneration—it is not called conflicted remuneration for nothing—in prescribed circumstances for general advice and redefines what is to be considered conflicted remuneration for personal advice. So not only does it re-allow it but, where it would have been banned or continued to be banned, you redefine it—basically, you allow it anywhere you like, because you do it through a new mechanism, a new business model. Again, you do not have to be an expert in this area to read through this quite quickly.

If I tendered some evidence and said a whole range of people say a whole range of things, you need only look at this gentlemen in particular: Alan Jones, not noted for his support of the Labor Party in any circumstances right, wrong or otherwise, in March this year simply blurted it out and said it as he saw it:

I am not happy with what is being proposed here by the Abbott government. There are some times when we are dealing with people's money that certain protections are needed.

He goes on to say:

I am no fan of the Labor Party—

big surprise there—

but I think on this issue, their regulation is correct.

I reckon if we can get Alan Jones across the line, there ain't too many left that we should not get across the line on this issue in particular. Just simply looking at it, after five years of extensive work on this, I think we have got it close to right. I would not be so arrogant as to say that we got it right—perhaps the Liberals might want to say that when they get up to speak on these matters—but I think we got pretty close.

These concerns have been echoed time and time again by groups such as the Council on the Ageing, National Seniors, Choice, Industry Super Australia and many, many others. Again, this is not just the Labor Party saying these things. Changing conflicted remuneration will rip billions of dollars away from ordinary investors and straight back into the pockets—to be blunt—of the big banks who, with more vertical integration models and the provision of financial advice, stand to make a lot of money. I do not object to banks making good healthy profits—and I would not even go down the path as to suggest what they might be. That is a good thing. It shows a lot of confidence in our economy, in Australia and that our banking system is sound. But I also think that we should not let them get away with gouging money from ordinary people's accounts or them unfairly or unduly in some particular way profiteering from ordinary people's life savings. Whether it is fees and charges, commissions or other things, it is the responsibility of this parliament to actually provide that proper regulation. I am still keen to hear the yells and screams from the Liberal Party about regulation—'Regulation! It's all bad!' This ludicrous, simplistic, idiotic, nonsensical diatribe that we constantly hear from the Liberals about red tape and regulation. 'Airworthiness certificates? Who needs them? Just more red tape!'

Photo of Josh FrydenbergJosh Frydenberg (Kooyong, Liberal Party, Parliamentary Secretary to the Prime Minister) Share this | | Hansard source

Oh, come on!

Photo of Bernie RipollBernie Ripoll (Oxley, Australian Labor Party, Shadow Minister Assisting the Leader for Small Business) Share this | | Hansard source

To put it into context so my learned friend over here may understand something, of the 22,000 so-called new regulations—additional or new—

Mr Frydenberg interjecting

He doesn't even know what the number is. I am quoting back the Liberals.

Mr Frydenberg interjecting

Deputy Speaker Vasta, if he would be so kind as to be so rude and continually interrupting me. I am a much more generous to him than he is to me. Out of those so-called new regulations that the Liberal Party continually trot out—and I have many scripts—3,400 of those so-called pesky business burdens were airworthiness certificates! My point being made. Many—more than 4,000—were actually asked by small business or were about tax concessions or range of other things which were beneficial to small business. I am sure anyone who flies—many of us in this place; all of us, in fact—would very much appreciate that the government continues to put in those regulatory 'burdens'—which would be the same under the Liberal Party in government, by the way, because they do not have any choice either on those.

To get back to the point rather than being interrupted: the billions of dollars in new fees and commissions. There has been some really good work done on this which actually shows the scope of this. They are not coming out of no-one's pockets; they are actually coming out of consumers' pockets. Again, that is the blaring, glaring reality. If you had a spotlight in your eyes and said, 'What is the blaring reality here?' Well, this is what it is: billions of dollars coming out of ordinary people's accounts. Research from Rice Warner on the direct cost to consumers of the changes, including the return of conflicted rem., shows that on an annual basis it would cost almost half a billion dollars, almost three times the estimated business savings. It is completely irresponsible of this government to continue with this change.

This is a government that took the opportunity—took the advantage, if you like—in opposition, as oppositions may do from time to time. It took that advantage, kicking the hell out of the government. But, unfortunately, they just kicked the hell out of the government on the wrong stuff. FoFA is about protecting people. Does the Liberal Party and the Liberal government really want to be the ones responsible for the next big collapse? Responsible for the next group of people who come through and have been dudded with the perpetrators getting away with it in a legal sense because of the soft, weakened, jelly-backed amendments to really good, strong protections for consumers? Because that is exactly what will happen and that is exactly what will take place.

I do not think it is missed on consumers or superannuants—people saving for their retirement or investing their life savings—people who get caught up in manage investment schemes and SMSFs. When there is a particular loss that occurs people obviously do look for blame. This is one of the areas of blame they will be able to squarely look to. They will look in the eye of this mob across there and they will ask, 'How can they get away with this? Weren't there protections in place?' Yes, there were. Unfortunately, they are just not there anymore. I think that is the really sad part.

Unfortunately, regardless of the evidence, regardless of the good debate, regardless of the time that has been taken to do the right thing by industry, by small business, by everyone in the financial services sector, by lifting that standard, by changing the culture, by looking to professionalise and raise all of those things—but, most importantly to protect consumers—I think it is a great, great day of shame that it will be this Liberal government that actually destroys all of that.

11:56 am

Photo of Andrew LamingAndrew Laming (Bowman, Liberal Party) Share this | | Hansard source

Far from being a day of shame, today really is a day to recognise the thousands of financial planners around Australia who do an extraordinary job protecting and growing the investments of Australians and the millions, obviously, of Australian clients of financial planners, all of whom are satisfied with the services they receive. If you listened to the debate in this chamber you would really get a sense, if you were listening to this majoring in the minors by the previous speaker, the member for Oxley—who never really saw a parliamentary speaking slot that he couldn't fill—in essence what he delivered could well have been done in three minutes rather than 30.

I recognise that the member for Oxley spent a lot of time while in government working very, very hard in an inquiry examining this matter. The Storm Financial collapse and other similar stories are of enormous concern to everyone. But for professional groups, who are often given trust and reliance by citizens, we do need to make sure that the services that are provided are exemplary. We live in a nation where we can expect that. But we also need to be mindful of the limits of government intervention. To give you a well-worn analogy, when an eye surgeon is sitting there talking to a patient, precisely how many pieces of paper being filled out and signed will protect a patient from an adverse outcome? In the end, we are reliant on expertise, on goodwill and loyalty to our customers. In the end we know that in 99 per cent of those arrangements that exists. So the final question we can consider here is: what do we do in the one per cent where we see a straying from that trusting and productive relationship? Never do we want to sully the other 99 per cent of relationships when we as governments stumble into the tiny financial planning practices around the station and tell people how to do their job. That is right. We tell people how to do their job. There is a reasonable balance there between ensuring a high level of service provision and still being able to ensure that we can provide low-cost advice to people who need it most.

We are not in this debate considering sophisticated investors who earn over quarter of $1 million a year and are able to indulge in some very, very elaborate and sophisticated financial instruments and schemes; we are talking about allowing more low-income people—people, for instance, in small micro businesses who do not have anyone paying them any superannuation whatsoever—to contemplate an appropriate asset mix for their future. What we are trying to do is open the door to those people so they get some, not no, financial advice. I know that the focus, post Storm, has been on irresponsible giving of advice, but, as I have said before, it is really incumbent upon us here in this chamber to understand just how complex our governmental interference can be in that relationship.

In the end, government cannot be sitting in every practice. Government cannot be holding the hand of every consumer. Government must give citizenry an opportunity to complain and protest, and to access information and have it transparently provided, and all of that rests within this legislation.

The changes that we are making here basically look at reducing compliance costs and the regulatory burden that, in the end, makes almost no difference to the information that is provided to customers and almost no material difference to their decision-making around financial advice. That is the core issue. It is not how many forms you can fill out. It is not how many times you can make a financial planner send out letters to their customers. In that relationship of trust, government's power, in the end, is quite limited. It is a matter of us understanding the limits of that power and what interventions are actually likely to be effective.

I thought that a very good analogy was this. Say you have a problem with the door on your house and you call someone to fix the door; the question is: should that person have to do a mandatory structural assessment of your entire dwelling before they can fix your door? While that is somewhat of an exaggeration, it points to exactly what we are asking of financial planners—how much they have to do; how much is mandated in their practice before they can offer quite simple, targeted advice, often to low-income earners who are not putting a great deal of money on the table to be managed.

Obviously, coming from a very different professional background, to understand this field there was nothing I could do that would be more effective than going to spend a day with a financial planner. So Mike Smith from Anchor National Financial Planning in Springwood invited me to his office, and I spent basically a six-hour day learning a little more about how a financial planner's office works. For all of the descriptive analysis from the member for Oxley about how all of this additional burden should be simply carried by the profession, it would be good for him, as a Labor MP, to simply sit down in the office of a financial planner. I was there on the day that they were sending out the letters to their clients saying, 'Under Labor's FoFA reforms, we can no longer provide you with any advice whatsoever, and we are terminating that client advice relationship,' because there was, simply, under the new rules, no cost-effective means of continuing the relationship. They were sending out a number of those letters to their clients. That outcome cannot be tolerated, because low-income people need to be able to gain that advice without it being too costly to provide.

That is why we are here in this building: we are here in this building to, where we can, as government, secure the financial future of those who vote us into this place. If FoFA goes too far and has that impact, then of course we must do something.

You can see, as I said at the start of this contribution, that we can argue over relatively small elements. But let us, on both sides of this chamber, never mix up the difference between an association between filling out more forms and a causative reduction in risks like Storm capital. Simply piling up the paperwork ain't going to get you there. Certainly you can associate more paperwork with greater scrutiny, but we have to be very careful with what we legislate to ensure that it achieves the objectives without the unintended consequences.

So the underlying objective of these very important changes, which are widely supported by smaller financial planners who are not linked to Labor-backed industry funds, is that we need to continue to build trust and confidence without any more government interference than is needed. Both sides of this chamber agree with the policy intent of FoFA—let us be honest. It is just about how we get there.

So what we intend to do is to unwind any regulatory overreach, as I have already described, and that has really been created by the current legislation because of, effectively, an overreaction and a belief in the kind of curious professional wars that Labor engaged in. I never quite understood how the Rudd-Gillard government did it, but one day we woke up and eye surgeons—that is right: ophthalmic surgeons—were the enemy. If I can just detain the House for a minute, at some point, someone somewhere decided that we had to take on Australia's eye surgeons and halve the cataract rebate because the world would be a better place. There was absolutely no understanding of the implication that that would have for the private sector and private health insurance contributions for people gaining private eye surgery, the increase in out-of-pocket costs created, and then the fall-away in people who need eye surgery actually getting it. We just had this perverse battle between then health minister Nicola Roxon and the entire eye surgery sector, until, in early 2010, when it was all going pear-shaped for the then Prime Minister, Kevin Rudd, we saw Nicola Roxon airlifted out of the red zone; white flags went up; and it was backtracking by the Labor government. It is to that sort of weird professional war that Labor, in government, wakes up and decides to embark upon that this is somewhat analogous: suddenly, financial planners were, in some way, the enemy.

I can understand the sensitivities and concerns around the tragedy of Storm Financial, but to sully the entire financial planning sector is the problem that we witnessed under Labor. So I am happy that the essential provisions of FoFA stay—and there is absolutely no doubt about that—and I will detail those in a minute.

We know that advisers will not be able to receive commissions when either general or personal advice is provided and that they will still be required to act in the best interests of their clients, and there are six clearly-stipulated criteria in the legislation to ensure that that occurs. They will be providing a warning to their clients if there is any incomplete or inaccurate information, and of course they prioritise their clients' interests ahead of their own, despite what you have heard from a previous speaker. We have supported all of those outcomes from the outset. We have also announced additional improvements to FoFA that have been agreed with some of the crossbench senators, and these improvements will, among other things, ensure that the essential protections of FoFA are front-of-mind for clients, as they will be explicitly listed on the statement of advice so that clients can see them.

I have to confess that I have not always read the statements of advice in detail, and 99 per cent of people going into these arrangements probably do not. So please let us never forget the limitations of government intervention in these areas. Just because it is written down does not mean the client reads it. Just because the client signed it does not mean that the client read it. We have an enormous challenge trying to raise the financial literacy of many of the customers and those that visit financial planners. But, in the end, we are placing an enormous amount of scrutiny on financial planners in this legislation without the overreach. So, advice continues to be in the best interest, the advice must be appropriate, the adviser will be warning where there is incomplete or inaccurate information and the prioritisation remains—that is important.

We have also made an election commitment to amend the law to enable incentive payments which do not conflict with advice that is providing general versions of advice. Many have been critical, saying that this would lead to a return to commissions and to conflicted remuneration. We have to be absolutely clear: we are only removing the overreach and the unintended consequences of FoFA as it currently stands, and it never has been or will be the intention to allow the payment of commissions or conflicted remuneration. The rationale for these changes was that individuals who only provide or receive general advice—for example, employees designing websites or providing general information seminars—were at risk under the current legislation and at risk of being affected. Of course, this pushes up significantly the compliance costs that I have already described for small to medium businesses like the one that I visited earlier this year.

During the stakeholder consultation, which has been vital on the draft legislation, there were also concerns that the amendments proposed would allow advisers to go back to charging commissions. Those concerns have been listened to and we have developed better targeted advice provision. As such, the final wording of the legislation balances those needs—the needs of the industry with the government's desire to see that we clearly indicate that commissions will not be reintroduced, and there are a number of elements within the legislation to ensure that occurs.

Both upfront and trail commissions are explicitly banned in relation to general advice. The personal advice provisions are already, obviously, ensuring that commissions are not permitted. That is on top of the already existing requirements that the person providing the general advice has to be an employee of the financial product provider and be transparently operating under the name, the trademark and the business name of that provider; that the person did not provide any personal advice other than in relation to a basic banking product, general insurance or consumer credit products to any retail client over the last 12-month period; and that the general advice can only be provided in relation to products issued or sold by the provider or under the name, trademark or business name of that provider.

To put beyond any doubt how absolutely serious we are about not permitting commissions, there will be in place regulation-making powers that I alluded to earlier that may prescribe circumstances in which all or part of a benefit is to be treated as conflicted remuneration. Therefore, if, contrary to our clear expectations as a government and our intention not to bring back conflicted remuneration, there are developments in the market that warrant our intervention, that can easily be done and very quickly through regulations—although it is very unlikely that that will be necessary.

Are we likely to see a return to commissions paid in relation to general advice? Quite clearly, these amendments indicate that benefits paid on general advice cannot be a commission. That is in the legislation, and this includes both recurring payments—the trailing commissions—and upfront. Is there is risk then that businesses will shift or transition across to only giving general advice simply as a means to push their products? This is also discouraged in the legislation. The provision first of all only applies to employees, so it limits the applicability. And an employee cannot utilise the provision if they provided any form of personal advice in the last 12 months to a retail client. Given the significant upfront and ongoing training costs that advisers incur to skill themselves to provide personal as opposed to general advice, it is really unlikely that an adviser is simply going to step away from that kind of work of providing targeted personal advice and return to a more general advice-only model.

Why is the obligation to act in the client's best interest being changed? The layperson and a small number of groups have had concern about the changes to this best-interest test. To be clear, six of these provisions remain and they must be articulated today. They effectively prescribe that to act in the best interests of a client this is what an adviser has to do: they have to identify the subject matter of the advice sought; they have to identify the objectives, the financial situation and the needs of the client that would reasonably be considered as being relevant to the advice sought on a subject matter— (Time expired)

12:12 pm

Photo of Andrew LeighAndrew Leigh (Fraser, Australian Labor Party, Shadow Assistant Treasurer) Share this | | Hansard source

In 2009, Cecily and Robin Herd had their life savings destroyed in the collapse of Storm Financial, a Townsville based financial adviser. The Herds, both in their 70s, had borrowed against their home to invest in Storm's equity products, thinking it was a safe investment in their future. After the Commonwealth Bank forced Storm into administration, Robin said:

… we sold our house and everything else to pay back our margin loan.

The couple now live, according to a report in The Australian Financial Review, in a flat in Caboolture. Robin said:

We only wanted a comfortable retirement. We had no idea about the size of commissions and risk to everything we had. The nightmare is still with us.

In February 2008, Tracey Richards went to see her Storm Financial planner. Instead of withdrawing money to buy a motorhome, she was persuaded to borrow another $200,000 and invest more deeply in the share market. She was a receptionist in Brisbane and this was her third big margin loan investment through Storm. The first investment in 2001 was her life savings of $250,000, with another $400,000 added from the sale of her home. All of it is gone and in its place was a debt of $300,000 that Tracy could not repay. She is a mother of three and wondered how, on a salary of $45,000, she received a $1.5 million margin loan from Macquarie Bank with an annual interest bill of $115,000.

In 2006, Eileen Miller and her daughter visited a financial adviser hoping to invest the nest egg left by her husband who died of cancer in 2005. Having left her the house, two-thirds of a boat and $300,000 in cash, Eileen's daughter made it clear: the house was not to be put at risk under any circumstances. Documents were put in front of Eileen to sign and she remembers receiving no explanation of what she was signing. As a result, she ended up borrowing $750,000 secured against the house. Most of this went to a margin loan with Macquarie Bank, with the financial adviser paid an unknown portion of the commission. When the global financial crisis struck, the adviser called Eileen and her daughter in for a meeting. He told them: 'The stock market has gone down. I thought it would come back, but everything's gone.' The cash was gone, the boat was gone, and Eileen was in danger of losing the last substantial thing she owned, a comfortable but modest weatherboard cottage.

Noel Stevens, a scaffolder, had a long-term life insurance policy with Westpac which was always guaranteed to pay him out if he ever got sick. He also had a bank account with the Commonwealth Bank, and he was convinced to switch to CBA life insurance after being called up by a teller and advised by a CBA financial planner that he would be better off. Mr Stevens did not know that the teller and the planner earned a kickback if he switched his life insurance policy to the Commonwealth Bank. A year later, he was diagnosed with terminal cancer, and the bank refused to pay him. Noel Stevens spent his final months battling the Commonwealth Bank in court. He won the case three days before he died, and the Commonwealth Bank appealed. Mr Stevens's daughter took on the fight and eventually won the appeal in December of last year.

These stories must weigh deeply upon the shoulders of all members of this House when we vote on a bill to weaken financial protections. For those of us on this side of the House, we sit in the proud history of reforms to protect consumers. It was a Labor government that introduced the Trade Practices Act in 1974, the National Competition Policy in 1995 and the superannuation guarantee in 1992. It was a Labor government that recognised that regulation must help the most vulnerable, not assist the most powerful.

As a result of the Storm Financial collapse, many lost their entire life savings, but other collapses were worse still. With Trio, many lost their homes. With Timbercorp, people not only lost their assets but were left with debts afterwards. Modelling that was commissioned by Industry Super has estimated that the government's proposed changes, winding back consumer protections, will hurt consumers to the tune of around half a billion dollars a year, with some $313 million a year of that being due to the removal of the opt-in provisions and the extension of grandfathering for existing commission arrangements. That modelling by Industry Super indicates very clearly which powerful groups in society this government is interested in protecting. This is a reform which is good for bankers and bad for pensioners. Maybe we should not be so surprised after a budget that has been brought down that is worse for pensioners than any other budget in the past generation.

This government is hitting some of the most vulnerable Australians by taking away financial protections. As Alan Kohler has pointed out:

All the big financial operations that have collapsed over the years, costing Australians billions of dollars, were based on commissions paid to financial planners. Westpoint, Timbercorp and Great Southern paid 10 per cent upfront commissions, Storm paid 6-7 per cent upfront plus a trailing commission, Opes Prime paid a trail of 0.75 per cent, Trio paid 4 per cent upfront and 1.1 per cent trail.

As he argues, the government ought to be sending a message to financial planners that they are not salespeople; they are pure advisers.

I agree with others in this debate who have pointed out that there are many good financial planners in Australia who work hard in the best interests of their clients. We do want more Australians to be seeking financial advice, but we do not want them, as a consequence of doing that, to be paying large hidden commissions.

There have been a plethora of Australians who have spoken out against the government's attempts to water down financial advice protections. The government claims that at no point has it sought to introduce commissions or conflicted remuneration, but page 28 of the explanatory memorandum proves that reintroducing conflicted remuneration is exactly what the government has sought to do.

A partner at Slater & Gordon was quoted in The Age as saying that the government's changes to financial advice protections would precipitate a new generation of scams and legal claims. The Age report went on:

Others say they will bring back the "boiler rooms". Hidden commissions remunerations will flourish like never before.

The potential losses that the Industry Super Australia modelling points to come off the back of very real losses which Australians have endured. Bianca Hall has written of Industry Super's reference to the potential for:

… financial collapses similar to those that occurred in 2006-10, which wiped $6 billion in savings from more than 120,000 investors …

That number of investors exceeds the population of a single federal electorate in this place. That is one in 150 Australian adults that have suffered a loss as a result of financial collapses. This government is pushing through a weakening of financial protections off the back of crises that have cost consumers $6 billion and in the face of modelling that shows that such a weakening will cost Australians half a billion dollars a year.

The Council on the Ageing are among the many groups that have argued against these changes, Ms Josephine Root arguing:

We believe the cumulative effect of these changes is to seriously weaken the reforms, giving less consumer protections and ultimately undermining confidence in the financial advice sector.

Christopher Joye in the Financial Review has argued cogently that 'permitting sales based compensation when individuals are offered independent financial advice will almost certainly lead to serious conflicts'. He has also made the point that 'few contest the conclusion that institutions, not consumers, stand to be the main beneficiaries'.

When asked about these changes on ABC Lateline on 18 March 2014, the chair of the Financial Planning Association, Matthew Rowe, was asked by Emma Alberici:

Reintroducing the ability for planners to accept commissions, is that in consumers' best interests? We've talked about the interests of you and businesses like yours, is that change in the best interests of consumers?

Matthew Rowe responded:

I don't believe it's in the best interests of consumers. I think it's a retrograde step.

So the head of the Financial Planning Association believes that the government's attempts are 'a retrograde step'. He is quoted as having said:

The FPA has written formally to the government voicing its strong opposition to commissions being paid under what is being called the 'general advice' exemption. We do not believe this proposed change is in the public interest.

Peter Collins, a former Liberal Treasurer, described to The Australian Financial Review's Jennifer Hewett that the government's weakening of financial advice protections is:

… fundamentally "bad policy" which will leave millions of Australian's vulnerable to financial losses and unscrupulous practices.

…   …   …

This is not tweaking or removing a bit of red tape. This is about fundamental and deleterious change which the government will come to regret.

It is a leap backwards into a murky past where there have been casualties before and will again if this proceeds.

…   …   …

To suggest there is sufficient financial literacy is fantasy land.

This is a warning from a former state Liberal Treasurer that, if these changes go ahead, then the losses from the next financial collapse will be on the shoulders of Liberal and National members in this House. KPMG Chairman, Peter Nash, has added his voice to concerns that the federal government has gone too far. He said:

Good elements of FOFA are at risk if the government pushes too hard in winding back.

The Australian Shareholders' Association have called on the government not make any rushed or inappropriate changes to existing legislation. Their Chairman, Ian Curry, has called on the coalition:

… to delay any changes to the FOFA reforms until after the completion of the financial systems inquiry.

An anonymous industry insider observed to Sally Patten in The Australian Financial Review:

There is strong incentive to reward people for selling more stuff. It is fanciful to think you can conquer it.

John Collett, writing in The Sydney Morning Herald, said:

The Coalition government's proposed amendments to the former Labor government's laws governing financial advice will result in less protection for investors.

Matt Levey, director of campaigns at consumer group Choice, said:

It is a sales pitch driven by a commission with no relevance to the person's financial circumstances.

Peter Martin, writing in The Sydney Morning Herald, has pointed out that the removal of a requirement for anyone paying an ongoing fee to opt in every two years is an arrangement that people in many industries would love because the simple requirement to opt in to pay commissions will be gone. Writing in the Fairfax press, renowned economics commentator, Ross Gittins, has summed the reforms up as:

The financial fat cats live to rip us off another day.

It is pretty clear, from those who are cheering these reforms, who will be the beneficiaries of these changes. Peter Johnston from the Association of Independently Owned Financial Professionals has been quoted as saying:

How can institutions say they are acting in the best interests of clients if they are only selling their own products?

Roy Morgan has estimated that 2.2 million superannuation fund members pay commissions or ongoing fees for financial advice they do not receive. As a result of the opt-in provisions superannuation savings will not be eroded by paying ongoing fees without a person's consent.

Frankly, these changes are no different from what we expect when we deal with other professionals. The member for Bowman spoke about his experiences as an ophthalmologist, but an ophthalmologist would not sneak in a fee without explaining what that fee was for. They would clearly state the fees at the outset of the consultation. That is what is reasonable to ask of financial planners by getting consent through a person's signature and by clearly explaining what you will get and what you will pay for it.

The sneakiness that has surrounded the government's attempt to repeal financial protections ought also give us an indication of who they are trying to help. If the government were proud of these changes, they would not have been pushing them through via regulation. They would not have been attempting to sneak through these changes. They would not have been encouraging ASIC not to enforce the existing law before their changes came in. These are retrograde changes, and I greatly fear that they will exacerbate the next financial collapse in Australia and hurt the most vulnerable while benefiting the most affluent.

12:27 pm

Photo of Ken WyattKen Wyatt (Hasluck, Liberal Party) Share this | | Hansard source

Listening to the member for Fraser I certainly got a sense of a strong case for financial literacy to be taught in secondary schools in the final two years. If there were that level of understanding then the informed consent choices that people make when they become adults would part of their lifestyle choices and it would be a pathway that they would choose in questioning some of the information given by financial advisers under any regime.

Today I rise to support the amendments to the Corporations Amendment (Streamlining of Future Financial Advice) Bill 2014. The future of financial advice reforms—more commonly known as FoFA reforms—introduced by the former government were a gross regulatory overreach that increased the costs of providing important services to Australians across the country. When the former government introduced the legislation in 2012, I spoke against this bill. It is of great satisfaction to me now to rise to speak on this issue in support of government amendments that will reduce regulatory costs, place downward pressure on the cost of financial advice to consumers and provide certainty to the financial services industry—a key commitment of this government at the election last year.

This bill will amend the statement of advice requirements, amend the definition of a basic banking product, extend the time for fee disclosure statements from 30 to 60 days after the client's anniversary date, provide a more targeted execution only provision, provide a more targeted general advice provision and include enhanced regulation making powers that permit regulations to prescribe when a benefit is or is not conflicted remuneration. By doing all of this, this bill will clean up the mess left by the former government. I remember when the former government introduce the FoFA legislation. I met with financial planners within my own electorate and spent countless time with them asking them what the changes would mean in terms of their business and the way in which their relationship with their clients would be affected by the exercise of process that regulations brings with it.

After the bill was passed and became an act, there were voluminous amounts of paper that planners were required to have in order to meet the regulatory requirements of the act. On one occasion, one financial planner pulled out a document and said to me, 'This is what I now have to fill in compared to what I had previously, and my advice to my clients has not changed. The quality and confidence that I have in getting the best possible outcome for them is still there, because I have kept my client base for years.' I found that with most of the financial planners within my electorate that I met and spoke with—that there was a high degree of trust and integrity and they made their best endeavours to make sure that the financial advice that they gave would give them the return that they were looking for. But we also have to factor in the fact that there are many external factors that come into play in financial investments, because there are other greater forces—both at a national and international level—that also impact on the return that you get for investments.

I was inundated with correspondence from financial planners and financial service providers concerned with the overreach and regulatory burden imposed on them by the federal government. As I said, to gain a greater insight into the issue, I did spend quality time with financial planners in my electorate. I said to a gentleman in Guildford, 'Just treat me as a new client and take me through the process.' It was interesting going through the process, because it gave me a better sense of what it was that I was expecting to ask him. But I do understand that many of us do not have the levels of financial literacy when we are given or gifted benefits that enable us to make a financial investment and so you solely rely on the advice that you get. In that sense, this bill will still protect people, but it cannot protect them from every possibility that might occur within a financial context.

I honestly could not believe the level of regulatory burden imposed by the government at the time. The difference between now and then is significant. As I said, there were pages and pages of unnecessary and repetitive regulation. At the time, I assured those providers in Hasluck that I would be raising this issue at every opportunity I had. We worked with constituents who raised these issues with me and liaised with Senator Mathias Cormann in his role to ensure that their concerns were passed through, so that when we gave consideration to any amendments in the act, their considerations would be part of the thinking of the minister and those who frame the amendments. That is why it is so pleasing to see the result of this today—a coalition government keeping its commitment to reduce red tape and make the regulatory system easier to use and to navigate.

When I spoke about this issue in 2012, I made the point that the financial services industry needs regulation—and I do not reconcile from that, because there is an obligation for governments to ensure that Australians are protected within the framework that operates. These amendments will have positive impacts for the financial services sector and consumers across Australia. Those opposite will and have been arguing that these changes dilute the need for a financial adviser to act in the best interest of his or her client. This is not true. The best interests duty is enshrined in subsection 961B(1) of the Corporations Act and that remains in place, unchanged. There is no amendment to this. The opposition overreached in the original FoFA legislation and now they are overreaching in the claims about this government's amendments.

When the government introduced the legislation in March this year, the Senate referred it to the Senate Economics Legislation Committee. On 16 June 2014, the committee released its report and the government agreed with the two recommendations: (1) That the explanatory memorandum include a paragraph to clarify the best interest obligations and the level of consumer protection they provide, and whether any further strengthening is require to ensure that these obligations cannot be circumvented; and (2) That the government consider redrafting the conflicted remuneration provisions to ensure greater clarity. The amendments to the bill and explanatory memorandum address the recommendations.

Unlike the former government—that all too often provided a knee-jerk reaction to policy issues—we have taken the time to properly consider and consult on these changes. Even though we have been receiving feedback since the FoFA legislation introduction in 2012, we undertook a public consultation on the exposure draft of this bill in January this year. On the additional amendments, we have once again undertaken targeted consultation. This is a considered approach to policy development and a stark contrast to the policy on the run approach embraced by the opposition.

I must take a moment to credit the Minister for Finance, Senator the Hon. Mathias Cormann, with much of the approach adopted by the government. I know the time that the minister has put into consulting and considering the FoFA legislation since its introduction in 2012, and now the amendments introduced to the House. Being from Western Australia myself, I have witnessed first-hand the interest and time he has given to this issue. I also know that he has met and discussed the FOFA legislation extensively with stakeholders in Western Australia, including many in my electorate—and I thank him for that. I want to extend my thanks to him for not only taking the time but also listening and acting on the concerns of those who raised them with him.

I want to take a moment to reflect on the changes to the statement of advice requirements that this bill further improves. These changes ensure that the following existing requirements are explicitly listed in the state of advice provided by financial advisers to their clients: that the adviser is required to act in the best interest of their client and prioritise their client's interests ahead of their own; that any fees be disclosed and that the adviser will provide a fee disclosure statement annually, if the client enters into, or has entered into, an ongoing fee arrangement after 1 July 2013; that a client has the right to return financial products under a 14-day cooling-off period in accordance with the requirements currently provided under division 5 or part 7.9 of the Corporations Act 2001; and that the client has the right to change his or her instructions to their adviser, if for example they experience a change in their circumstance.

Further, any instructions to alter or review instructions must be in writing, signed by the client and acknowledged by the adviser. And, that the financial adviser provide an explicit statement that he or she genuinely believes that the advice provided to their client is in the client's best interests, given the client's relevant circumstances. Additionally, there will also be specific requirements enacted by these changes so that the statement of advice is signed by both the adviser and the client. As evidenced, these changes will not only reduce regulatory burden and costs but also further strengthen and improve financial advice laws for the benefit of the provider and the consumer. This government is delivering upon its election commitment to unwind the regulatory overreach created by FoFA and to provide certainty to the financial services industry.

12:38 pm

Photo of Pat ConroyPat Conroy (Charlton, Australian Labor Party) Share this | | Hansard source

This debate is symbolic of the divide in this House and the divide in Australian politics. On this side we stand firmly for consumer protection, for supporting Australians in having a decent and dignified retirement. Those on the other side stand for the support of the big banks, the financial advisers and the wealthy.

It was interesting to listen to the last few contributions from the coalition. Coalition MPs, including the member for Hasluck, were very upfront in talking about the consultations they had had with the members of the financial services industry, with the advisers. That is fair enough; you should be talking to that. But not once did they mention talking a meeting with the victims of the financial scandals—the victims, the savers, the consumers, who have lost their life savings because of dodgy financial advice. That is really what this divide is about. Those on the other side are trying to protect an industry that all too often has done the wrong thing. Whereas, the people on our side are trying to protect the victims. Those who have been exposed, have lost their life savings and have come to some very difficult circumstances.

The other response from the coalition MPs has been to call for greater financial education for consumers. That is absolutely right. We should be doing our best to educate consumers about financial matters, but that is no excuse to allow financial advisers to be excused from acting in the best interests of their clients and that is what they are saying. They are basically putting all the onus onto the consumers and onto the public to protect themselves against some of the more irresponsible financial advisers out there. Again it does acknowledge huge issues in this industry, such as asymmetry of information and other matters.

We are having this debate because at the moment Australians have over $1.8 trillion in savings. We have one of the most advanced retirement savings industries in the world. But at the same time we have seen a series of collapses which have lost the life savings of hundreds of thousands of Australians. Between 2006 and 2010 we saw the collapse of Storm Financial, Opes Prime, Trio Capital and Westpoint Property Group. This has resulted in more than $6 billion in losses and has involved more than 120,000 people losing their life savings. The member for Fraser detailed some of the personal experiences of those. I have had people come to me in my electorate talking about similar circumstances where they have lost their entire life savings. It is tragic. I can certainly empathise with them because I, myself, have seen faulty financial advice, which was nowhere near as tragic as what was involved in these particular corporate collapses. But I remember as a young 20-year-old, having entered the workforce, and coming from a family that emphasised savings for your retirement, I went off and saw a financial advisor. That financial adviser spent a sum total of 10 minutes with me. He put a brochure in front of me for a particular bank's products and said, 'This is a goer and if you invest in this regularly, you'll be well looked after.' Being a young 20-year-old, probably not having spent as much time on it as I should have—so some of the responsibility certainly bears with me—I invested in that product. Thankfully, that product did well despite the 10 minutes the financial adviser spent with me. But he never disclosed to me that he was reaping two per cent of the regular contributions I put into that product. For the eight years I invested in that product, and for the 10 minutes work that gentleman did in providing me with a pamphlet, he received two per cent of every dollar I put in. As I said I came off lucky, but that is symptomatic of an industry in serious need of reform.

That led the last Labor government to introduce a series of very significant reforms that were supported by consumer groups and the more responsible members of the financial services industry. I recognise that not all advisers are shonks. Most financial advisers are deeply responsible people committed to the clients' best interests. But there is a minority who have done the wrong thing and it has had a very dramatic impact on our society.

It is interesting to quote from an ASIC survey that Peter Martin in the Fairfax papers highlighted a few weeks ago. In this survey by ASIC, it was found that 86 per cent of Australian consumers surveyed said that they had received good quality advice, 81 per cent said that they trusted their advice a lot. But when ASIC examined that advice, they found that only three per cent of that advise could be classified as 'good', 58 per cent was classified as 'adequate' and 39 per cent as 'poor'. This survey demonstrated two important foundations for Labor's reforms: first, that there is an asymmetry of information and that the Australian public like financial education, and second, when you apply an evidence-based assessment, then a lot of financial advice could be classified as 'poor'—40 per cent of financial advice being classified as 'poor'. This survey by ASIC also founded advisers who renounced commissions were most likely to provide good advice. ASIC concluded that unsurprisingly where advice fees was contingent on a product recommendation, then there were numerous examples where the advice appeared to be structured towards recommending or selling financial products. So this is the evidence of ASIC that, quite frankly, is consistent with a lot of other conclusions.

On Labor's package, Choice said consumers had more reason to have confidence in financial advice they received with the successful passage of those reforms. To quote Choices' chair:

This is a big win for consumers because advisers are now obliged to put the interests of their clients ahead of their own when providing financial advice.

CPA Australia and the Institute of Chartered Accountants Australia encapsulated the positive reception these reforms received, in the responsible elements of the financial services industry, by saying: 'The passage of the FoFA reforms was the result of extensive, widespread consultation over many years.' This is in contradiction with the claims over the other side that FoFA was some fly-by-night gut reaction to a specific collapse. Nothing could be further from the truth. The industry's own practitioners acknowledged that the passage of the reforms was the result of extensive, widespread consultation over many years. To continue with the quote:

Its introduction marked a milestone opportunity for the sector to take a greater responsibility and refocus its efforts on providing and promoting quality financial advice in the best interests of the client, free from conflict and in a transparent manner.

Someone who is not renowned for being a friend of Labor, especially the last Labor government, is Alan Jones—not you, the member for New England, but he is someone almost as opposed to Labor as you. He said: 'I'm no fan of the Labor Party'—evidently very true—'but I think on this issue their legislation is correct'. I would submit that to get praise from Alan Jones for a Labor Party reform means it must have passed a very high bar indeed!

The key parts of these reforms were around the 'best interests duty', a legislative requirement to ensure that the processes and motivation of financial advisers are focused on what is best for their clients. These include: requiring financial advisers with an ongoing fee arrangement with a retailer client to obtain their client's agreement at least every two years, to continue that ongoing fee arrangement; annual disclosure with fee-disclosure statements providing customers with a single statement that shows, for the previous 12 months, the fees paid by the client, the services the client received and services the client was entitled to receive; and a ban on conflicted remuneration, banning the licensee and their representatives from receiving remuneration that could reasonably be expected to influence the financial-product advice given to retail clients.

We have a situation where FoFA had been barely implemented; in fact, the new government was doing everything it could to avoid implementation of these very important reforms. At this stage, the new government decided to water them down. This was in response to the pleadings and bleatings of the big banks and the more irresponsible elements the financial services industry, who came and saw them. As the member for Hasluck said, he saw plenty of financial advisers but not a single client or victim of the corporate collapse.

The government's changes remove vital protections. They remove the essential catch-all provision 'in best interest'. This adds a loophole for advisers that means best interest will become ineffective. We will hear plenty from the other side about these six other tests that financial advisers must tick. The truth is, without the important catch-all provision that requires financial advisers in all other circumstances to act in the best interests of their client, these other six tests are meaningless. Dr Paul O'Shea from National Seniors Australia argued that this amendment 'would reduce the advisers' responsibility to act in the best interests of clients and allow advisers to hide behind a tick-box exercise on a limited list of actions'.

Secondly, the government's changes scrapped opt-in, allowing advisers to continue to charge fees—sometimes without having actively worked on a client's file—indefinitely, without receiving consent from the client. This is a really important and dramatic change. The truth is, two-thirds of financial-planning clients are passive. They receive no continuing service from their advisers. In fact, under the arrangements the coalition government is seeking to enact, advisers would be getting a fee for no further service, not a fee for service. That is a dramatic weakening of the provisions.

Thirdly, they amend the annual-disclosure requirement so that advisers only have to provide annual disclosure to clients who commenced with them after 1 July 2013. This is dramatic. Why is it okay to have transparency for advice post-2013 but not for clients pre-2013? Perhaps the worst change in this legislation is lifting the ban on conflicted remuneration so that the ban on conflicted remuneration will only apply to commissions on general advice. This will open the door for a sales-push culture of products rather than focus on the provision of quality personal advice. Clearly, it is not in the personal interest.

CPA Australia was of the view that the trouble with commissions was the potential to create real and perceived conflict of interest:

CPA Australia has said consistently that the changes the Government is seeking to make to FoFA tip the balance too far the wrong way and erode important and hard won consumer protections.

The important thing is the coalition government will say they have abandoned it, but they have left so many loopholes that you could drive a truck through it. Banks are allowed to send their advisers and other representatives on trips overseas as rewards, commissions of up to 10 per cent, volume-selling commissions, are still available.

Quite literally, they have lifted the ban on conflicted remuneration, and this will lead—without any doubt—to more financial collapses. It is, without doubt, a factor that drove the collapses we saw previously that led to $6 billion in losses and 120,000 people losing their life savings. The government lifting the ban on conflicted remuneration will open the door to more corporate collapses and will be on the heads of the coalition government and the members who vote in favour of these changes when these collapses come.

The truth is that the compromise with the Palmer United Party does not solve any of these issues. The changes were purely superficial and do not to anything of substance. I quote some of the responses from expert groups. CHOICE CEO Alan Kirkland said today when the Senate passed this compromise:

Today, the Senate has failed the best interests of consumers, and failed to learn the lessons of repeated financial advice scandals and collapses, where Australians have lost their life savings.

Economic correspondent Peter Martin, of the Fairfax papers, said:

Clive Palmer has been conned. In the most exquisite of ironies he has allowed the Coalition to water down financial advice rules without first seeking advice.

And:

The regulations Palmer has agreed to will allow banks to continue to reward advisers for shifting their products … Payments or in-kind payments not linked to the sale of a particular product are fair game … They are generous loopholes. They would have been illegal had Palmer not caved.

The further response from the government, when people voice their opposition to these changes, is to attack these voices and say they are vested interests with political motivations—people like National Seniors, the CPA and Industry Super Australia. Well I am proud to stand with the seniors of Australia in opposing these changes. These changes, according to modelling, will cost consumers $500 million per annum, a lot more than the supposed savings—and red tape—that these changes attest to, which are not credible.

I am proud to stand with the consumers of Australia. I am proud to stand with the seniors of Australia. I am proud to say that Labor introduced very significant consumer protections that were supported by the responsible members of industry—changes that would, in the future, help avoid collapses like Storm Financial. These changes are now being watered down through a dodgy deal between the coalition government and a minor party. These changes are at behest of the bankers, the spivs and the worst elements of the financial industry. It will be on the heads of those opposite when the next collapse comes through and it is demonstrated that it could have been avoided, or at least mitigated, by strong protections around acting in the best interests of consumers or conflicted remuneration. So I am proud to stand on this side. I am very confident the Labor will be on the right side of history on this debate, as we are on most things.

12:53 pm

Photo of Bert Van ManenBert Van Manen (Forde, Liberal Party) Share this | | Hansard source

I would just like to make some brief comments in relation to the contribution from the member for Charlton. I would like to remind the member for Charlton that his closing comments were, to be kind, completely disingenuous, because these FoFA reforms will do nothing to stop investor losses in the event of another global financial crisis. In fact, if ASIC had actually done its job—it is a bit like the situation that we have recently seen with the CBA and Macquarie Group—we probably would not be discussing the Storm Financial issues.

The other issues around failures were in relation to a failure of product. I think it is worthwhile to enlighten those opposite about the process to get a product on an approved product list of an adviser. An adviser cannot just recommend any product out there in the marketplace. It needs to be researched by a research house. It then goes to the dealer group and to its investment committee for it to consider whether the product goes on the approved product list. Then, once it is on the approved product list, the adviser can recommend it to a client if it is appropriate. But in this whole situation all we have ever done is talk about the advisers. What about talking about the dealer groups or the research houses and the failure of their processes to pick up these products in the first place?

It is also instructive to note that, in the Cooper review, there were some 17 recommendations around trustee governance issues, of which the industry super funds are the primary culprits. Yet, those opposite, when they were in government, sought to do nothing in relation to fixing up trustee governance in the industry super funds. I wonder why that is, member for Charlton. You have not spoken on that, and the protection of the interests of members of industry super funds. Have a look at some of the stuff that they are doing to their clients in rolling over super funds without any consideration of their insurance requirements and other needs of those industry super fund members. So, member for Charlton, do not be too proud of what the former government did not do.

In reality, some of these changes with respect to FoFA, aided and abetted by those of the industry super funds, are purely a rent-seeking exercise. It is, at the end of the day, a battle between the industry super funds and the banks to gain control of a portion of the compulsory acquisition from Australian salaries of the SG charge. In particular, the union-managed industry super funds have lobbied hard and sought to dirty up advisers at every opportunity. They have sought to achieve a crackdown on avenues of financial advice outside the superannuation system. It is important to remember that the financial advice industry is not just about superannuation; it is about investments, wealth creation, debt reduction, life insurance and income protection. There is a whole suite of issues that professional financial advisers provide advice to clients on.

I am proud to stand up here and support the changes to the Corporations Amendment (Streamlining of Future of Financial Advice) Bill 2014 that the government has sought to introduce to reduce the red-tape and regulatory burden on that industry and, by extension, to start to reduce some of the costs to clients who require that advice. The government's improvements are designed to deliver more affordable access to high-quality financial advice.

Those opposite have succeeded in spreading a wonderful misinformation campaign about the government's improvements to FoFA—thanks to the encouragement, as I said before, of the union-dominated industry super funds, who have been coordinating that very campaign. I want to reiterate—and this is critically important—that the government's FoFA improvements do not water down consumer protections, despite what those opposite continue to say. Consistent with our commitments before the last election, the statutory requirement for financial advisers to act in the best interests of their clients remains in place, as does the ban on conflicted remuneration, including in relation to general advice which would conflict that advice to drive product sales.

We took these changes to the last election. As we promised to do before the last election—in effect, we first announced this policy position back in March 2012—we have removed the requirement for an investor to keep re-signing contracts with their advisers on a regular basis. We have simplified and streamlined the additional annual fee disclosure requirements. We have sought to improve the operation of the best-interest duty and provide certainty around the provision and availability of scaled advice.

I think that the availability of scaled advice is a key issue, because there are people who go to advisers who want advice on a particular aspect of their circumstances. I know from talking to my local advisers that some 10 per cent of the people that come to see them will not proceed with advice because of the cost—somewhere, currently, between $2,500 and $4,000 for a full financial plan. So the availability of scaled advice is going to make it much cheaper for those people to go and see a professional adviser at a cost that is commensurate with what they can afford.

These measures are expected to reduce costs across the financial advice industry of approximately $190 million a year. That will flow through to savings benefits for clients, as I said earlier. We have also dealt with a number of mistakes and unintended consequences which were the result of sloppy drafting by the previous government. Now, to all of us in this place that is no surprise. Fixing Labor's grandfathering arrangements, which had an effect in lessening competition by effectively forcing planners to stay with the existing licensees, is but one example of where we have had to make changes.

We do not resile from the fact that we need a robust and efficient regulatory system. But it must be competitively neutral so that people saving for their retirement, whether through an independent financial planner, through a financial planner with a major bank or through an industry super fund, have consistency of regulation and access to advice. We can manage those financial risks somewhat through life by receiving affordable, high-quality advice. But we need to remember—and I think this is critically important—that this is about the quality of the advice. But neither the adviser nor the dealer group can control the returns or the activities of the share market and global markets. There will always be risk in any advice that is given—product advice particularly.

Another important part of this is the strategic advice. We need to look at those two issues separately. We need quality, strategic advice to underpin any product advice that is then provided to a client. There is no way, through any legislation in this House or in any other place, that we can guarantee returns to clients and guarantee that there will never be any failures in the event of another global financial crisis. Those opposite, who claim that that could possibly be the case, are misleading Australian consumers.

To return to the substance of the bill: specifically, the government has agreed to make further improvements to our financial advice laws. We have made it very clear that the adviser is required to act in the best interests of their clients and to prioritise their clients' interests ahead of their own, consistent with the requirements in the Corporations Act under subsections 961B and 961J. Many good professional advisers have been doing that in their practices for many years. Many of these people have been in the industry for 20, 30 or 40 years.

The changes also clearly state that any fees are to be disclosed and that the adviser will provide a fee disclosure statement annually if the client enters into or has entered into an ongoing fee arrangement after 1 July 2013. We will also ensure that a client has the right to return financial products under a 14-day cooling off period in accordance with the requirements currently provided under division 5 of part 7.9 of the Corporations Act. Also, the client has the right to change his or her instructions to their adviser if, for example, they experience a change in their circumstances. Any instructions to alter or review it must be in writing signed by the client and acknowledged by the adviser. There will be a requirement in these regulations that on the statement of advice the financial adviser provides an explicit statement that he or she genuinely believes that the advice provided to the client is in the client's best interest, given the client's relevant circumstances. There will also a specific requirement enshrined in these regulations that the statement of advice is to be signed by both the adviser and the client. In my experience, most reputable financial advisers have been doing that for a long time. These changes will be implemented through regulation and as required in the amendments to actual legislation currently before the parliament.

This government has been working in consultation with relevant stakeholders throughout the industry to establish and enhance a public register of financial advisers, including employee advisers, which includes a record of each adviser's credentials and status in the industry.

In closing, I think it is worthwhile just to go through some of the claims being made by those opposite and to clarify those—to clear up the fact that what they are actually enunciating is incorrect. They make the claim, supported by the industry super funds, that this allows conflicted remuneration to be earned by staff giving general financial advice. This claim is wrong. Our improvements to FoFA do not bring back commissions or any other conflicted remuneration from product sales based on general advice. The exact opposite is in fact the case. Our regulations explicitly prohibit payment made solely for financial product of a class in relation to which general advice was given and which has been issued or sold to the client, and any recurring payment made because the person has been given general advice.

They also make the claim that commissions on execution services will be allowed. This claim is also wrong. Execution-only provisions do not reintroduce commissions. Anti-avoidance provisions work to prevent collusion between advisers trying to gain the provisions to obtain conflicted remunerations. They make the further claim that it will allow the banks to pay commissions on all basic banking products. Again, this claim is plain wrong. Basic banking products are already exempt under the FoFA laws introduced by the former Labor government. The government's amendments will simply include consumer credit insurance products, given that these products are also regarded as basic banking products.

They make the claim that it will allow banks to pay commission based bonuses to their planners by balanced scorecards. This claim is also wrong. The balance scorecard arrangements were envisaged under the FOFA laws introduced by the former Labor government, as per their second reading speech and explanatory memorandum. This government's proposed regulations simply provide clarity that these payments can be made. And, importantly, they make the claim about extending grandfathering so that commissions can be traded. The government's amendments make improvements to the FOFA grandfathering provisions to address unintended consequences and to facilitate competition in the financial advice industry. The former government had previously acknowledged several times that this needed to be done.

As I said at the outset, these changes to FOFA will make financial advice easier and simpler for advisers to provide to clients. They will clarify inconsistencies created by the former government in its desire to do the bidding of the industry super funds, and they will allow the professional financial planners in the industry to get on and do what they do best—that is, provide professional advice to Australian consumers.

1:08 pm

Photo of Alannah MactiernanAlannah Mactiernan (Perth, Australian Labor Party) Share this | | Hansard source

It has been most interesting listening to some of the contributions from the other side because it would appear that they think the legislation that is now being amended somehow or other arose in some sort of vacuum and was just a manifestation of a Labor government wanting to introduce a nanny state. There seems to have been a complete corporate white-out of the disastrous events that led to the various parliamentary inquiries, the recommendations that came out of those inquiries and the legislative measures that were put in place to try to reduce the prospect of some of the worst features of the collapse of Storm and Westpoint from happening again.

I agree with the previous speaker, the member for Forde, that no legislative change is ever going to absolutely guarantee that we will not have some problems. But when we have disastrous regimes in place—when we see literally thousands and thousands of investors losing their life savings, losing their superannuation—and we have a parliamentary inquiry where very clear recommendations come out as to what we need to do to improve the system, then it is incumbent on us to reflect very deeply on the changes now being proposed that would water down those protections that were introduced.

These were not insignificant events. Westpoint was one that particularly affected Western Australians. We saw with Westpoint that in the end there was around $400 million of savings, of Australian savings and superannuation, that was lost by more than 4,000 small investors. Many hundreds of those, if not thousands of them, were Western Australians because this was a company that had its origins there. I was very surprised—or disappointed I guess—when I heard the member for Hasluck making references at the beginning of his speech to how, as adults, as part of growing up, we need to accept responsibility for the decisions that we make. I think he was very much reflecting on the decisions that were made by investors to invest in projects like Westpoint—projects which appeared to have been approved under a regulatory framework and which obviously collapsed.

The member for Hasluck spoke of gross regulatory overreach. Again, unfortunately, there is this complete failure of memory, complete disconnect, about what led us to introduce this legislation into the parliament in the first instance. It was in fact because we had regulation that failed. And it is important for us to understand when we are talking about caveat emptor—that is, the buyer should beware—that part of the problem is that we have a regulated industry, and people feel that if they are dealing with people who have been regulated they then feel they have a certain measure of protection and they feel a certain measure of confidence that we have a regulatory regime that is going to provide them a certain amount of protection. So while it cannot guarantee a particular interest rate, it certainly leads people to believe that they can have some sense of security because we have got a regulatory regime in place. So when that regulatory regime fails, as it did so spectacularly in the Westpoint case, leaving more than 4,000 people without their life savings and their superannuation, then we have to go in and ensure that we tighten that regulatory framework.

This is not regulatory overreach; it is what we need to do as a decent society to ensure that people going out there in the marketplace and investing their money have got a reasonable prospect that these funds will be secure. We know in the case of Westpoint that it is a very clear example of financial planners being enticed into these mezzanine schemes: the returns for them were incredibly good and they, by all accounts, appear to have put their own interest before that of their clients in making these very enthusiastic recommendations.

Indeed, I am looking at an article that appeared in TheWest Australian last year that pointed out the failures that we saw with ASIC. In the case of Westpoint it is very unfortunate that as early as April 2000, ASIC officers in Perth were concerned about the high-interest high-risk financing schemes that Mr Carey, the chief proponent of Westpoint, had been making. The ASIC officers in Perth had their concerns and the files were handed over to the ASIC officers in Melbourne. Those ASIC officers subsequently let Mr Carey's lawyers in Perth know that they had completed their review and did not have any plans for regulatory action. Neale Prior from The West Australian goes on to say this gave eager product floggers in financial planning firms across Australia a green light to connect big commissions for putting their clients into Westpoint schemes.

So quite clearly the regulatory regime failed. It was not that this company had not come to the attention of ASIC but the regulatory regime that we had in place allowed these financial planners then to move and to take those very high commissions from the mezzanine financing outfit. It is quite a sorry story that goes on. The company and the financial planners continued to operate unabated and by the time any action was really taken in around 2005 already $250 million was owing to investors in seven different schemes. Indeed, by the time the whole thing collapsed, over $400 million had been lost by Australians.

We have seen precisely this same failure to accept. The failure that we saw, I have to say, all happened on the Howard government's watch. There were years and years of warning that this was happening, with no regulation and a failure to regulate. We saw exactly the same with the financial brokers in Western Australia in much the same way throughout the second half of the 1990s. We saw these schemes that involved finance brokers, valuers and real estate agents colluding and selling these very deceptive products to investors, and really targeting the elderly. As a result of that, again, hundreds of millions of dollars were lost by thousands of investors when we had been drawing the Liberal government's attention to this. But their desire not to engage in regulatory overreach led to absolutely the same inertia in relation to the financial planners. When Labor got into government we immediately commissioned inquiries and a royal commission to ensure that at least we changed the legislation and put in place the protections that were necessary to give greater security and greater control over people acting against the interests of their client.

I say to those members of the government that are presenting this series of amendments, as if this is a completely unwarranted case of regulatory overreach, to actually consider the circumstances, consider that this arose out of a gross regulatory failure that has left thousands and thousands of Australians in a perilous financial position. The principles in the original bill came out of a parliamentary inquiry and a very detailed investigation of what was needed to put this industry on a firmer path. I guess we are very concerned that once again the conservative government is playing into the hands of big business and is prepared to put the interests of big business before the interest of ordinary Australians.

1:19 pm

Photo of David ColemanDavid Coleman (Banks, Liberal Party) Share this | | Hansard source

I am very pleased to speak on the Corporations Amendment (Streamlining of Future Financial Advice) Bill 2014. I think this whole area really is a good insight into the differing approaches on the differing sides of the House because there is a temptation to seek to regulate all conceivable scenarios in a particular industry so as to manage any situation that could come up. Of course, on the odd occasion things do go wrong and there is a natural tendency to ask: what can we do to minimise that issue? But there is also a risk that, in the process of trying to fix the evils that you perceive, you can really hurt an industry very substantially—so much so that you actually make things worse. In trying to create a more perfect world, you actually create a less perfect one.

I have some experience in this area. I served on the board of a company called Yellow Brick Road, a provider of financial advice, mortgage advice and various other products so I do have some understanding of this area. One of the things that I learned from that experience was that you need to be careful before you regulate too aggressively in this space. Again, we do not want to create a scenario where the only people who can afford financial advice are wealthy Australians. In fact, that is the exact opposite of what we want to occur. We want a situation where the average family is thinking about their future, thinking about their kids' education, thinking about superannuation, thinking about maybe buying an investment unit—all those things that millions of Australians think about. It is very important that there is somewhere where those people can turn for advice and it is very important, frankly, that it does not cost them an arm and a leg to do so.

The problem with over-regulation is that you create such complexity for the provider of the service that the only people who can provide the service are those who have jumped through a hundred hoops and, consequently, are able to provide the service. But the price of jumping through all of those hoops is a very high compliance burden. Who pays for that? It does not matter what the industry is, and it does not matter what the source of the cost is, wherever the cost comes from, the person who ultimately pays for it is the consumer. That is not what we are about. We are about providing sensible regulation in the financial services space, but we are also about ensuring that we have a viable financial advice industry—an industry that can provide advice to people in the suburbs of my electorate and not just to people in the big end of town. Ironically, the Labor so-called reforms in this area risk exactly that. They risk promoting a situation where the only people who can get financial advice are those people who can pay thousands and thousands of dollars for it, and that is just wrong.

There are a number of areas that the legislation touches on. One of the really important areas is scaled advice. This is an important area to understand because it really goes to the heart of the differing approaches. 'Scaled advice' sounds a bit like a technical term, but it is really pretty simple. It means that if I go to a financial adviser and say, 'I want advice about life insurance,' the adviser can simply focus on life insurance products. The adviser in that circumstance does not have to boil the ocean, so to speak, thinking about every conceivable investment product and every conceivable situation that may or may not occur in the future; the adviser can simply say: 'All right, he wants life insurance. What are the right products for somebody like him, in his age group, with his family profile and his income?'

This is really important, because under the existing reform by the previous government there was a great deal of uncertainty about scaled advice. I have met with people in the industry about this issue and there is a lot of concern. As a financial adviser, if I am asked to solve problem x then that is fair enough; I will solve problem x. But I should not also be expected to solve problems a, b, c, d, e, f and g. This is a really important point because of the cost involved in providing that advice. The adviser knows that they are only expected to provide the advice that they have been asked to provide.

In the context of providing scaled advice the adviser must act in the best interests of the client. In the example of life insurance, the adviser would be in contravention of the act if they did not, in a diligent and responsible fashion, look at the life insurance products that were most appropriate for the client, but the adviser does not have to say, 'You've asked me about life insurance; let me tell you about an index fund in Norway that might be good for you.' It might be good for you, but it might not have anything at all to do with superannuation.

Another area that is very important to understand is around the best-interest test. It is in this area where we have heard some of the more over-the-top, hysterical commentary from those opposite. Of course, under the Corporations Act, it is an absolute requirement for a financial adviser to act in the best interests of their client, and it continues to be. In fact, the act and other legislation, go into some really quite specific provisions about the sorts of things you have to do as a financial adviser. So if you are sitting in Hurstville in my electorate, providing financial advice to a small business employing only one or two people, there is already a quite significant burden—appropriately so, because it is important that these advisers act in the best interests of their clients. The adviser has got to base all judgements on the client's relevant circumstances, conduct a reasonable investigation into the appropriate financial products, ensure that the adviser has the relevant expertise and tell the client if you do not. The adviser has to make inquiries to get complete information, because a client might tell you a number of things about themselves but they might neglect to tell you about their other bank account or investment property. As an adviser, in order to address the best-interest test, you must make sure that the client gives you the full picture. The adviser also has to identify the objectives, financial situation and needs of the client. So, there is really a very extensive range of requirements in relation to this best-interest test.

The dispute arose in relation to another clause, in addition to all of those other clauses, that the previous government had inserted. Basically, the clause said that even after you have acted in the best interests of the client, even after you have done all of these other things and addressed all of these various specific requirements within the legislation, you then have to do anything else that might have been good for the client. Imagine a small business person with one or two employees, with a small turnover and not a lot of time to conduct academic research in the process of providing advice. That adviser has acted in the best interests of their client and checked off a significant list of items that they need to follow. They have been reasonable, have made sure that they have the expertise, have asked all the right questions and looked at different products. If they do all of that it is not enough because, under the previous government's legislation, this vague clause—it is infinite in its applications—says, basically, 'And do anything else that might be a good idea.' That is a provision that is so broad that it is not a practical thing to ask a financial adviser to do.

If you are sitting in a big office tower in the CBD of Sydney in a multimillion-dollar operation, and you have got 20 compliance officers working with you, it would still very difficult but it would be more within reach. But it is not fair to expect a small business adviser to go through that process and it is counterproductive to clients. Do you know why it is counterproductive to clients? It is counterproductive because for an adviser to be able to sign-off and say, 'I have done absolutely anything else that might have been appropriate,' you can imagine the additional cost and resources that are required.

Debate interrupted.