Wednesday, 4 August 2021
Financial Sector Reform (Hayne Royal Commission Response — Better Advice) Bill 2021; Second Reading
Westpoint, Trio, Opes Prime, CommInsure, Timbercore, Storm Financial, fees for no service, forged signatures on loan documents, breaches of anti-money-laundering laws—the list goes on. Australians have had a gutful of wrongdoing in the financial sector, and yet the Liberals have consistently fought against stronger consumer protections. Labor's Future of Financial Advice reforms, which required an annual opt-in to commissions so people couldn't simply have money taken out of their accounts without their knowing, was opposed by the Liberals year after year. Senator Bragg last year finally confessed that the Liberals had done the wrong thing in opposing FOFA. But, as the member for Fraser noted in that debate the two of them had at an AFSA event, the Liberals have for too long been in the pockets of the financial industry. The royal commission was opposed by the Liberals for 18 months. They voted against it 26 times. The Deputy Prime Minister, Barnaby Joyce, has apologised, but the Prime Minister, Scott Morrison, has never apologised for delaying a royal commission into the financial sector and for only supporting one after the Australian Banking Association finally called for one.
When the report was finally brought down, you had that awkward photo-op between the Treasurer and Kenneth Hayne in which the Treasurer looked for all the world like a naughty kid cosying up to Santa, hoping Santa will smile on him, when he knows deep down he's spent a year being very, very bad. The fact is that the Liberals never wanted FOFA. They never wanted a royal commission. And now, in the House Standing Committee on Economics, of which I'm the deputy chair, they are trying to remove the twice yearly scrutiny of bank CEOs. Right now, bank CEOs turn up for 90 minutes every six months. The Liberals think that's too much scrutiny, and they're aiming to try and reduce it. If you want to know what the Liberals really think about the Hayne royal commission, don't listen to what the Treasurer says; listen to what people like the member for Goldstein, Tim Wilson, Chair of the House Standing Committee on Economics, says. He said in the House Economics Committee on 29 July:
I just find it very frustrating that a lawyer hands down a tablet that's equated to the Sermon on the Mount on the future direction of an industry, and then we can't challenge or contest whether it was actually right or whether the outcomes—if we implemented what it recommended, the lawyer's interpretation—would be in the best interests of the country—
That's the member for Goldstein. Then there's the member for Mackellar, Jason Falinski, who goes further, saying:
… the Hayne royal commission was deficient. It was deficient in its inquiry; let this chamber be in no doubt.
That was him on 26 May. On 29 July, the member for McKellar said in the House Economics Committee:
I think it is clear that this committee should recommend to the parliament that many of the remaining Hayne royal commission recommendations will do nothing more than harm and damage to ordinary Australian consumers.
So they had that brief moment of wanting to look like they supported the Hayne royal commission. But now they are back to their old tricks, standing up for the financial sector, standing against the interests of consumers.
The fact is that this bill will enjoy bipartisan support. The bill reflects changes which have taken place in FASEA, an organisation set up by the Liberals in 2019, which has had three CEOs in two years and is now being disbanded. Labor believes we need more consumer voices. In a House Economics Committee hearing recently we heard from the Consumer Action Law Centre's Gerard Brody and Cat Newton, who spoke eloquently about the importance of the consumer voice in ensuring that we have less wrongdoing from the financial sector.
All of this illustrates the problems of transparency, problems which were clearly apparent in the JobKeeper program, which saw some $13 billion being paid to firms with rising earnings, and problems which could well arise with the business payments that have been supported by both sides of the House to deal with the Sydney lockdown. In my view, if we're handing out money to businesses, then we should learn the lessons of JobKeeper and we should have a public register whereby every firm with a turnover above $100 million has their details published. If you're a firm turning over more than $100 million and you're getting government handouts to support you through the COVID pandemic, then the Australian public should know about it. I move:
That all words after "That" be omitted with a view to substituting the following words:
"whilst not declining to give the bill a second reading, the House note the Government has:
(1) failed to effectively deliver professional standards reform in the financial advice sector;
(2) been too slow to implement the findings of the Hayne Royal Commission;
(3) established and then shut down the failed Financial Adviser Standards and Ethics Authority;
(4) failed to adequately protect consumers; and
(5) caused uncertainty and unnecessary costs for thousands of financial advisers across Australia".
The original question was that this bill be now read a second time. To this the honourable member for Fenner has moved as an amendment that all words after that be omitted with a view to substituting other words. If it suits the House, I'll state the question in the form that the amendment be disagreed to.
[by video link] In my first few months as a freshly minted MP, I had the very distressing experience of having to meet with hundreds of constituents of mine who had worked their entire life to accumulate a retirement nest egg—most of them through a well-managed industry superannuation fund that had accumulated good returns over the terms of their working life. Tragically, they succumbed to the siren calls of one particular local financial adviser who sold them into a financial product which was being touted by a business—which we subsequently learnt was run by a bunch of fraudsters—known as Trio. They lost their entire life savings, every last cent of it. And they were not alone; there were thousands of people like them around the country. Whether it was Opes Prime, Trio, Storm Financial or many of the other spectacular corporate collapses of the first decade of this century, hardworking Australians lost their life savings, with no compensation, due to unprofessional and downright dodgy financial advice and they had no recourse.
It was because of this that Labor established an inquiry into the financial advice system and established an inquiry into what had gone on with Opes Prime, with Trio and with Storm Financial. We commissioned the Parliamentary Joint Committee on Corporations and Financial Services to investigate and make recommendations. The final report, named the Ripoll report, after the then chairman of that committee, made a number of recommendations which were taken up by the Labor government. We established in law a statutory best-interest duty for financial advisers, requiring that they act in the best financial interest of their clients. We established an obligation that fees had to be based on an explicit permission given annually by a client for those fees to be extracted. We enhanced the power of ASIC to ensure that they could police the advisers and ensure that they had more powers to ban advisers who were acting unprofessionally or unscrupulously. We put a prospective ban in place on trailing commissions and we made a recommendation that professional standards be established for the financial advice industry.
What's remarkable about all these changes in the first instance is that it took so long for these rather modest changes to be put in place, essentially turning financial advice from what had once been an emanation of a sales force from the large-life officers of this country into a truly independent and professional body—a profession of financial advisers. It was remarkable that it took so long, but, in terms of the federal parliament, what was also remarkable was that the coalition parties opposed the FOFA reforms and vowed to unwind them if they ever achieved government—and they attempted to unwind them. In fact, in the first two years of the Abbott government they put in place a number of measures which wound back those original FOFA reforms. They intended to do much, much more, but events took over. We had, after much resistance from the coalition party, the Hayne royal commission, which was a watershed in the way the public got an insight into the industry and what needed to be done to reform that industry.
This bill before the House recommends what is now a nearly three-year-old commitment by the government to implement recommendation 2.10 of the banking royal commission. It does so by expanding the role of ASIC's existing Financial Services and Credit Panel to operate as the single professional and disciplinary body for financial advisers. It also creates new penalties for advisers who breach their professional obligation and introduces a new two-stage registration process for financial advisers. It completes the wind-up of the coalition's failed Financial Adviser Standards and Ethics Authority, removing its power to set professional standards for financial advice. I'll return to this in a moment.
It is worth noting that this bill has been examined by the Senate economics committee and has received bipartisan endorsement by that committee; that's a good sign. It means that Labor will be backing the bill. We also support the bipartisan recommendation by coalition chair Senator Brockman and his committee to ensure that there's a proper review of this legislation in two years time. There can be no 'set and forget'.
No-one can see any of these changes and what has emanated over the 12 years since the Ripoll report as anything more than a public policy failure and an enormous admission of failure by the coalition government. The government's management of financial standards reform has been a slow and painful trainwreck not just since the banking royal commission but since the 2016 parliamentary report, a bipartisan report by the corporations and financial services committee, that recommended professional standards reform in the financial advice sector.
I just want to repeat this point: it's been 12 years since the Ripoll committee said we needed financial standards. It has now been five years since the 2016 bipartisan parliamentary report by the PJC, which recommended professional standards. That's two parliamentary bodies that have said we need professional standards. And it's been two years since the minister, Senator Hume, had to—in a gross admission of failure—introduce a bill into the House to extend the already-generous time lines for implementing the new professional standards and the tests required. So: 12 years since Ripoll, five years since PJC and two years since the government had to, in an embarrassing admission that it had completely stuffed up this whole area, extend the time lines for implementing new professional standards.
And now, today, we have the abolition of FASEA, the administrative body that was established in 2019 under the then Treasurer—the current Prime Minister—which stands out as an abject failure in public policy and in administration and a failure amongst failures. They went through three CEOs in their first 18 months. They failed to produce standards in a way that was in any way timely or done in an adequate fashion. Advisers themselves were tormented with changes and complications to the exam process, and they were set standards and tests on things that had, in many instances, absolutely no bearing on the professional work they were performing in their practices. That says all you need to know about this Prime Minister: big announcements but no follow-through—an abject failure in public policy. Labor has always been in favour of reforms that are going to support a professional consumer-focused financial advice industry. But the government's implementation of those reforms has demonstrated nothing other than reckless incompetence.
I want to pause to point out that financial advisers are a constituency where, if you took them as a whole, you would say that there are probably more Liberal voters amongst them than Labor voters. This is a constituency the coalition likes to think of as their own, but they have treated them so appallingly, not only in the design and implementation of professional standards but in the ongoing incompetence in the administration of this profession. It is no wonder that members of this profession are standing up and questioning their lifelong commitment to Liberal Party policies or Liberal Party governments. They are asking, 'Why are we backing these guys when, every step of the way, they have sold us down the river and shown monumental incompetence and a lack of understanding of our profession and our industry and what is needed in order to properly regulate it?'—to remove those people from the profession who we all agree do not belong and ensure that financial advisers can do the critical job that is needed to provide Australians with timely, accurate professional advice in the best interests of those clients.
Labor will work with industry for solutions to these issues. That's why, in part, even from opposition, we have written to the Treasurer to demand that he review ASIC's industry funding model. It's why we've called for a greater recognition of specialisations and experience in the educational and exam standards for the many callings across the financial advice industry. These are issues that must be dealt with, and Labor is committed to dealing with them. But the question of how to fix the government's failures is only half of the equation. The other half of the equation is what this country needs to ensure that Australians can get the financial advice that they need. There's never been a more important time for Australians to have access to good financial advice. The pandemic has led to the restructuring of business and household finances and it's caused retirees and those planning for retirement to rethink their financial strategies.
Thanks to our universal superannuation system, which has come so much under attack from members of the coalition government over the last two years, Australians are now retiring with more money than ever—more money than at any time in our nation's history. It's extraordinary that, over 40 years, we've enabled a system which today has the average Australian male retiring with about $180,000 and the average Australian female retiring with about $118,000 in superannuation savings. The gap is too big, but it is worth pausing for a moment and saying that it is an extraordinary achievement. We are now retiring with more money than at any time in our nation's history. The system is working. Superannuation already contributes significantly more to retirement incomes than the Australian government does through the pension system—about $120 billion in the last financial year, as compared to between $60 billion and $80 billion from the Commonwealth in pension and related payments.
Superannuation is already doing its job, and we're retiring with more money, but never has it been more difficult for Australians to get financial advice of the type they need, scaled to and appropriate to their circumstances, so that they can make those critical decisions and make that money work in retirement, work for them and work for all of us to ensure that they are more self-reliant in their retirement. It's why we need to ensure that we fix this problem.
We know that the old model is broken—the old model that I alluded to at the beginning of this contribution, which was built essentially on a sales force. Insurance salespeople were selling products dressed up as advice and earning a commission on the basis of that. That model is broken, and we're never going back to that, but that does not mean that Australians don't need access to quality financial advice. They absolutely do. We need to ensure that we design a system which is viable for the advisers, that we have the right financial and professional standards in place and that there is a strong disciplinary body to weed out those who aren't adhering to the rules but let the rest of the industry get on and provide Australians with what they need.
The Financial Sector Reform (Hayne Royal Commission Response—Better Advice) Bill 2021 takes a small step—a very small step—in the direction of resolving some of those issues by doing no more than implementing the long-overdue recommendation of the Hayne royal commission and abolishing the government experiment, which has been an abject failure, delivered by the pen of the current Prime Minister when he was Treasurer of Australia and, like so much of what this Prime Minister does, all announcement and no follow-through. I commend the bill and the second reading amendment moved by the member for Fenner to the House.
It's a privilege to be able to speak in support of the Financial Sector Reform (Hayne Royal Commission Response—Better Advice) Bill 2021 in its original form. Rather that than the elite signalling of members of the opposition, who like to move amendments to government legislation so that they can say some things are good or some things are bad, mostly for their own indulgence and their ego, and to demonstrate that they're actually doing something in their jobs as shadow ministers.
Of course, we do need to give them credit: sometimes they do need to demonstrate some relevance to the public because at the moment they can't see that—both in terms of the coronavirus pandemic, where they're directly undermining the vaccine rollout, or in the policy debates that inform the future direction of this country generally. When it comes to the financial advice space and the financial services sector, we see the Labor Party at its hubristic worst. They seek to continue to demonise and dominate, and there are their alliances with their friends in the superannuation fund sector, who get bonuses paid up to $35 million paid out without any criticism. In fact, the other day we had an Economics Committee public hearing with the superannuation sector. We had the megafund investor on behalf of the superannuation funds, IFM Investors, appear before the committee. The simple question was asked, as has been asked many times before, of its CEO, 'Do you think that payments of up to $35 million in bonuses to fund managers are excessive?' I have made it quite clear that I believe they are. And, to his credit, the CEO of IFM Investors—eventually, after prodding and having to ask the question in about 10 different ways—also conceded that it was. What was the response of the Labor Party when we asked that question? It was to run interference and to try to shout me, as the chair, down from asking the question.
If you want to see the extent of the relationship, where the modern Labor Party wants to run interference and protect the interests of their mates in the superannuation sector at the expense of average Australians, superannuants, retirees and individual investors, just go and watch that clip—and watch the clips all the times when we bring superannuation funds before the House Economics Committee and ask questions of them which might put them in a negative light, or where they might have to admit something that they don't want to disclose to the parliament and, by its nature, to the people of Australia. The response from the deputy chair, the member for Fenner, is to try to silence us and shut us down.
In this inquiry, which has run throughout the term, we have seen, literally, super funds who keep saying they were exonerated by the Hayne royal commission—exonerated! They have nothing to hide, they've done nothing wrong, nobody is criticising them and they're fantastic, 'Just look at our returns.' They literally, deliberately and maliciously undermined the superannuation savings of Australian retirees by reactivating low-balance inactive accounts so that they could harvest them for fees and insurance premiums. That was so much so that we in this chamber had to change the law to stop their mismanagement and their behaviour. But they've got nothing to hide; everything is fine! Nobody dares raise any criticism or concern. The reality is that this government shines a bright light into the problems in the financial services sector wherever they exist. Industry super, retail, financial advice—it doesn't matter, because we know that we're on the side of one group of people, and one group of people only: the Australian people. It's consumers, their freedom to choose and their freedom not to be ripped off. If, one day, the opposition wants to join us in that crusade we'll welcome their support and their participation. But all I have seen as chair of the Economics Committee, and in this parliament, is their constant efforts to undermine, interfere and run interference against that core task because they would rather favour the interests of the few and their friends at the expense of the Australian people.
That is one of many reasons why they sit on the opposition benches. To hear the arrogance that comes from the member for Whitlam, to dare say that this government is doing anything to undermine Australian superannuants! I have never heard such an absurd and fantastical statement in this chamber—and, trust me, we all hear a few! In the lead-up to the last election it was the member for Whitlam and his other fellow members on the opposition benches who deliberately introduced and proposed a policy that would destroy the retirement savings of millions of Australians through a retiree tax. They would literally have shoved down the financial stairs 80-year-old single women because they had sacrificed and saved to be independent in their retirement. Their solution was to deny them their income and to push their heads below the water of the poverty line. I have never seen a more despicable act than this act by the members opposite, who continue to rationalise it at every step of the way.
We held public hearings and exposed Labor's plans directly to the Australian people. Labor continued to say: 'Oh no, those campaigns were misleading, and they deceived people.' How could you say that when the people who were speaking were describing exactly the impact it was going to have on them personally—when those people were talking about how they personally were going to be undermined, and be pushed down the financial stairs, and have their heads held below the water of the poverty line? You're calling them liars when you say that. You're not calling members of the government liars; you're calling those people liars—the Australian people. It's because you wouldn't listen, and you wouldn't learn the lesson, and you wouldn't understand or show any empathy for the impact it was going to have, that you found yourself on the opposition benches. This amendment, and all the positions of the Labor Party in the Economics Committee since, have shown us that Labor have not learned that lesson. They still will not listen, and they pay a huge political price.
Many Australians continue to live in fear of what would happen if there were a change of government. Many Australians sit there every day and think: 'If there's a change of government, is Labor going to come after me because they can't manage themselves? They can't manage the government finances. Will they ultimately come for my hip pocket, when they've wasted all their money?' We all know it's true: it doesn't matter what the issue, Labor can't manage money. When they run out of money, they come after yours. The current Leader of the Opposition excels in this space. No Australian believes that he has any economic credibility or any capacity to lead this country. Not even his own Labor members do—to their credit, I might add. The question is why they continue to follow someone who's going to send them off the political cliff. Even tawdry amendments like those made to this bill are a classic demonstration of why.
The Financial Sector Reform (Hayne Royal Commission Response—Better Advice) Bill 2021 is trying to fix up many of the problems that have been faced in the financial advice sector to enable financial advisers to go on supporting their clients and customers with confidence, and to make sure that there are proper mechanisms in place, where people who do wrong are held accountable for it. The establishment of a single disciplinary body is an incredibly important step, not just to correct some of the issues just arose out of FASEA and the obligations it put on financial advisers that made it harder for advisers to operate but also to consolidate it so that financial advisers have a body that they trust and understand that they play a critical part in fixing the system.
Now, I do have reservations about this bill. Members may know I have ongoing concerns about the operations of ASIC, and we hope that under its new leadership it will fulfil its function properly. But some of the functions of FASEA have gone into ASIC to make sure that it can operate successfully in the best interests of financial advisers. But in doing so ASIC needs to make sure that it's backing financial advisers, not undermining them. Last week the Economics Committee again heard directly from financial adviser representative bodies as well as the financial advisers themselves about the harrowing, increasing costs of ASIC fees and how these are undermining their business. Let's not pretend otherwise—when financial advice fees to ASIC for financial advisers go up, the cost is paid by customers through higher costs over time. Increases in cost hurt the capacity for Australians to access financial advice at the stage of life when they need it. It increases the cost of financial advice in comparison to the capital they have saved. It eats into the capital they have saved to invest for their future. So ASIC should look very clearly at what its conduct is doing to financial advisers and whether it's going to have an impact on the number of operators in the system. We know what the cost is of higher financial costs and higher costs to access financial advice. It means the rich get the advice, and the poor don't. The frugal who want to save and get ahead are denied, while those with trusts and wealth—hereditary or earned—are able to compound their growth and their opportunity.
Financial advice is a critical part of making sure that Australians can get ahead, and we need to make sure that financial advice is accessible to them so they can get ahead, because we don't want a system that entrenches the interests of the few and the privileged who can afford high upfront costs. I have previously raised in public my concerns around some of the recommendations of the Hayne royal commission, including, as part of that, the obligation to shift towards an 'upfront fee for service' model, because what happens when you do that is it creates a barrier for younger people, those who are saving and those who want to grow their savings to their being able to access financial advice to grow their wealth. The rich can afford it. The wealthy can afford it. Those on high incomes can afford it; they can take the upfront hit. But those who are frugally saving from their modest salaries and may not come from means are the first to say: 'This is too costly for me.' So it compounds the impact and compounds the wealth conservation and the wealth growth that the rich get, and that's incredibly dangerous. We know that the opposition's first position on the Hayne royal commission was to accept the recommendations without even seeing them, which shows the scant regard they have for the wealth creation opportunities of the next generation of Australians.
There have been amendments and I will continue to raise my concerns as other members in this parliament do. I see some outstanding members, like the member for Forde, who has never been afraid to stand up for financial advisers being able to deliver for their clients. He has always been the friend of the consumer and has been prepared to stand up for the wealth-creating opportunities of every Australian. Let's face it: if we actually believe in the wealth creation of every Australian, we would actually talk about why homeownership is the biggest financial decision that Australians can make and superannuation is the second. But, between the collusion of the Labor Party and their mates in the industry super fund sector, they constantly try and put superannuation ahead of homeownership—so much so that they'll literally run interference to keep super funds being able to buy homes at the expense of young Australians. There is no more despicable act that I can think of in terms of public policy than the deliberate effort to socially engineer and to empower big capital and big super to own homes, denying young Australians their chance at their dream, But the members on the other side of this chamber somehow argue that they know best and that they know how to make financial decisions for others better than young Australians are able to make them for themselves.
There's a day of reckoning coming for the members on the other side of this chamber because 'home first, super second' is absolutely building a movement. With 'home first, super second', there is an absolute understanding that people are looking at how they can utilise their super to be able to buy their own home, because Australians know, like when they access financial advice, that doing so advantages their creation for wealth. They know that homeownership is not just the best mechanism for people to create wealth—though that is true—but it's also the best foundation to build security for your economic future, your family and the whole of your working life, as well as your retirement. Homeownership is critical to the economic and democratic distribution of wealth in this nation. Homeownership is the foundation on which people build the success of their life for themselves and others—the investment in the status quo and the principal economic institution that leads to the creation of a strong community and strong citizens as the foundation for a strong nation. That's why we back, and will always defend, young Australians being able to buy their own home. That's why our order of priority is always Australians first. That's why we'll continue to support homeownership and we'll also support financial advisers so that people can take control of their own financial future.
[by video link] I can never understand why members of the coalition government are always ridiculing Australia's superannuation system. It's something that we should be proud of. It's one of the best retirement savings systems in the world. The proof of that is in the statistics, with $3.1 trillion in the Australian superannuation system at the beginning of this year. That's the fourth-largest pool of investment savings of any nation in the world, and, when you look at that in the context of the fact that Australia has the 55th-largest population of any nation in the world, the fact that we have the fourth-largest pool of retirement savings generally indicates that we're batting well above our average. This is something that we should be proud of. It's evidence of a system that is working and delivering the retirement savings that Australians need, to avoid being on the age pension. But whenever coalition MPs and senators get the opportunity, they will always try and slag off the Australian superannuation system. I think it comes down to jealousy at the end of the day, really. I think they're jealous of the fact that a Labor government, working with the union movement and employers, set up one of the world's best retirement savings systems and one which is achieving high rates of return and low fees for most members of industry superannuation funds. That's a great shame. It's certainly not a team Australia moment when you're criticising one of the world's leading superannuation systems that was established by a Labor government.
Our pool of superannuation funds is growing, and that's a great thing. The average superannuation balance is growing; it's about $180,000 now. The number of self-managed superannuation funds is also growing. There's been about 15 per cent growth in the number of SMSFs over the course of the last five years.
All of this means that there is a great need in our community for good-quality financial advice, and this bill goes to, hopefully, ensuring that we implement the recommendations of the royal commission around delivering better quality financial advice here in Australia. The importance of quality advice comes down to a few factors. One is transparency: ensuring that advisers are transparent with their clients about fees, about commissions and, importantly, about any potential conflicts of interest. We're ensuring that the legal requirements for the establishment and the operation of [inaudible]—
We'll just give the member a few seconds for the video link to come back. If not, we'll go to the member for Forde and then the member for Kingsford Smith can return to his speech when he comes back. Is that okay?
I'm pleased to rise to speak on the Financial Sector Reform (Hayne Royal Commission Response—Better Advice) Bill 2021. As has been outlined, this implements recommendation 2.10 of the royal commission's recommendations.
Now, all of us in this place would agree that good-quality professional advice for Australians who need it or seek it is important. Nobody would argue with that proposition. But I do take exception to the comments of those opposite that seek to besmirch the reputation of a great many professional advisers in the advice industry. If you have a look at the recent FSC report into affordable advice, they make the point that some 71 per cent of consumers agreed or strongly agreed that the financial advice they received helped them achieve greater financial confidence. Seventy per cent agreed or strongly agreed that it helped improve their financial situation.
I acknowledge, as somebody who came from that industry prior to coming into this place, that there are people in the industry who have done the wrong thing by consumers over the years. That disappoints me greatly and I will never defend that conduct, but that doesn't take away from the fact that the vast majority of advisers are professional advisers whose focus is ensuring they provide advice that is in the best interests of their clients. Those opposite miss the point that it's also in the advisers' best interests to provide quality advice to their clients, because that is how they get to build and maintain their businesses. There are many thousands of advisers across the industry who have been in business for 20 or 30 years or longer. You cannot say that those people are providing poor quality advice.
I think it was the member for Fenner who noted in his remarks that consumers want a greater say. I would say, Mr Deputy Speaker, that consumers have a say each and every day that they decide to retain the relationship they have with their adviser. If they are not satisfied with the advice and the service they're receiving, they have the right and the ability, each and every day, to go to another adviser or to take care of their financial circumstances themselves. If that were not the case, why would there be so many advisers—and there are tens of thousands of advisers in this industry—who have successful, profitable businesses that are looking after Australians each and every day?
What we're seeking to do with this legislation is to create a more streamlined process to ensure that those who are doing the wrong thing by their clients are held to account and, where necessary, removed from the industry. In addition, we are removing some of the duplication in the regulatory environment for advisers, particularly those who are tax financial advisers, by removing the requirement for them to be registered with the Tax Practitioners Board, which will result in some savings in costs.
Ultimately, as we look at the financial planning industry, it is important that it is affordable for clients. A number of other people have touched on that particular issue, and the FSC acknowledge it in their report. The importance of financial advice today is no more obvious or necessary than it has been as a result of the pandemic. Many of the advisers I speak to have been very busy in just sitting down and speaking with their clients about their financial circumstances and how to manage the times that we are going through, and ultimately that is the most important role of a professional adviser.
In this place we often hear discussion about product. Many of the things that the member for Whitlam and the member for Fenner outlined in their contributions were product failures. They were not necessarily failures of advice, albeit that they may well have been in circumstances where inappropriate products were recommended to clients. We need to separate out product from advice, because they are two very different things. The most important role of an adviser, in my view, is the strategic advice that the adviser provides to their clients, based on the needs of the client as outlined to the adviser in their initial discussions. In some cases, that may be as simple as wanting an income protection policy. In other cases, it may be much more complicated in terms of wanting retirement planning, estate planning, investment advice, debt reduction advice, a whole range of issues. But the scope of that advice is the product of a discussion between the adviser and their client.
It is incumbent on the adviser to properly elicit the scope of advice their potential client is seeking. One of the skills of advisers is to be able to have those discussions and elicit the information necessary to give professional advice. Where a client is recommended to invest in a particular Australian share fund, for example, and negative events impact that share fund on the Australian share market, I would defy anybody in this chamber to be able to get their client's money out of that share fund in the current regulatory environment, let alone for the fund manager to do it. It is practically and physically impossible for an adviser to be able to move their client's money where necessary, in a timely manner, without there being an impact on the client's funds in the current regulatory environment; a regulatory environment, I might add, that has been created in the name of consumer protection. A regulatory environment currently militates against that because of advisers' inability to deal quickly with issues to protect clients' funds.
Those on the other side and many others in the community would say that that's a failure of advice and a failure by the adviser. I would say that it is not. It's a failure of our regulatory environment, because it does not recognise the importance of the adviser's role in that event happening. As professional advisers, the most important thing they can do is sit down and speak with their clients about the issues they're facing. Have that informed discussion about what needs to change in the strategy, if anything, to change the direction and result of that adverse event. But our current regulatory environment precludes that, particularly from a cost perspective, because of the paperwork and the duplication that has been built into the system.
I'm pleased to say that we are working through these processes in my discussions with Minister Hume's office. From speaking to those in the industry, I know that they recognise that the industry has to change. I will continue to argue the case that the most important part of the relationship between advisers and their clients is the strategic advice that advisers provide. The product is secondary. This legislation is a great step along the way of improving the operation of the system. Is it the end of the journey? No, it's not; there is much work yet to be done. But, in the process, we need to ensure that we protect the viability of the professional financial planning businesses and the professional financial planners that are out there looking after Australian consumers each and every day. As the FSC report quite rightly points out, 70 per cent of those people recognise that it's adding and improving their financial outcomes.
We should be very, very careful not to throw the baby out with the bathwater. Despite what those opposite say, it is the strategic advice that is provided that is the key to the future of everyday Australians' wealth being grown, whether it be in superannuation, whether it be in investments or whether it's protecting wealth by having the appropriate insurance policies in place, such as income protection or, sadly, life insurance, if somebody passes away.
The past 18 months have shown quite clearly the importance of all of those aspects being taken into account, but we need to ensure, in the longer term, that the advisers have, in conjunction with their clients, the ability to provide advice that is commensurate with the scope of advice the client is seeking. If a 25-year-old client comes in and wants only income protection insurance, because he's a self-employed tradie, the adviser should be able to give that to him in a cost-effective manner, not such that it's going to cost $2,000, $3,000 or $4,000 because of the current regulatory environment. The adviser should be able to do it for $500, $600 or $700. Over time, that relationship with that client might grow, but it's not going to grow if they've got to charge $3,000 or $4,000 upfront. But the important thing, for that client, as a self-employed tradie, is that they now have income protection insurance so that, if something happens, they know their financial position is protected.
I'm pleased to support this bill, because I think it is a great step in the right direction. As I said, we have more to do, but I want to put on the record that there are a great many professional advisers out there who have built businesses over 20, 30 or 40 years, and they will continue to be supported by this side of government and by me, and we'll continue to work with them to make this a better profession for the future so that affordable, appropriate advice can be available to all Australians. I commend this bill in its original form to the House.
[by video link] by leave—thank you; I appreciate that. I disagree with the member for Forde in his assessment that many of those collapses that were mentioned by Labor members and by me in our speeches were a failure of product rather than a failure of advice. I think the fact that those collapses occurred was tantamount to the fact there wasn't a requirement under our law for financial advisers to act in the best interests of their clients. That is what Labor rectified with the Future of Financial Advice reforms, bringing in a legal requirement for financial advisers to act in the best interests of their clients—through regular updates, through an opting-in provision and through ensuring that there was a best-interest duty. The opposition at the time, the coalition, opposed those reforms. They sought to oppose a best-interest duty in Australia's financial laws, and then when they came to government they actually sought to unwind those reforms that were put in place through the Future of Financial Advice reforms by removing that catch-all provision and best-interest duty and the requirement to opt in on a regular basis. They actually got those changes through the parliament. The Abbott government watered down those reforms. It was only through having the vote recommitted in the Senate that Labor, working with the cross-benchers, was able to unwind what the government had done and ensure that we still have a best-interest duty in our financial services laws in Australia.
That's been really important in the context of the royal commission and of this bill here, the Financial Sector Reform (Hayne Royal Commission Response—Better Advice) Bill 2021, because the royal commission inquired into the scandals that were going on in wealth management, in insurance and in financial advice in Australia, after much campaigning and much prodding of the government by the opposition and consumer groups about what was actually going on in wealth management in this country. Earlier I mentioned the growing pool of investment savings. Well, unfortunately, unscrupulous operators were taking advantage of that and acting in a manner that wasn't in their clients' bests interests and in many cases acting illegally. We saw the problems in wealth management in the Commonwealth Bank, which flowed to all of the other big four banks. We saw the CommInsure scandal. We saw many millions of Australians lose savings and financial support because of those scandals.
That is why Labor was calling for that royal commission to be implemented. It should never be forgotten that this government voted 26 times to stop that. It was only once the banks agreed, because they saw the reputational damage that was being done, that the government finally implemented those recommendations. These reforms that we're discussing here are as a result of the Hayne royal commission's recommendations. Finally the government acted and finally they implemented many of those recommendations but there are still more to come. Labor comes from the perspective of trying to support those recommendations and get those reforms in place, because an overwhelming number of those recommendations have still yet to be implemented. Nonetheless, we do support these provisions, subject to the second reading amendment moved by the member for Fenner.
This bill implements recommendation 2.10 of the Hayne royal commission recommendations around a single disciplinary body to be established for financial advisers. The bill also implements recommendation 7.1 of the Tax Practitioners Board review, which recommended that a new model be adopted for regulating tax and financial advisers in line with recommendation 2.10 of the royal commission. Labor has previously indicated that we will seek to rapidly progress any legislation that appropriately implements findings of the royal commission. This bill, in respect of financial standards and financial advisers, expands the role of ASIC's current Financial Services and Credit Panel to provide a single disciplinary body for financial advisers. It requires financial advisers to be registered with the Australian Securities and Investments Commission. It allows financial advisers to provide tax and personal financial advice that relates to tax law if they meet prescribed standards. Again, this is about ensuring that those safeguards, and acting in the bests interests of the client, are in place with these reforms.
The bill also winds up the Financial Adviser Standards and Ethics Authority, FASEA as it has become known, and transfers the power to set professional standards for financial advisers to the responsible minister. We're not opposed to this reform, but we will monitor any changes to professional standards to ensure that they're sensible and that they promote consumer interests, and we will make sure that the minister acts in an appropriate manner in that regard.
There has been quite a bit of concern in the industry, from financial advisers and participants, around the new educational standards and the way that FASEA has implemented those standards. I've personally been contacted by financial advisers regarding some concerns about those standards.That's, unfortunately, why I think we've seen that the government's hallmarks and time lines haven't been met for the introduction of those new standards and for ensuring that participants in the industry meet those standards through educational requirements in a timely manner. It's particularly of the case for financial advisers, stockbrokers and the like who have been in the industry for many, many decades. Some of them received their degrees and qualifications in the sixties and seventies and have been working for many, many years without blemish, without any issues, and are now in a position where they have to undertake university degrees once again, in new circumstances—much of it online where they don't have the capacity to do so. They have real questions about the recognition of their prior learning and the importance of that. Many of them have said to me that they completely understand the need for ethics training—ensuring that ethical standards are up to date—and ensuring that they meet all the regulatory requirements, but they feel the there can be better use of the recognition of prior learning aspects of this education system. I think that that's something that the government will need to take into consideration into the future.
In terms of stakeholders' views on this bill, consumer advocates, including CHOICE, have raised a number of issues with the bill. They seen it as necessary for consumer representatives to be on the panel.
No change would be necessary to the legislation to facilitate this, and to provide for the appointment of a consumer representative to the disciplinary panel, and I support the government appointing a consumer representative with appropriate experience and qualifications. They would also like to be able to consider issues dating back to 2008. That would provide significant retrospectivity on issues in implementing the actions of this particular panel. The Australian Commission for Law Enforcement Integrity expressed some concerns relating to the conflict-of-interest provisions in the bill, indicating that the system relies entirely on self-disclosure by panel members.
It's important to ensure that this particular change works well and is adopted by the industry. Labor support this recommendation. However, we want to see government get on with the job of implementing the remainder of the recommendations of the royal commission. It's almost two years now since that important report was handed down, and a number of those important recommendations are yet to be implemented by this government. Labor stands willing to work with the government and ready to implement those important reforms, but I reiterate what I said at the beginning: without a Labor government we wouldn't have had the best-interest duty for financial advisers, we wouldn't have had the disclosure provisions that have been implemented, we would not have had removal of conflicts of interest and we would not have had ensuring integrity and ethics in our financial advice system. It's a great shame that the coalition, in opposition and in government, sought to undermine those changes. It's time now for the parliament to work together on implementing the rest of the royal commission recommendations.
[by video link] I am pleased to speak today in relation to the Financial Sector Reform (Hayne Royal Commission Response—Better Advice) Bill 2021. As earlier speakers from the opposition have indicated, this is a bill that we will support. But I might add that it's a bill which comes three years after the Hayne royal commission and reflects the drip feed of responses to the Hayne royal commission's important recommendations that we continue to see in this place. The lack of speed, urgency and comprehensiveness in the government's response to that royal commission is a very strong reflection of the fact that that was a royal commission that this government never wanted to happen.
This particular bill implements recommendation 2.10. Specifically it expands the role of ASIC's existing Financial Services and Credit Panel to operate as a single professional disciplinary body for financial advisers, incorporates new penalties for advisers who breach professional obligations and introduces a new two-stage registration process for financial advisers. This bill has received bipartisan support from the Senate economics committee, and we support the recommendation of the independent senator on that committee that this bill be reviewed in two years time.
We support this bill, but I think it's important to make some observations of a broader nature in relation to some of the ongoing challenges that this bill doesn't address. I want to start by making the overall observation that financial advice is critically important for Australians. As many speakers have observed already in this debate, the amount of financial assets under the control of many Australians is increasing. It is critical that they have access to affordable and independent financial advice. There are many aspects of our lives where financial advice is critical—the types of insurance we obtain in order to protect ourselves and our families from calamity. It is also critical that we obtain financial advice in relation to the very complicated challenge of investing over our life cycle, so that we can use resources we have during our working lives and invest those well so that we can provide ourselves with as much income security and dignity in retirement as possible.
Financial advice is one of the most important sources of advice for many Australian families, but there are some longstanding challenges with the quality and costs of that advice. I would say that there is a trade-off in relation to some of the regulation that is appropriate when it comes to that advice. We all agree, I think, in this place that it is important that financial advisors become more professional in the way that they interact with their clients. Some of the aspects of the way in which that professionalisation will be achieved, however, can have trade-offs in relation to the cost and the accessibility of financial advice. That's one of the challenges in setting up appropriate regulation in this sphere. It has been a set of regulatory challenges that has been identified over a long period of time, with the Wallis inquiry, the Ripoll inquiry and all of the consultation that was undertaken in the Rudd-Gillard years in relation to the very important FOFA reforms, which, as many speakers have identified, were unfortunately undermined by this government.
There are some fundamental trade-offs involved, but we shouldn't ignore the fact that some of these trade-offs exist in relation to many other professions, like the remuneration of lawyers and the remuneration of real estate agents. There are many other areas of professional advice where there can be challenges in potential conflicts of interest and challenges in relation to whether there should be restrictions on the way in which professional advisors are remunerated, so we shouldn't see this as a unique example. It is not. Many of the challenges that financial advisors face in relation to the way that they are remunerated and regulated are definitely not insurmountable. We should be able to deal with them in this place and we need to deal with them in this place because the receipt of high-quality financial advice is so critical for the Australian people.
In light of some of those high-level challenges, I think it's critical to go back to the Hayne royal commission. Its final report on page 119 very usefully sets out some of the context. It says that there are three critically important issues that have emerged in relation to the provision of financial advice. The first is fees for no service, the second is what might be classified as poor-quality advice—or perhaps not acting in the client's best interests is one way of characterising that—and the third is the fragmented and ineffective disciplinary system for financial advisors. Very early on, the Hayne royal commission identified those three core issues. Importantly, it said that each of those issues has its root in the history of the financial services industry, and it's important to understand that history if we are to deal with each of those issues appropriately.
Critically, the Hayne royal commission on page 119 of its final report said:
Expressed in a single sentence, that history tells the story of an incomplete transformation – from an industry dedicated to the sale of financial products to a profession concerned with the provision of financial advice.
That is the nub—the heart—of the issue. It is a profession and an industry that emanated from sales of certain products. It is critical that that industry, and that profession, evolves to a point where, at its core, it is about providing holistic advice to the client. It is already a long way down that path but there is still a journey to go.
When it comes to some of the specific challenges that the financial services industry has faced, again, it is useful to go back to the Hayne royal commission. The Hayne royal commission in its interim report identified the fact that, as the market for superannuation and investment products grew in scope within the Australian population, most financial advisors had come from a background of insurance sales in which a sales driven, commission based culture prevailed and comprehensive advice was not commonly sought or given. Again, that goes to the nub of the issue. We need to have a sector which is not driven by commissions and a sales culture, which we saw led to so many issues and so many vulnerable people being abused, but to a culture and an industry where it is comprehensive advice that is provided.
When it comes to conflicted advice, this is an issue that has been looked at on multiple occasions. The Wallis inquiry and the Hayne royal commission looked at this, and vertical integration by the banks was a large part of this. Vertical integration can provide efficiency but the Hayne royal commission said that the 'one-stop shop' which had become the model of so many banks can provide efficiencies, but, to quote, it said that it has an incentive to promote the owner's products over others 'even where they may not be ideal for the customer'. That was the problem of conflicted advice which was identified so much. Trying to help the industry evolve towards holistic provision of non-conflicted advice has been an issue for so long.
Why I think it is so important to raise all of those issues is that these have been looked at before. They were looked at by Wallace and they were looked at by Ripoll. And, of course, if we go back to FoFA, way back nine years ago, FoFA looked at so many of these issues and provided practical solutions. If we look at the amendments to the Corporations Act which were introduced all those many years ago, we see that at the heart of the FoFA reforms was a prospective ban on conflicted remuneration structures; a duty to act in the best interests of the client; an opt-in obligation that requires advice providers to renew their client's agreement to ongoing fees; an annual fee disclosure statement; and enhanced powers for ASIC. What I think is quite tragic is that all of those elements are reflected in the Hayne royal commission recommendations. So, when we fast forward a decade, what we see is that the 10 recommendations from the Hayne royal commission that relate specifically to financial advice were all there in FoFA.
When we go back to the debates around FoFA, we find that this government fought that piece of legislation and reform agenda tooth and nail. There wouldn't be anything in that six-year period of government that the opposition at the time, this Liberal-National party coalition, fought against harder. Perhaps the only thing they voted against more often was anything to do with climate change action. But, other than that, it was FoFA that they fought against with more passion than anything else. Yet what we see now after the Hayne royal commission is that we are revisiting all of those core issues which FoFA rightly put front and centre. But, of course, as soon as the Abbott government was elected, it did everything it could to undermine those critical recommendations.
So what we see with this government is that it didn't want the Hayne royal commission and it is reluctantly and belatedly implementing its recommendations. The Hayne royal commission itself reflects on the fact that Australia has lost a decade. If we'd implemented the FoFA recommendations, we could have had a decade where the financial services and financial advice sector had been professionalising and dealing with all of the challenges of implementing a more appropriate regulatory regime. Of course, you never get it right first up, but we could have been fixing all of the elements of the regulatory regime over the intervening years. Instead, we have had to start from scratch. That is a direct result of this government fighting tooth and nail to stop FoFA, then undermining it and then fighting tooth and nail to not have a royal commission—which then ended up recommending all of the key elements of FoFA.
This government is putting this bill forward. It is belatedly giving us a bill that reflects one recommendation of the 10. We will support it, as speakers on this side have indicated, but we should not lose sight of the fact that what this government has given us is a decade of inaction, a decade of going backwards. But not only that; in the intervening period not only have we had that lost decade where FoFA was undermined but we've also had FASEA. It was established in 2019 by the then Treasurer, now Prime Minister. This is an organisation that went through three CEOs in its first 18 months, an organisation that failed to provide appropriate standards in a timely and adequate fashion, and an organisation that was constantly changing a complicated examination process. So we support this bill in moving beyond FASEA, but, again, it's part of the context in which we see the complete mess that this government has create, with its decade of inaction in dealing with the fundamental issues that need to be dealt with to professionalise financial advice. But what the government has done has been a complete mess.
Even though we now have a recommendation to implement recommendation 2.10, so much is left undone. We still have inquiries coming in relation to commissions, life insurance and mortgage brokers, and there is so much uncertainty. I receive correspondence from advisers concerned about some of the existing mess in relation to FASEA but also in relation to the ongoing uncertainty. It would have been better if advisers had been provided with an overarching framework. If that had been the building block that we used to build a better approach that would have been the launching pad for the profession to evolve to far better position than we find them in today.
Those opposite, during their contributions on this bill, claimed that we demonise financial advice, but the irony here of course is that they're the ones who, at every stage, have undermined sensible reform in this area, and, where they have implemented any reform, such as FASEA, it has been a complete disaster for the profession. It's under their watch, of course, that the number of financial advisers is falling. It's under their watch that the profession feels more undermined and more uncertain than ever.
I want to go back to the initial point that I made, which is that financial advice is incredibly important. It is one of the most important sources of professional advice for people, particularly given their increasing financial assets, particularly given increasing life expectancy, particularly given the increasing complexity of financial products that people are having to navigate. It is absolutely imperative that people in our community have access to unconflicted, high-quality, 'best interests' financial advice, and it is absolutely critical, of course, that that profession is regulated in an appropriate way.
We deserve much better than what this government has put forward. We will support this bill, but this government needs to put forward a holistic framework and a strategy moving forward that is going to provide for the best possible settings for financial advice in the future. That is what financial advisers deserve, and that is what the people of Australia deserve.
[by video link] The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry tabled their final report in parliament on 4 February 2019. The royal commission was established on 14 December 2017, but only after this Liberal government voted against having that inquiry 26 times. To state the blatantly obvious, it is now August 2021. It's taken 2½ years just to get to recommendation No. 2. This Morrison government's response to the royal commission has been unbelievably weak. They didn't want it, and now they don't want to have anything to do with it either. In taking this long to implement recommendations, this legislation, the Financial Sector Reform (Hayne Royal Commission Response—Better Advice) Bill 2021, is only before us today when it is well and truly overdue. That's not to mention legislation that we dealt with recently that actually directly contradicted other recommendations of the royal commission.
Recommendation 2.10 of the financial services royal commission recommended that a single disciplinary body be established for financial advisers. This bill also implements recommendation 7.1 of the Tax Practitioners Board review, which recommended that a new model be developed for regulating tax advisers in line with the recommendation. Labor has committed to rapidly progressing any legislation that appropriately implements the findings of the banking royal commission. These are the result of consultation and expert recommendations and where there's been public acceptance. All of this, though, is two years old, so it's high time that these recommendations were implemented.
These recommendations are implemented through this new legislation, which will expand the role of ASIC's current Financial Services and Credit Panel to provide a single disciplinary body for financial advisers. It will require financial advisers to be registered with ASIC, and it will allow financial advisers to provide tax advice if they meet prescribed standards.
The Senate Economics Legislation Committee examined this bill, and it earned bipartisan endorsement. That is a good sign. Labor will support the bill. We also support the committee's recommendation that there be a proper review of this legislation in a further two years time. No-one could see these changes as anything less than an enormous admission of failure on the part of this government.
From a small-business perspective, it's vital to ensure that financial advisers are appropriately regulated to ensure that individuals, microbusinesses and small businesses are receiving appropriate advice. But, of course, those being regulated through this legislation are also themselves small businesses. Upon responding to this legislation, the Australian Small Business and Family Enterprise Ombudsman observed:
Clarity and simplicity of regulatory frameworks is critical to ensuring time-poor small business owners are able to properly implement regulatory requirements in their businesses.
Small businesses are currently exposed to a large number of regulatory changes in the financial advice industry, and the cumulative effect of these changes results in a significant increase in the complexity of compliance. Constant chopping and changing by this government hasn't been helping. The Financial Adviser Standards and Ethics Authority was introduced nearly five years ago by the Morrison government, but it's been a monumental failure. It's been bungled from day dot. It bungled the development of a standards test for financial advisers at the very time that the Hayne royal commission was shining a spotlight on the need for an overhaul of a workforce that was struggling to make the transition from being a sales force to being a profession. It literally permitted professional advisers to fail every three months.
There's never been a more important time for Australians to get good financial advice, especially in the turbulent economic conditions that our whole nation is facing at this point. Ultimately, anyone providing financial advice to anyone should be providing that advice from a place of professionalism, qualifications and following an industry code of conduct. That is what people will be expecting when they go to seek professional advice. While Labor has always been in favour of reforms that will support a professional, consumer focused financial advice industry, the government's implementation of those reforms has demonstrated reckless incompetence. While it's necessary that this authority is wound up, the power of the organisation will transfer to the responsible minister. Certified Practising Accountants Australia, CPA, has questioned whether Treasury has the skills and expertise to perform the functions of the Financial Adviser Standards and Ethics Authority once they are transferred over. CPA Australia was also concerned about potential increased costs to the financial advice sector with the formation of the Financial Services and Credit Panel. It cited that in the past two years the fee per financial adviser has increased 160 per cent, while the number of financial advisers had fallen from 25,000 in 2017-18 to just over 19,000. To quote them:
While the introduction of a single disciplinary model is welcomed, consideration must be given to the fact that the model will sit within ASIC, which will likely further impact the costs incurred by Australian financial services licensees and their financial advisers under the ASIC industry funding model.
They went on to say:
The increasing cost burden is a significant challenge for many, noting that 90% of financial advisers are sole traders or part of a small business. The increasing costs will also continue to negatively impact the accessibility of affordable advice by the community, an issue on which ASIC are currently focused.
Of course, we can never completely divorce the nature of regulation from the costs to the community, as well as the protection that this regulation should afford the community.
The Liberal government cut the budget for ASIC when it came into power. It then had to reverse that decision, but then it cut the budget again. The budget for ASIC has reduced significantly over time, partly because this government continues with its task of applying efficiency dividends, which, ironically, are making ASIC less efficient and less able to do its job. It's softening ASIC, which should be that tough cop on the beat. That's why Labor's shadow Assistant Treasurer has written to the Treasurer demanding a review of ASIC's industry funding model. In turn, he's also called for greater recognition of specialisations and experience in education and exam standards for financial advice.
So, ultimately, whilst Labor supports the implementation of the Hayne royal commission recommendations and this bill, it's well and truly overdue. Good financial advice doesn't come in the form of documentation; it comes from professionals who are ethical in providing their advice and come with a wealth of knowledge and who can tell clients what they need to hear about their finances, not just what they want to hear. The government has failed in the management of this sector. We do support this bill, but after years of waiting we want to make sure we get it right. We hope this bill goes some way towards building a better, more reliable and ethical financial services industry. Whilst this bill has come way too late, and the government has continued to drag its heels on implementing all of the recommendations from the Hayne royal commission, it is crucially important not only that we support this legislation but that the government gets on with the job of bringing forward the legislation necessary for the other recommendations that came from that royal commission.
As I mentioned earlier, we are now in much more turbulent financial times. Only this last week I was talking to members of a local men's shed, who were querying with me where they could get good advice on how to handle their finances in retirement. They identified the problems of conflicts of interest and of being concerned that people weren't giving them information and advice that were in their best interests—and also that that advice be affordable. Fixing the regulation of financial advisers is crucially important to making sure that as people head towards retirement and are in retirement they're able to access the professional, ethical and appropriate advice that they require in an affordable way.
This legislation will go towards that, and that's why we support it. But it does also need to be reviewed in two years time, to make sure it's actually delivering on the outcomes that it says it will. It is also crucial that the government gets on with the job of making sure that the rest of the recommendations are brought forward for legislation, instead of the government's approach, as I mentioned before, where it has directly contradicted the Hayne royal commission in other places. These are difficult times for Australians in many ways and in many different areas, and it's important that we provide them with the best confidence that they can have in the financial advice that they will and need to be receiving. So we commend the bill to the House.
The Financial Sector Reform (Hayne Royal Commission Response—Better Advice) Bill 2021 itself is unobjectionable. It finally implements recommendation 2.10 of the banking royal commission, recommending that a single disciplinary body be established for financial advisers. I say 'finally' because this recommendation is now three years old; it's taken the government that long to get the legislation here, and there's great concern that the government is not actually serious about implementing the royal commission's recommendations.
Their heart was never in the royal commission—26 times in this parliament Labor attempted to get the government to back our calls for the royal commission and 26 times the government said no. The now Prime Minister told us that it was a stunt, that it was just going to be hot air and that it would undermine confidence in the financial system. Aha! Apparently, so the Liberal Party thought, it was better to let the rorts, scandals and dodgy schemes that the banks were pushing onto their customers just continue, leaving a winner-takes-all culture humming along—letting Australians continue to be ripped off blind by sales agents, masquerading as advisers and reaping huge commissions, and having their lives wrecked.
Eventually, of course, Labor prevailed—a couple in the coalition weakened and forced the Prime Minister's hand—and the royal commission was exactly what the banking sector needed. As the shadow minister has said previously, there's nothing like a royal commission. It's a unique form of inquiry—it's a form of truth-telling unlike anything else. At the heart of Commissioner Hayne's report, underlying nearly every instance of misconduct, lay the pursuit of personal profit or gain rewarded through a system of bonuses and incentives. That was the system the Liberal Party fought so hard, year after year, to protect.
So we could excuse Australians and members on this side for being a little sceptical about the government's genuineness in implementing the royal commission's recommendations. Indeed, the government has never actually committed to implement the recommendations. They used tricky words. All they said was, 'We will act on them.' It's not the same thing. This shape-shifting Prime Minister cannot be trusted when he uses tricky words like that, and our concerns have been well founded. Three years on, we've seen ongoing delays in actually bringing legislation here; the rejection of core recommendations; a weakening of parliamentary oversight—the House Economics Committee now being misused and the chair running an interference racket to prevent the bank CEOs accounting for the recommendations and instead wasting the committee's time in pursuing ideological frolics against superannuation funds; and backflips, like on recommendation 1.1, the responsible lending obligations, which this House has debated. I do have hopes for the Parliamentary Joint Committee on Corporations and Financial Services. I won't tell anyone, Deputy Speaker Wallace, but I think the chair is doing a good job—it might wreck his reputation if people heard that! But excuse my scepticism on anything the government serves up.
The bill also winds up the Financial Advisor and Ethics Authority, transferring the power to set professional standards for financial advice to the minister. That sounds interesting—it sounds okay, doesn't it? Except it's the most stunning admission of failure. The government actually established this authority only three years ago and since then it was characterised by a litany of stuff ups and mistakes. Three chief executive officers in just 18 months—that's got to be a clue it's not going well, but, still, on it rolled and standards were released for financial advisers just days before they were supposed to take effect, causing chaos in the sector. People were saying, 'I can't continue to operate.'
It's difficult to fully judge the bill because there have been no drafts regulations published or provided. It is important to scrutinise the regulations when published to ensure they're sensible and that they protect consumer interests, but the government doesn't use them. There's the minister's new-found power that she's gaining from this bill to further water down consumer protections and go back to the bad old days. It is important also that the government listen to consumer advocate CHOICE and make sure that, on the disciplinary panel, there is a consumer representative appointed. It's not in the legislation, but the government have the power to do the right thing and we would expect they would use it. This bill comes in the context of an appalling failure in financial reforms over eight long years of this government. Under the previous Labor government, your predecessor, Deputy Speaker, as chair of the financial services committee, Bernie Ripoll, identified the need to improve standards in the financial advice industry. I think that's a great example of how a committee like that can use its power to delve into a really big problem, shine light on it and propose groundbreaking reforms. This government, though, have bungled the implementation monumentally. If there were an Olympics for implementation failure—actually, I would have to say that I don't think it would be a medal contender when you rank it against vaccine rollouts, quarantine and things that have literally cost people's lives and tens of billions of dollars, but it would certainly make the final. It took the Abbott-Turnbull-Morrison government six years to even decide to legislate for this authority and 11 years later closed it down. Between the government's messed up implementation of the future of financial advice reforms and the latest implementation failure—their own failure—they actually can't blame anyone else for this mess but themselves. In the setting and policing of standards, the industry is in turmoil.
I will make a few remarks about that as the second reading amendment touches on it. The financial advice sector is in serious crisis. The royal commission shone light on and smashed up the old broken business model, which dressed up sales and commissions as financial advice. Rightly so, it's destroyed that model, given what was revealed: the inherent conflict between trying to act in a customer's best interests while receiving huge secret commissions yourself and not telling them about it. There was harm done from that. We've now moved on from, if you like, a conduct crisis to a supply of financial advisers crisis, and therefore it's an access to advice crisis. We went from a conduct crisis to a supply and advice crisis. Quite simply, this means, as many of the government speakers have acknowledged to their credit, although they somehow tried to make it our fault—they're the government; they often forget that—that everyday Australians increasingly cannot afford financial advice. Financial advice has fast become something that only the wealthy can afford, and people have never had more need for decent financial advice.
We're experiencing the first recession for 30 years and it is at serious risk of being a double-dip recession. In this quarter there will be negative growth, which even the Treasurer acknowledges. Small businesses and sole traders are particularly vulnerable, as many of them are struggling to trade through the crisis. For many sole traders in particular, their personal finances are inextricably bound up with their business finances. They need to be able to access decent financial advice in an affordable way. Also, people in this country are now retiring with more money than ever before in the history of our nation, thanks to Labor's superannuation reforms decades ago. Super is of course attacked mercilessly by the government. You have half the backbench waging mad culture wars, ignoring the royal commission's finding which smashed up retail super run by their mates in the banks and found industry super overall has been performing well. Don't let the facts get in the way of a good culture war for the government! Despite this, everyday Australians have greater need for financial advice and it's never been harder to get. There has been the spotlight of the royal commission's report and the consequent reforms, the monumental mishandling of the ethics authority—and we're now dealing with the fallout—the accreditation process, fees jumping by 180 per cent in just two years, and an ageing workforce. All of these things, combined with the government's mismanagement, have driven an exodus of financial advisors from the industry.
The government have treated this profession appallingly, as the shadow minister outlined well in his speech earlier today. Through their sheer incompetence, they've ignored and harmed people they've actually always claimed as part of their own Liberal Party constituency. If that's how they treat their friends! More than 4,000 experienced advisers have left the sector in just under three years. About 50 per cent of advisers have gone, many estimates suggest, with projections that more are yet to leave in the near future. That gap means, with a smaller pool of financial advisers and a higher demand for financial advice, everyday Australians are simply being priced out of the market—or left to TikTok influencers, as we heard in a recent public hearing.
Even ASIC, the corporate regulator, is now concerned about the rise of social media financial influencers. You can just go and get advice on the internet from people on Facebook and TikTok. The minister doesn't think this is a problem. Sure, it's no different from chatting to someone at the pub or a cab driver—except ASIC pointed out they are concerned because these influencers on social media, it seems, are taking kickback commissions. The bad old days are reappearing on social media. That's where the government is leaving everyday Australians to find their financial advice. It's completely unacceptable. Addressing this crisis is urgent. It needs serious work from the government to engage with industry and the regulators and work out how to close this advice gap, because all Australians, not just the wealthy, should be able to access quality financial advice about their retirement, their investment strategies and their insurance.
That point about insurance is important. I'll just make a couple of brief remarks on that. One of the consequences of the decimation of the financial advice sector appears to be the looming problem in the life insurance industry. Financial advisers are a key distribution channel, of course, for life insurance companies, helping clients to access not just life and death insurance but also TPD insurance and income protection insurance. Often, they provide better policies or point people to more appropriate policies than the default ones run through the superannuation funds, which certainly have their place but aren't based on an assessment of someone's individual circumstances.
I know the importance of life insurance firsthand. My dad died when I was four, and, frankly, we were only able to keep the house because Dad had life insurance so Mum could pay off the house. We didn't have much else after that, but it was only because of that foresight, the conservative approach of having life insurance to protect your family, that we kept the house. I stress that we have greater coverage now because of superannuation, but, without the role of financial advisers pointing people towards appropriate products, we may see further problems emerge.
I note the royal commission recommended a conservative approach—not to decouple commissions from the sale of life insurance but to undertake a further review, which I think the government has just kicked off. I think the royal commission was right to be cautious, and I hope the process will be robust and will carefully test the claim that commissions should be retained in this area. The default question for the sector should be why they shouldn't be abolished, but I do acknowledge that there are perhaps different arguments in the cases of life insurance and financial insurance. That needs to be tested carefully through the process and a conclusion reached. I see the Government Whip shaking his head. I'm not expressing a view. I'm acknowledging the point, just to be clear there.
Not all the solutions to the crisis of advice may be found in the private sector. If we're thinking about how people can access financial advice, particularly people with very low incomes, there needs to be a role for government or not-for-profits, at least in providing financial literacy programs, as has happened in other countries. In some places, that's the best way to access financial advice for people who can't afford to pay but do need that basic information to make informed and sensible choices about their savings and finances.
The point remains that impartial and affordable retirement income advice should be available to all Australians, including low- and middle-income earners with modest savings. In doing that, making whatever changes are necessary, we can't go back to the bad old days. Sales have to remain decoupled from the provision of advice. That inherent conflict is gone, but serious reflection and changes are needed. The bulk of the answer lies in the private sector—the professional advisory sector. We need to think of how to rebuild this sector and support it to adapt. Labor has raised some sensible suggestions. We've called for the reform of the ASIC funding model and we've called for greater recognition of specialisations in the education and examination standards for financial advice—practical things. As the shadow minister also said, hundred-page statements are not always the best consumer protection. They create a whole lot of red tape, which I think everyone acknowledges. Red tape is very different from guardrails and basic consumer protections.
These are issues which the government needs to look at, and indeed perhaps the parliament, as in years past, could play a useful role in that. Certainly, under your chairmanship, Deputy Speaker Wallace, so far we seem to have moved away from ideological frolics on litigation funding and superannuation, so the early signs bode well. Perhaps we could use that committee to look at these more serious issues in a bipartisan way.
So, I'm hopeful that the government will act—although, if history is any guide, I'm not optimistic that the government will rise to the challenge, because for eight long years they've failed this sector, and ordinary Australians are now living with the consequences. The wealthy are doing fine; it's everyday Australians who now can't get advice. The government mucked around for years and did nothing. They fought against the royal commission and are now implementing its recommendations in a half-hearted way. The authority that we're now abolishing they built three years ago from the ground up, giving it the wrong direction and the wrong leadership. And now they admit their failure in this bill, which abolishes their own creation.
Time will tell whether they can learn from their mistakes and deal with the crisis in the financial advice sector. But, despite the criticisms, I hope you've heard from many of the opposition speakers a genuine acknowledgement of the seriousness of the problem and a desire to try to work with and support the government where they come up with good suggestions to reform the sector.
I would like to start by thanking those members who have contributed to this debate on the Financial Sector Reform (Hayne Royal Commission Response—Better Advice) Bill 2021. The government is committed to implementing its response to the financial services royal commission and is delivering one of its commitments through this legislation. This bill implements recommendation 2.10, which recommends the establishment of a single disciplinary body for financial advisers and that all financial advisers who provide personal financial advice to retail clients be registered. The bill expands the role of the Financial Services and Credit Panel within ASIC to take on the role of the single disciplinary body and gives the panel new sanction powers.
Consistent with Commissioner Hayne's observations, the establishment of the single disciplinary body will ensure that appropriate disciplinary consequences are imposed and this disciplinary action extends beyond a financial adviser's role within a particular licensee. The bill also seeks to streamline the number of bodies involved in the oversight of financial advisers by transferring the functions that are currently undertaken by the Financial Adviser Standards and Ethics Authority to the minister responsible for the Corporations Act 2001 and ASIC. Finally, the bill provides that tax financial advisers will no longer be regulated by the Tax Practitioners Board and will instead be regulated only under the Corporations Act 2001. This is consistent with recommendation 7.1 from the independent review of the Tax Practitioners Board. I commend this bill to the House.
The original question was that this bill be now read a second time. To this the honourable member for Fenner has moved as an amendment that all words after 'That' be omitted with a view to substituting other words. So the immediate question before the House is that the amendment be disagreed to.