Gerard Rennick (Queensland, Liberal Party) Share this | Hansard source

I rise to contribute to the debate on the Treasury Laws Amendment (Ending Grandfathered Conflicted Remuneration) Bill 2019. Might I say, I didn't need a royal commission to know that it was always going to end up like this, because, basically, markets are predicated on a risk-reward return, and the people who were earning the fees on these products weren't taking the risk. When you go and force people to give up 10 per cent of their income to people that they don't know for the entire period of their life, they're unsophisticated investors and you're going to get an occasional six-month return statement that says, 'Your fund has grown by plus two per cent,' that's not very good disclosure.

I'm really pleased that I'm here to support this because, when I first started off in finance in 1991 in public practice, in accounting, our financial advice was simply straight-up business services. You pretty much charged for your bookkeeping and preparing the tax return. You'd set the structure up, and that was it. You generally invested in hard assets—none of this paper-shuffling stuff. So well done; this is a great bill.

This bill amends the Corporations Act to end the payment of the grandfathered conflicted remuneration of financial advisers. Conflicted remuneration refers to remuneration paid to financial advisers by product issuers, which can influence the advice they provide to retail clients about the product. When the ban on conflicted remuneration was introduced in 2013, already existing arrangements to pay this remuneration to financial advisers were grandfathered so that the ban did not apply to them. Grandfathered conflicted remuneration presents an ongoing conflict of interest, which can harm retail clients by potentially entrenching customers in older products even when newer, better and more affordable products are available on the market. Ending grandfathered conflicted remuneration was a key recommendation of the Hayne Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. Commissioner Hayne called for the end of grandfathering in the royal commission's final report, stating, 'There can be, and is, no justification for maintaining the grandfathering provisions.'

The following sections have been highlighted by my Senate colleagues, but I will touch on them again. The act includes provisions that ban conflicted remuneration and certain other remuneration in relation to financial advice provided to retail clients. These provisions aim to more closely align the interests of those who provide financial product advice with the interests of their retail clients. In particular, division 4 of part 7.7A of the act bans the payment and receipt of benefits which have the potential to influence financial advice provided to retail clients about financial products. Division 5 of part 7.7A of the act bans platform operators from accepting volume based shelf space fees. Division 5 of part 7.7A of the act bans financial services licensees and authorised representatives of financial services licensees from charging asset based fees to retail clients in relation to borrowed amounts.

These divisions generally apply to benefits given or, with respect to asset based fees on borrowed amounts, fees charged from 1 July 2013. However, there are currently exemptions to these divisions for grandfathered arrangements. Under the grandfathering provisions, the bans on accepting and giving conflicted remuneration do not apply to benefits paid under arrangements entered into before 1 July 2013, except with respect to benefits given by a platform operator. The ban on charging volume based shelf space fees does not apply to benefits given under arrangements entered into before 1 July 2013. The ban on charging asset based fees—one of my favourites—to retail clients on borrowed amounts only applies to the extent that the borrowed amounts are used, or are to be used, to acquire financial products on or after 1 July 2013.

On 1 February 2019, the final report of the royal commission recommended that grandfathering provisions for conflicted remuneration should be repealed as soon as is reasonably practicable. On 4 February 2019, in its response to the royal commission, the government announced that it would end the grandfathering of conflicted remuneration to financial advisers, effective from 1 January 2021, and mandate that previously grandfathered conflicted remuneration be rebated to customers.

On 22 February 2019, the government released an exposure draft bill to this effect for public consultation. The draft bill also provided for regulations to be made to provide for the pass through to customers of the benefits of any previously grandfathered conflicted remuneration, remaining in contracts after 1 January 2021. Submissions were received from a number of stakeholders, including industry bodies and consumer groups.

On 28 March 2019, the government released exposure draft regulations for public consultation. These draft regulations also provide details on how benefits must be rebated to customers and details of record-keeping obligations on persons required to pass through benefits. These draft regulations also repealed a number of other grandfathering. The bill removes grandfathering arrangements for conflicted remuneration and other banned remuneration effective from 1 January 2021.

In summarising, as part of ending grandfathering, the government will also make regulations prior to 1 January 2021 that will repeal a number of other grandfathering arrangements which are contained in part 7.7A of the Corporations Regulations 2001. The bill also enables regulations to provide for a scheme under which amounts that would otherwise have been paid as conflicted remuneration are rebated to affected customers. The government's reforms will benefit customers by better aligning adviser and client interests, so that retail clients can receive higher quality advice and stop paying higher fees to refund grandfathered conflicted remuneration.

This bill fully implements the recommendation of the Hayne royal commission and, importantly, goes further by providing for the pass through of grandfathered benefits to customers where grandfathered commissions remain payable in contracts after 1 January 2021. This ensures that it is customers, and not product issuers, who benefit from these reforms. The coalition government is taking action on all 76 recommendations contained in the royal commission's final report. This bill reflects our commitment to deliver on these recommendations in a timely manner to restore trust in the financial system. Ending grandfathered commissions paid to financial advisers will lift the quality of financial advice to provide better outcomes for customers.

This government is getting on with the job of delivering meaningful reforms to improve customer outcomes and build a stronger economy. I commend this bill to the chamber.