Senate debates

Monday, 22 September 2014

Questions without Notice: Take Note of Answers

Future of Financial Advice

3:05 pm

Photo of Sam DastyariSam Dastyari (NSW, Australian Labor Party) Share this | | Hansard source

I move:

That the Senate take note of the answers given by the Minister for Finance (Senator Cormann) and the Assistant Minister for Social Services (Senator Fifield) to questions without notice asked by Senators Dastyari and Ketter today relating to the regulation of financial advice services and to budget measures in the Social Services portfolio.

Senator Cormann failed to give an adequate response about the dramatic actions that are being taken by this government in terms of watering down the Future of Financial Advice laws. What is so alarming is that, even though the government have got their way on their regulations, they are taking steps to ram through a legislative agenda to enforce and enshrine what is nothing more than a gift to a handful of crooks, con men and criminals who have misused the financial advice industry to promote themselves and their own objectives. Let us be clear: there are a lot of good people out there in the financial advice industry but there are also a handful of people who have given this sector and this industry a bad name. That is why when it comes to regulation, when it comes to protections, the onus should be on making sure consumers are being protected.

Minister Cormann said he is aware of comments by David Murray, the author of the government's financial services inquiry interim report, that the principle of consumers being able to access advice that meets their financial needs is undermined by the existence of conflicted remuneration structures in financial advice. But he refuses to say or explain why a sales bonus that is constructed as a reward for getting someone an increased number of sales is not conflicted remuneration.

The response here is, frankly, not good enough. We know that the financial services inquiry is underway and that, in November, it will hand down a report. We know that the report it will hand down will be scathing on the financial advice industry. Our argument here is, rather than bringing in the legislation this week or next week or as soon as possible, considering the minister has already got his way on his regulations, why not wait to allow a proper investigation, a proper FSI report to follow and a lot of these matters that are now being aired, matters involving the Commonwealth Bank, Westpac, and the ANZ when it comes to Timbercorp, to be properly debated, explored and investigated by the FS inquiry and then, at the end of that process, if there is a need for legislation then have the debate then. But we do not need to ram through this legislation.

Last week, in The Sydney Morning Herald, the fantastic Adele Ferguson wrote that a report is coming down a week or so from now regarding the conflicted nature of advice that is being given in the insurance sector. What is the government's plan? What is its response? Get through our FoFA changes as soon as possible; ram the legislation through as quickly as possible. We were told in the committee that we could not wait another week, that it all had to be brought forward this week and that we have to table the report this afternoon. But there is no rush for this. There is no need to ram this legislation through. Let us see what ASIC has to say next week and what the FSI has to say. Let us find out what is happening in Westpac. Let us make sure we have got right to the bottom of what has happened in the Commonwealth Bank. Let us allow for a proper investigation into the role of ANZ, as far as their responsibilities for Timbercorp are concerned, and let us allow all these matters to be properly aired, debated and investigated. Then we can have a proper, frank and fearless debate about what legislation is needed. But simply enforcing the regulations that the minister has already got up through legislation, to get it off the agenda, is not good enough. It is rushed, it is ill-prepared and it involves a series of recommendations and amendments that will, frankly, not protect consumer protections. We can wait and we should wait.

3:10 pm

Photo of Ian MacdonaldIan Macdonald (Queensland, Liberal Party) Share this | | Hansard source

Can I start my contribution by congratulating Senator Cormann on the work he has so far done in this very, very complex issue—an issue, I might add, most Australians and certainly many senators, including me, do not have an intimate knowledge of. And, if Senator Dastyari were to stay in the chamber, he might learn something.

Having listened to Senator Dastyari's five-minute tirade, can I just ask him: where was the Labor Party over the six years of government, when the rorts and tragedies that occurred in the financial advice area were all happening? The Labor Party, of which Senator Dastyari is now a parliamentary member, which presided over those real issues at the time of the Storm Financial arrangement, did not do anything at all to help Australians who were relying on advice from financial planners.

Senator Dastyari has had a lot to say. It is a pity, I think, that he did not turn his mind to this matter in the days when Labor was in charge of these areas. The previous speaker is very big on criticising a government that is actually doing something about the matter but very silent when it comes to why he and his party did not do something over the previous six years.

We have to address a number of issues. The main issue which is causing the government real problems is how to deal with the financial situation of our nation, our so-called big home, where under the Labor regime we were spending far more money than we were earning. We all know that, under Labor, the debts and the borrowings blew out to the extent where, in the course of time, Labor's debt legacy will be approaching $600 billion.

People perhaps do not quite understand how governments work. But can I say it is very simple. It is like your own household budget: you cannot spend more than you earn. You cannot keep borrowing and borrowing because, some day, you have to pay it back. You certainly cannot borrow to pay the interest on previous borrowings. That is what was happening under the Labor government. This is a tragedy and it is one of the great dangers and real problems that have been left to the current government to sort out. People like Senator Cormann and Mr Hockey have been working brilliantly, I think, to try to address all those issues, including the issue that Senator Dastyari raised in this debate on answers to questions in question time.

So, Senator Dastyari, were it not for the fact that our senior economic ministers are spending most of their time trying to sort out the mess that your government left them, they may well have been able to concentrate more on the issue which you raised. All of these issues involving money are matters which have been very well handled by Mr Hockey and Senator Cormann. They have been doing a wonderful job so far in fixing Labor's financial mess. I can assure Senator Dastyari and other senators in this chamber that you will get the same sort of competent, sensible, mature solution of the issues which seem to be worrying Senator Dastyari so much.

3:15 pm

Photo of Alex GallacherAlex Gallacher (SA, Australian Labor Party) Share this | | Hansard source

I would like to make a contribution to the motion to take note of the answer of Senator Cormann to Senator Dastyari's question. Firstly, I want to address the issue that Senator Macdonald just raised about what Labor was doing when a number of these extremely stressful and trying circumstances arose. We asked for the best interest duty to be contained in legislation. We asked that financial advisers opt in and get their clients to opt in to receive ongoing service every two years. We asked financial advisers to annually disclose statements—that is, send to their clients the fees that they are charging and the details of the services performed. A ban was placed on conflicted remuneration. That is what we were doing: we were taking note of the things that had happened to the innocent people in the community who had been taken advantage of by these unscrupulous providers.

It is more pertinent to ask: what were the Liberals and the coalition doing? On 20 December 2013, former Assistant Treasurer Arthur Sinodinos announced that the Abbott government would make several changes to FoFA, including: removing the catch-all provisions in best interest, which adds a loophole for advisers, meaning that best interest will become ineffective; scrapping the opt in, which allows an adviser to continue to charge fees, sometimes without having actively worked on a client's file, indefinitely, without receiving consent from their client; amending annual disclosure provisions so that advisers now only have to provide annual disclosure to clients who commenced with them after 1 July 2013; and a partial lifting of the ban on conflicted remuneration. This ban will only apply to personal advice, not general advice. This will open the door for a sales push culture of products over advice.

Let us just think about a couple of facts. Former Assistant Treasurer Senator Arthur Sinodinos was a director of the National Australia Bank. That is a fact. Former Assistant Treasurer Arthur Sinodinos is not in the chamber today—that is a fact. If you read any of the New South Wales newspapers in the intervening period, you will realise that he has been before ICAC. He was a former treasurer of the Liberal Party, a director of the company which was investigated in New South Wales. These are all facts. You can draw your own conclusions from all of these things.

But the reality here is that there is $1.8 trillion in superannuation in Australia. If you have a quick squiz at the ASIC site, you will see what Senator Cormann is trying to save investors from. He says, 'Financial advice is very expensive.' According to the ASIC website, you will pay between $200 and $700 for simple advice. For more complex or comprehensive advice, you will pay between $2,000 and $4,000. There are a whole range of things listed there that you should discuss with your financial adviser. But what has actually happened with financial advice is that it has been wholesaled by the big banks. Smaller financial advisers are being grouped together and are being swallowed up by the wholesale big banks.

If you go to the recent Senate inquiry conducted by Senator Mark Bishop, you will find that there were no less than 61 recommendations that found that there was a need for an examination of the Commonwealth Bank in relation to the misconduct of its advisers and planners. You have a picture here of a person—a former Assistant Treasurer, a former director of the NAB, a person who is not here in the chamber today to defend himself—I hope he turns up tomorrow to do so—who was the architect of this legislation which is opening up the gates and which is not the right thing for superannuants or anyone seeking financial advise in Australia.

3:20 pm

Photo of Cory BernardiCory Bernardi (SA, Liberal Party) Share this | | Hansard source

One thing that I have learnt in this place is that when an honourable senator stands up and claims things as facts, they best be true. Senator Gallacher, who, to his credit, is a very well-meaning individual, has stated repeatedly that Senator Arthur Sinodinos was director of the National Australia Bank. To my knowledge, I have never known that he was a member of the board of directors of the National Australia Bank. He may well have been an executive there. But, Senator Gallacher, you should not state them as facts when they are incorrect. And if you cannot get basic information like that right, how are we entitled to rely on the rest of the things that you have put to us?

There are some certain facts which I would like to put on the table. There was indeed a bipartisan approach to reform of the financial services regulations in this country. It is an area where I have a modicum of expertise, given that I spent 10 years or thereabouts in the financial services industry and I understand it. I also understand that there is a need for reform. There was a bipartisan inquiry—colloquially known as the Ripoll inquiry—that was a broad agreement between the Labor Party and the coalition about the way forward on how we could make financial services advice affordable, accessible and ensure that it is continually in the best interests of the client. That report was signed off. But between the report and the bill, which the Labor introduced, between the legislation that was introduced in this place and the other place, something happened. The deal that was made to reform financial services became a deal to enrich unions. You overstepped the mark. You rejected the agreed position that was in the best interests of the country and you overstepped the mark in order to favour those who favour the Labor Party.

This is the tragedy: you cannot do a deal with those on the opposite benches, because they will not honour it. They will not honour their deals through the committee system and they will not honour their deals to the Australian people. When they get into government or when they get into a circumstance of power, they say one thing and do another. This is the tragedy of the Labor Party. They are captive to internal machinations. The union movement determines what happens within the Labor Party. This is an unhealthy party. It is a party with an unhealthy culture.

If you want a prime example, Senator Gallacher said there needs to be transparency and openness. He mentioned something about opting into continuing financial services provided by an adviser. I would like to see that translated to within the union movement. I would like to see those who pay their union dues opting in, to allow those dues to support slush funds, electoral funds, union brawling, internal fights, donations to political campaigns and causes that the individual union member might not agree with. What has happened to the role that unions used to play in representing the working man? Every day that I look into the royal commission and continue to hear evidence it appears it is more about union bosses looking after each other and themselves.

There is a noble cause representing those who are voiceless or unrepresented: going in and having a fight for them, to put up and say, 'Hey, we're here to do the best for you.' But the entire thing is sullied. I will not listen to the sanctimony of the other side about financial-services advice when things are designed to enrich individuals. This is the great tragedy of where we have come. The once great union movement and once proud Labor Party has become a farce. It has become a shadow of its former self. I know there are many on that side who are concerned about that.

When we say, 'Let's work out the best ideas,' and reach an agreement on a committee in this place, you expect the government of the day to listen to it. Unfortunately, the future of financial-advice reforms were overcooked by the former government. They overreached. They betrayed the trust of the parliament and the Australian people. Now we have to address that. (Time expired)