Sam Dastyari (NSW, Australian Labor Party) Share this | Link to this | Hansard source

I move:

That items 1 to 27 inclusive and item 30 of the Corporations Amendment (Streamlining Future of Financial Advice) Regulation 2014, as contained in Select Legislative Instrument 2014 No. 102 and made under the Corporations Act 2001, be disallowed.

Here we go again, back in this place, the two sides face to face once again arguing for their cause. On one side we have a government minister who has a coalition on his side that is increasingly dwindling, a coalition of groups outside this place from whom he no longer has the support he once had, a group of people who not through want have been trying to squeeze more money out of Australians' bank accounts, sometimes in the name of affordable advice, but more recently we have heard a rhetoric shift, an attempt to tarnish the name of all super funds. On this side of the chamber we have a coalition that involves the Australian Labor Party, a coalition that involves the Greens and includes people like Senator Xenophon and Senator Madigan. We have a broad, eclectic and perhaps unexpected group, a broad coalition of groups who want Australians to have more money in their bank accounts.

I say to the government and the minister, through you, that our broad coalition is growing. Those opposing this government's changes to part 7.7 of the Corporations Act include people like the consumer advocates group Choice, and include representatives of pensioners and retired Australians such as the Council on the Ageing and National Seniors. It includes superannuation funds and super advocacy groups, including Industry Super Australia, the Superannuated Commonwealth Officers' Association and financial counsellors such as Care Financial Counselling Services.

We in the Labor Party are very grateful for the incredible community support we received in this fight from working Australians. We are also grateful for the incredible support we are getting from professional financial planners who are worried that the changes this government is trying to ram through will continue to erode public confidence in their industry and will reduce the professionalism of the industry, seeing the country return to the bad old days of financial advice before the GFC, before the Ripoll report and before FoFA was introduced to improve the disclosure requirements of the Corporations Act, a return to an era where reckless, callous crooks prayed on the savings of unsuspecting Australians, when a handful of individuals besmirched the name and reputation of many good financial counsellors across the country. But over the last week, our broad coalition of those opposing the government's changes has grown even larger. Last week the Financial Services Council conceded that the financial advice industry needs to take a long, hard look at itself. It finally admitted that greater regulation is needed to give consumers confidence in their profession.

What would we all have given to be on the phone call between Mr John Brogden and the minister? If the media reports are true—they are only reports in the media and they may not be true—the minister became aware that their greatest ally in their fight so far, the Financial Services Council's new reform correct position which they have adopted came to the minister's attention two hours before an embargoed media release was being sent out. What we would have given to have known exactly what was said. The minister has said in this place that it is akin to raising the white flag, that he is disappointed and he thinks the industry should do better. I am sure they are not the words he used in that telephone conversation.

The government has been left to explain why they are on their own. I know that the minister, who has fought for this issue tooth and nail, on behalf of or in support of many of the groups on his side of the debate, is well aware that the support, that the community groups, that the financial services groups and now even the banks are raising major concerns about the direction in which this country is taking us on this issue. The irony is that Senator Williams, who has spoken out about these things in the past when he was permitted to speak out, the chair of the Senate Standing Committee on Regulations and Ordinances, has put his own name to a disallowance motion to oppose the government's new FoFA amendments. There is a very simple explanation for why this is happening. The minister has exceeded his powers under the Corporations Act. He has pushed too far. The legal eagles on the committee made this very clear. The minister's legislation is flawed. It has been rushed into this place to satisfy a handful of big banks and financial planners who still want to offer their sales staff bonuses, who still want to steer unsuspecting customers to their latest product under the guise of financial advice. I say to the minister that, when he gets up here today and when he speaks in this chamber, he does not need to seek leave. He can table the legal advice that he is relying on and that he has been reluctant to hand over to the Senate Regulations and Ordinances Committee.

Dare I say it: there is another great Sydney warrior who has joined our fight in recent weeks and who has his finger on the pulse of retired Australians, especially those in Sydney, who appears to be someone who has recently come on board with this fight, even though he has made comments in the past, opposing this government's callous attempts to take money from the pockets of ordinary Australians. Of course, I am talking about Sydney radio host Alan Jones. This week, he reminded the minister:

You've been heavied … by the banks …

And later:

… you're letting these people loose on poor, unsuspecting old, vulnerable people who've got money.

I say to Mr Jones that, frankly, I could not have put it better myself. I encourage everyone in this chamber to take the opportunity to read the transcript of what was a spectacular interview between Alan Jones and the minister. In fact, I will go on further, because I know how busy everyone is. Mr Acting Deputy President, I seek leave to table a transcript of the interview between Senator Cormann and Alan Jones?

Peter Whish-Wilson (Tasmania, Australian Greens) Share this | Link to this | Hansard source

Is leave granted?

Mathias Cormann (WA, Liberal Party, Minister for Finance) Share this | Link to this | Hansard source

Leave will be granted if Senator Dastyari observes the usual courtesies that are habitual in this chamber and if we can have a look at the document that he is waving around. Senator Ludwig would know that that is a well-established practice in this chamber.

Peter Whish-Wilson (Tasmania, Australian Greens) Share this | Link to this | Hansard source

Senator Dastyari, leave is not granted but you may have the chance to do it at the end of your speech.

Sam Dastyari (NSW, Australian Labor Party) Share this | Link to this | Hansard source

Thank you. I will seek leave again at the end of my speech. It is amazing, Senator Cormann, because it is your interview with Alan Jones. I can understand and can appreciate that if that was my interview I would not want people seeing it either.

Mathias Cormann (WA, Liberal Party, Minister for Finance) Share this | Link to this | Hansard source

It is on my website.

Sam Dastyari (NSW, Australian Labor Party) Share this | Link to this | Hansard source

Well, that is right. Unfortunately, I may follow you on Facebook, but I do not visit your website that often. If you want to post it this afternoon, I will certainly look at the interview.

Peter Whish-Wilson (Tasmania, Australian Greens) Share this | Link to this | Hansard source

Senator Dastyari, I remind you to direct your comments through the chair.

Sam Dastyari (NSW, Australian Labor Party) Share this | Link to this | Hansard source

Thank you, Mr Acting Deputy President, I encourage every one of our friends in this chamber and those poor folks on the other side of the chamber, who have to get up in this place and stand up for their constituents, with their fingers crossed and with reality suspended, pretending that the changes that Minister Cormann is trying to ram through this place will be in the best interests of Australians' bank balances, to take the time, read the transcript of the interview with Mr Alan Jones and listen to what Alan Jones had to say.

These changes are not in the interests of Australians. These changes are only going to benefit a handful of special interests within this debate. And the unfortunate reality is that special interests have so dominated this debate and have so taken control of the government's agenda that there are, increasingly, a number of good, hardworking, decent, financial advisers out there who want to do the right thing, who want to have an industry that they can be proud of and who are increasingly realising that the best way to get public confidence is to make sure there are rules and regulations in place that hold them to a high standard. The reality is that the bulk of financial planners out there are doing the right thing and want to do the right thing. Yes, there are a small group of crooks, criminals and con men who have given the industry a bad name. Frankly, what we in this chamber should be doing is taking whatever steps we can to fight them, beat them and defeat them, not running some kind of regulatory protection racket for them, which is what we are attempting to disallow today.

At the end of the day, it comes down to one big issue and that is: what are your priorities and what are your values? It comes down to which side of the debate do you want to be on? We on this side of the chamber believe we need to be on the side of the consumers, the financial planners and the sectors of the industry that are trying to do the right thing. Yes, if you impose stronger rules and stronger protections it will have an impact, certainly in the short term, on the bottom line of the big financial planning houses. It will have an impact on the bottom-line profits of some of these organisations of which we speak, but it will protect consumers and the financial planners who are out there doing the right thing. And that should be our focus in this place.

The broad coalition that we have out there in the community on this issue is growing and continues to grow. The broad coalition that once began as a few outspoken victims grew to consumer groups and then grew to those representing seniors and others. Now it includes people such as the Financial Services Council and, increasingly, some of the big organisations and the big banks have come to the realisation that there needs to be action and activity and that steps need to be taken in this space.

I say to the minister, whom I have a lot of respect for, that simply because you may have the numbers in this place to exercise an outcome a particular way because of deals that may or may not have been done, it does not make it good policy and it does not make it right. I believe the art of understanding these things in this place is knowing when not to exercise power, simply because you have it. I think the mistake being made here is that you have a minister, a position and a government that is in isolation with what is happening in the community. Yes, they believe—and I suspect that they are correct—they can maintain the numbers to get whatever they want through on this whole FoFA issue. As draconian and as hurtful as they want to be, they have stitched up their deal. We all sat in this chamber while we watched the minister stand up and read out a letter that had been written by the member for Fairfax from the other place, while the member for Fairfax sat there and watched him. We all had to sit and watch that humiliating act and, as a result of that, yes, he probably has the support he needs to do what he wants to do. But it does not make it right. It does not make it in the interest of ordinary Australians. It does not make it in the interest even of the financial planning industry, which itself is coming to the realisation that something needs to happen. Like a Japanese warrior well after the war is over, we have the minister there still fighting the fight, still not recognising things have changed. The industry itself is now crying out and saying, 'Please, we want to have the confidence of the Australian public. For us to be able to achieve that, we need to have greater regulation in place.'

Let me be very clear about this. We will not be backing down in this fight. Let me, through you, Mr Acting Deputy President, address my friends on the crossbenches directly. To Senator Muir from the Australian Motoring Enthusiasts Party, to senators Wang, Lazarus and Lambie from the Palmer United Party, you have been drawn deeply and passionately into this debate. But let me make myself be absolutely understood. No matter what the outcome of this vote, no matter whether this regulation or upcoming legislation passes this House, we will not be backing down on this issue. We will continue to fight, we will continue to make the case, we will continue to go out there and battle on behalf of working Australians, for retired Australians, for young Australians and for anyone trying to improve their financial position. We will fight against the Abbott government, we will fight against the interests of a handful of big banks and we will fight against those in the financial planning industry who think it is good enough for us to return to the good old days of financial planning.

Fundamentally, those of us in this place are privileged. We are privileged to have the opportunities that we have. While we exercise that privilege, we should always remember that there are Australians out there that have not had the opportunities that we have had, that have not been as fortunate as those of us in this place have. I am not saying those in this chamber have not worked hard or have not sacrificed to be here, they have. But they have also been incredibly fortunate. We have a responsibility of those who have not been as fortunate as us. These regulations and, more broadly, the whole-of-government approach is not about helping those Australians out, it is not about being on this side, and it is not about helping them; no, it is about making sure the interests of a handful of big corporate banks are being protected.

Frankly, it is clear when you see who is on what side of the debate. It is clear when you have the big financial planning institution houses as the only people there. Even they are walking away as quickly as they can from the government. If there is a debate and you are on the wrong side of every single consumer group, every single advocacy group, every single victims group then, surely, you have to question whether that is the right side of the debate to be on.

I say to the minister through the chair: Minister, you are far better than the proposals you have brought into this chamber. You are far better than the legislation you are proposing. Frankly, with the opportunity, the skill and the ability you have, you should be presenting something much better to the Australian people.

I seek leave to table this document.

Leave granted.

Joe Ludwig (Queensland, Australian Labor Party) Share this | Link to this | Hansard source

I note the government does not seem to want to participate in this debate. It does not quite surprise me. I did want to also have the opportunity of listening to Senator Cormann's defence of this poor regulatory legislation to then be able to answer. But Senator Cormann, as always, wants the last word in all of this.

Let us start out with the first word because what the first word is that the provisions of chapter 7 of the Corporations Act aim to promote among other things: confidence and informed decision making by consumers of financial products and services while facilitating efficiency, flexibility and innovation in the provision of those services; and fairness, honesty and professionalism by those who provide financial services.

What concerns me most about these regulations is that they have failed on both of those counts. First, they have not sought to ensure that there would be confidence and informed decision making by consumers. In fact, it does the opposite. It rips the guts right out of them. Second, it does not promote fairness, honesty and professionalism by those who provide financial services. It drags us back to the old days where some financial advisers—not all in the industry—created circumstances which led to awful positions of consumers in the Storm Financial debacle. That was but one debacle but one that I think typifies some parts of the industry. Who suffers out of that? Consumers—mums and dads who have been hoodwinked into providing their financial savings into such schemes.

What role should government play in all of this? It should play an important part. Chapter 7 specifies the twin aims of what roles governments should play. In this instance, this government is not playing that role. This government has decided to ensure that it does not meet its commitments of honesty and fairness for consumers or of professionalism for advisers. What this government has sought to do is to unwind the reforms that were put in place in the twin aims of chapter 7.

The basics of the introduction of Labor's reforms were to restore faith in a sector that was rocked by high profiles collapses and ensure that Australians were getting the best advice possible.

The Abbott government is now seeking to make several changes to the reforms through regulation which remove the catch-all provision for providers to act in the best interests of their client; add a loophole for advisers that will make this safeguard ineffective; scrap of the opt-in requirement allowing an adviser to continue to charge fees indefinitely without receiving consent from their client; make changes to annual disclosure so that advisers only have to provide annual disclosure to clients who commence with them after 1 July 2013; and lift the ban on conflicted remuneration that will only apply to commissions on general advice which will open the door for a sales-push culture of products over advice.

All of the government's proposals are about providing, in their words, a certainty for the industry; in fact, it will provide uncertainty. Consumers will be concerned. Consumers will not continue to have the confidence in the market that financial services are in, and that is the sad part of this so-called regulatory reform that Senator Cormann is bringing forward. It does the opposite to what he says it will do: it will not bring stability and confidence to the market; it will bring the exact opposite.

All of the market has now started to examine these proposals—that is why not only consumer advocates such as Choice are decrying the regulation but industry are also adding their voice. They can see that instability will be created by these so-called reforms. I have known Mr Brogden for some time, and he is a person of great integrity. It is not surprising that he would add his voice to the criticism of this regulation when you look at the detail of it.

The government claim that all of their proposals are about certainty for the sector but, ultimately, not for the consumer. That should not surprise us on this side of the chamber when you look at the coalition's response across many of their portfolios. They are not about the worker. They are not about the consumer. They are not about making sure that there is fairness in the market. They are about ensuring in this instance that the big end of town and the banks will benefit. The so-called reforms of the government take the financial services back years and remove Labor's hard-won gains to lift standards and ensure providers walk the path to professionalism in this debate.

What is most concerning about the introduction of these changes is the government's plan to make most of the changes via regulation. That is why we are arguing for a disallowance on these regulations today. The government could have taken the brave way forward and brought through a proper bill to be progressed with a regulatory impact statement—one that Senator Cormann often decries that legislation should have—and submit it to parliament for proper scrutiny. Instead, he did it via regulation. We are not here to talk about the bill, because the circumstances that Senator Cormann has now set up for himself are that he has a bill. The regulations are a stopgap, but he does not know confidently—although, he may want to predict—what the final bill will look like. Therefore uncertainty reigns, because he has wanted to, in his words, act swiftly to deal with this issue.

I think this is a poor way to progress legislation in this parliament and I don't think it speaks very highly of Senator Cormann in this respect. It can create a circumstance where the regulations in this instance largely give effect to amendments that would be made by the bill, but you have the added difficulty of not knowing the outcome of the two houses of parliament yet. You don't know whether there will be amendments that succeed. You don't know what the final shape of the legislation might look like. You may be confident. You may want to predict it, but the Senate is not a chamber I would want to give a lot of predictability and certainty to about some of the outcomes. It may surprise Senator Cormann to find that out eventually.

The Standing Committee on Regulations and Ordinances also belled the cat. Its role exists to report on regulations sought to be introduced by government to ensure sufficient oversight of legislative instruments that they do not undergo the same level of parliamentary scrutiny as bills that pass through parliament. Therein lies Senator Cormann's problem: doing it by regulation omits the scrutiny of parliament. If you do not follow the basic tenet that, if you are going to make substantive changes, you should use parliament to do it rather than try to swiftly use a regulation, you will get tripped up. The regulations and ordinances committee has put up that trip-wire.

As part of its role, it is also a function of the committee to consider whether an instrument contains matters more appropriate for the traditional process of parliamentary enactment. The explanatory statement provided by the government on this regulation states the reasons for the change being introduced via regulation rather than legislation as 'it provides certainly to industry and allows industry to benefit from the cost savings of the changes as soon as possible'.

It has been reported by the committee that enabling a regulated industry to benefit from legislative change as soon as possible is not a sufficient justification to achieve policy change through regulation as this justification can be claimed with respect to any proposal. That means you could always argue: 'I need to change something quickly; therefore, I will do it by regulation.' That is not an argument, not a reason, to bring a regulation in or to underpin it.

It has been reported by the committee that the most concerning thing—to the committee and to me—is that the key element of the regulation involved fundamental change to the primary legislative scheme developed by the Labor government in order to protect consumers during a time of economic uncertainty. In response to the committee's concerns the minister cited the need for—and again we hear this—'swift action'. However, he failed to address the issue that such imperatives may not amount to sufficient justification for effecting significant policy change via regulation.

So Senator Cormann simply argues in the round: 'I need to do this swiftly; therefore, that is the justification that I need to do it swiftly.' The committee says that is not a justification. You can do it by an enactment. The government has regarded it as preferable and convenient to effect policy change via delegated legislation without consideration of the consequences that these changes have on the Australian people. The regulation then is an attempt by the government to rush through its changes in order to favour—Senator Cormann can tell us who it aims to favour. We have already looked at the consumer; it does not benefit the consumer. It leaves us with maybe the big banks, maybe the big end of town, maybe the financial planning industry and the advisers themselves. But that argument was never made to the regulations and ordinances committee. The arguments for bringing in the regulation had nothing to do with the removal of red tape; although, I know that Senator Cormann is wont to argue often that it is about the removal of red tape. But the underpinning of his argument to the regulations and ordinances committee is all about swiftness.

It is a further function of this committee to consider whether an instrument is in accordance with the statute—in this case, the Corporations Act 2001. In response to the committee's concerns on this point, the Minister for Finance and acting Assistant Treasurer informed the committee that the Australian Government Solicitor advised that the regulation has been made in accordance with the specific regulation-making powers in the Corporations Act; however, the government has conveniently neglected to provide the committee with this advice. This is a government asking the Australian people to place their trust in its hands, only to skimp on the details that show how these changes protect ordinary consumers. I do not think it is deserving of this trust. To demonstrate this point, the regulation is made under a provision of the act which provides that regulations may be made prescribing matters necessary or convenient for carrying out or giving effect to the act.

But let's go back to the reason the regulation was made. Given that the regulations are an 'interim measure'—that is, swiftly done as a stop-gap until such time as we can deal with the bill—a serious question arises as to whether the regulations are permitted by the act. Given that they are clearly not necessary or convenient for carrying out or giving effect to the act, there are no grounds. We would all like to see the Solicitor General's advice. I suspect that Senator Cormann is not going to table that today. I will be interested to see whether the government decides to give them to the regulations and ordinances committee. If they do not do that, I think it makes the case that they have plenty to hide and they have been caught short on this; because, without that advice, Senator Cormann is again asking the chamber to trust him. I do not trust this government at all. They ought to put up or pull out.

The government indicated in its explanatory statement that the regulation is intended to give effect to 'interim changes' until the bill passes the parliament, and the interim changes will then be repealed, following the commencement of the bill. If this isn't a clear warning sign that the government is trying to push through these changes in the quickest way possible and undermine parliamentary process, I don't know what is.

Obviously the government has relied on the 'required or permitted' limb of the general regulation-making power, rather than on the 'necessary or convenient' limb of the power. A serious question arises as to whether the regulations are permitted and, given that the government has not provided the legal advice to underpin the making of the regulation, one can only reasonably conclude that it is outside the power. But this is not all that is wrong with this regulation. In truth the government's legal argument is defective. It is not as bad as what they seek to do in relation to the best interests duty in favour of vulnerable consumers; nonetheless, it is a shocking state of affairs.

The regulation removes the catch-all provision from the list of steps an advice provider may take to satisfy their best interests obligation. Given that removing the catch-all provision is not required by the act, the regulation is again relying on the inapplicable 'permitted' element of the power. That is one example which highlights that it is an impermissible step this government has taken with this regulation in trying to replace what is and should be proper scrutiny by parliament of legislation. Once again, we can see the government's twisted priorities in action; how they want to treat not only the Australian people but their representatives and the parliament here. This regulation and the way it has come forward is an abuse of power. It should fail.

I think those who support Senator Cormann in his actions should at least demand to see the legal advice before making any decision to support him. The impact of this regulation is massive. It is about big banks, big fees, big money and removing protections for ordinary consumers. What this means for mums and dads is that they will again be subjected to poor practices in financial advice and financial services. Senator Cormann wants to hide behind all of that and only deal with it because the government wants to hoodwink the Australian public. Labor will be firm in upholding the protections Australian consumers deserve. Those who want to sit with Senator Cormann ought to make sure that they are familiar with the advice that he holds to ensure that they do consider this in a proper way. But I think Senator Cormann thinks he has got a deal done.

Peter Whish-Wilson (Tasmania, Australian Greens) Share this | Link to this | Hansard source

We are debating a disallowance motion on a set of regulations to weaken financial advice in this country. But what we are fundamentally debating here today is about the government delivering for rent-seeking special interests in this country. It is about delivering for the big end of town. It is also about reducing protections for consumers and shifting the balance in this debate from small business and consumers to big business.

It is also about the late Noel Stevens. Those who saw the Four Corners documentary on issues around the provision of financial advice in this country will remember the very tragic, gut-wrenching story of Noel Stevens. Mr Stevens was phoned by his local branch of the Commonwealth Bank and asked to switch his life insurance policy from Westpac to the Commonwealth Bank. What he did not know was that the teller at the Commonwealth Bank received a referral fee of $444.60 and the bank employed financial planner then received almost twice as much in ongoing commissions. Sadly, only a few months later Mr Stevens was diagnosed with pancreatic cancer. The bank refused to pay his insurance policy. It said he had a pre-existing condition. This is what the Four Corners documentary was about—I am not being sentimental or political, but it was an absolute tear-jerker. Mr Stevens, in his dying days, was still fighting a court case to get the money to pay out his house for his family. After Mr Stevens' died, a judge found in his favour. He found that the planner did not act in Noel Stevens best interests and that the commissions and kickbacks that were paid to the staff of the Commonwealth Bank might have influenced the advice.

There are two things in that story that relate directly to these regulations today and the laws that were brought in around the Future of Financial Advice. One of them is the idea of conflicted remuneration and the other one is whether financial planners are acting in the best interests of the client. Both of these key critical components of financial advice have been watered down under this regulation and this legislation—not to mention other important factors such as opt-in agreements. I have heard Senator Cormann talk about this. I heard the Alan Jones interview. Senator Cormann has been very clear on record in the Senate during question time that commissions no longer exist. I want to quote Peter Martin, who has covered the story recently in The Age. I have been very impressed by the media coverage of this issue. In the last six months a number of journalists from a number of different media outlets have shown very sophisticated and excellent coverage of these issues surrounding financial advice. This is probably because this has been dragging on for a very long time and a lot of people have come to understand the detail around these issues. Mr Martin said:

Commissions will continue under the changes the Coalition is planning to sneak through. So long as the commissions are part of a "balanced score card" of rewards and so long as the tellers are not making "recommendations" the banks will be in the clear.

But it’s easy to get confused.

The regulations and the legislation that will no doubt come back to this House are very complex and difficult to understand. I used to work in this industry. I have been a banker. I have been a financial planner. I find it very complex and difficult to understand. Alan Kohler is another journalist who has followed this issue very closely, and he has put this in better words then I possibly could. In an article for The Australian he said:

In other words, the government is deliberately constructing an absurdly complicated set of regulations designed to allow banks to continue using advisers/planners to sell their superannuation and wealth products.

The word 'sell' is very important here. As I have pointed out in this chamber before, the banks in this country have in recent decades undergone radical changes in the way they have structured their business models. They have become vertically integrated. That means, apart from having savings accounts and basic financial investment products, they have moved down the value chain—or up the value chain, depending on which way you want to look at it—into the area of the provision of financial advice. They have manufactured products and distributed their products across their networks—and they have made a lot of money out of this. One reason the banks have been so profitable in this country is that they have been able to generate what is called non-interest income. They make interest out of deposits in savings accounts—it is about the difference in margins between the rate they borrow money at and what they pay out in interest—but they make most of their money from the sale of financial products.

As Senator Ludwig has just said, the government first put through legislation before 30 June and, knowing that it was going to fail, they rushed in regulations. The question is: why rush this now? Why bring back legislation now?

My understanding is that if these regulations are not disallowed today they are in place till mid next year. So why are we looking at this legislation coming back? There are a couple of reasons. First and foremost, during the Senate inquiry into the FoFA regulations evidence was provided by the Australian Bankers Association, who cover the big end of town, that they had an expectation that the government would deliver these changes to FoFA. They had an expectation. That smells like a deal to me. They had done a deal; whether it was with Senator Cormann or with Senator Sinodinos prior to Senator Cormann I do not know, but they had an expectation. They were not happy with the FoFA laws. Rather than adapt their back office, their compliance systems, to cope with the changes that were going to be brought through in FoFA they lobbied against them instead. So confident were they that these FoFA changes would be put into law by 30 June they risked their back office systems and potential costs of hundreds of millions of dollars. That is how confident they were that the government would deliver the changes. And it did. It rushed them through on a Sunday afternoon. On 29 June the regulations came into effect, while we were all out of this building. That might just be a coincidence, Senator Cormann, but the evidence we received in the Senate inquiry was that the Australian Bankers Association were very confident that you were going to deliver these changes for them.

These changes are opposed by a broad group of stakeholders across this country. Consumer groups oppose them. Pensioners oppose them. A number of interests within the financial services industry also oppose them. The question is: what were the FoFA laws originally designed to do? They were originally designed to bring back into the financial services industry the confidence and trust that was lost through a series of financial scandals. Only recently, thanks to the Senate Economics Committee's ASIC inquiry, we have uncovered a lot more information around financial scandals. That made it doubly important to put through the FoFA laws in the way there were originally designed. Of course not everyone is going to be happy with a regulation. According to the government the original FoFA laws were as they were because Bill Shorten was delivering for his union mates in the industry super funds. That is not a good enough argument for changing a set of laws, on which there have been years of consultation, that have been years in the construction and that have been designed to rebuild trust and confidence in the financial services industry.

The Greens came up with what we thought was a very good compromise on this. That was that the full FoFA laws should be passed through parliament and that, after a period of time, an independent review process should occur to assess whether there was going to be an increase in costs and red tape and all these arguments that Senator Cormann has talked about. A number of these laws have not even come into effect yet. There is no evidence about the losses from these laws. What we know and what is becoming increasingly clear is the challenge that the FoFA laws will confront by the vertically integrated big financial services companies. The second reason that I consider this is rushed is that David Murray, ex-CEO of the Commonwealth Bank, is delivering a wide-ranging, broad spectrum, hopefully very comprehensive set of recommendations around the financial systems inquiry in this country, which will look at all these issues in detail. The interim information we have received is that he is taking seriously the issue of vertically integrated business models. Going back to Noel Steven, these products, where products are sold on a volumes basis, still exist. Why rush this legislation back in? Let us get rid of it by supporting this disallowance motion so these things can be properly incorporated into any new legislation.

We also understand that the Australian Securities and Investments Commission is also looking at issues around the provision of financial advice and has been doing studies on this. That also has not been released yet. Given that we need to incorporate information into our decision making to get the policy right and to get the legislation right, why are we rushing legislation back into this house? We should support this disallowance motion today so that we as parliamentarians have the chance to get it right and incorporate in the legislation these current reviews into the financial services industry that are underway.

I would like to get on the record today that financial services and financial planning are critically important to this country, not just to individuals who are learning how to manage their own finances, many of them struggling, many of them battlers, many of them saving for their retirement, helping out their families not just for their private benefit but for the public good. When we have that wealth underpinning our economy and our society it impacts the decisions we make, what we consume and how we invest. The more people in this country who get financial advice the better off this country is going to be. There are a number of very good financial planners and investment advisers in this country. In fact, the big majority of them are excellent and they do the right thing. However, unlike what Senator Cormann has said previously, this is not a situation where we are talking about a few bad eggs. This is a situation where in the large financial service companies there is a sales based culture that is supported by their business models. I go back to the information that has come out of the ASIC inquiry.

I am going to quote another journalist who is doing an excellent job on this, Adele Ferguson at the Age. She wrote:

The structural flaw in the system is an estimated 80 per cent of the country's planners are either employed by or aligned to the big four banks and AMP. It is akin to a doctor being on the payroll of a drug company. … In a nutshell, in the vertically integrated model the institution gets fees and volume rebates from the financial planners for selling the product, they receive big bucks from the administration of the platform and they earn money at the funds management level.

She then goes on to talk about Jeff Morris, the CBA whistleblower, who gave evidence at the Senate inquiry:

Morris is adamant dodgy Don Nguyen was not a rogue planner—

He was the gentleman who was pursued—

but part of a fundamentally flawed, vertically integrated sales system, which uses financial planners to push their financial products on to their customers.

Morris believes that as long as these businesses remain vertically integrated, the "product-flogging" imperative will prevent financial planning from making the transition to a true profession.

That is what we all want to see.

We do want to see this become a true profession in the sense that all Australians are confident to go and receive financial advice. We owe it to the financial planners and investment advisers in this country to uphold these FoFA laws, give them a go, restore confidence and trust in the system and then all Australians will be better off. The Greens will be supporting this disallowance motion.

Nick Xenophon (SA, Independent) Share this | Link to this | Hansard source

I indicate that I will be confining my remarks to under four minutes for reasons of procedural fairness the Finance Minister should at least state the government's case in respect of this disallowance motion. I think that is the fair thing to do.

I will be supporting the disallowance of these regulations for two reasons. Firstly, I do not support the government's proposed changes to the Future of Financial Advice measures introduced by the previous government. Secondly, significant concerns have been raised by the Scrutiny of Bills Committee and the Senate Standing Committee on Regulations and Ordinances relating to the measures contained in the regulations and whether they be more appropriately established in legislation.

On the first point, I want to make it very clear that I do not support the government's moves in relation to FoFA. It is my view that the government's bill is a step backwards in terms of consumer protection and is too focused on getting industry what it wants without balancing out consumer interest. As both committees have noted, the expenditure statement for this instrument justifies making the FoFA amendments through regulation rather than legislation to provide certainty to industry as soon as possible. That is what it says. Thankfully, neither committee has accepted this as a valid reason to deal with such issues through regulation instead of legislation. To me this is a pretty poor justification for these regulations which makes it very clear that, I fear, the government has been putting industry certainty ahead of consumer protection. I suggest that that the financial services industry is big enough and ugly enough to look after itself and that consumers are the ones government should be providing with certainty and adequate protections.

I agree with both committees and I believe it is not appropriate for the government to use regulatory-making powers to introduce these measures. I also do not support the measures themselves. I believe they are a significant step backwards in terms of scrutiny, accountability and consumer protection. This is particularly true in relation to the modifications of the best-interest duty and the payment of commissions. I look forward to discussing my concerns in greater detail when this bill is debated, but in essence I cannot support these changes. For both of these reasons—the provisions themselves and the suitability of establishing them in regulation—I will be supporting this disallowance.

Finally, I plead with my crossbench colleagues—the Palmer United Party senators and Senator Muir from the Motoring Enthusiasts Party—to support this disallowance and to consider deferring supporting any legislative changes to the FoFA legislation until we hear further from David Murray and his financial services inquiry and until we see what ASIC says in a report that is due to be tabled and released, I understand, within the next few days on the life insurance industry that crosses over some of these issues about disclosure. There is some common ground there, and we need to heed that. I ask that we deal with this cautiously and expeditiously, and that is why I support the disallowance of these regulations. I think that is the prudent and cautious step to take and, having spoken for three minutes and 20 seconds, I think it is fair for the Finance Minister to have a say, but, of course, that is your call, Madam Acting Deputy President.

Mathias Cormann (WA, Liberal Party, Minister for Finance) Share this | Link to this | Hansard source

I thank all senators who have participated in this debate. Let me just make clear again and be up front that the government's improvements to our financial advice laws are designed to ensure that people across Australia, who are saving for their retirement and managing financial risk through life, can access more affordable, high quality advice. Senator Whish-Wilson mentioned again, as he did in July, that the government was somehow rushing these changes through. Nothing could be further from the truth.

When the previous government introduced and passed through the parliament their Future of Financial Advice law changes back in March 2012, we were very clear to put the coalition policy on the record then and there. We said there were a lot of things in those reforms that we supported, but there was also a range of things where we thought the previous government went too far in imposing excessive and unnecessary additional red tape which pushed up the cost of advice without actually offering additional consumer protection benefits. If elected to government, we said we would improve those laws to remove all of the unnecessary and costly red tape that pushed up the costly advice, but we would keep all of the important consumer protections that matter to consumers—such as the requirement for advisers to act in the best interests of clients or such as the ban on conflicted remuneration. That is exactly what we have done.

It has been more than a year now since the last election—the election was in September 2013—and in that period we have released an exposure draft of our legislation to deliver on our pre-election commitments to people across Australia saving for their retirement. We have also introduced legislation into the parliament which has been subject to two Senate inquiries, and both the Senate inquiries recommended passage of the improvements that the government put forward. Any suggestion that somehow the government is rushing things here is just completely ridiculous.

We have to remember where this all started. It is true that this all started with the Ripoll inquiry, so-called, into Australian financial products and services. That was actually a very good inquiry. It was an inquiry that was conducted in a bipartisan spirit. The recommendations that came out of that inquiry were supported in a bipartisan way. But if the then Labor government and the then Minister for Financial Services, Mr Shorten, had stuck to implementing the recommendations which were made by that inquiry, we would not be having this discussion today. But Mr Shorten went a series of steps further than what was recommended by Mr Ripoll. The reason for this was that he was being egged on by union-dominated industry funds, in particular the Industry Super Network.

Madam Acting Deputy Speaker, I will just give you one example: Mr Ripoll, in the Ripoll inquiry report, never recommended introducing a requirement for investors to re-sign contracts with their advisers on a regular basis. The Ripoll inquiry received more than 400 submissions—and guess how many submissions proposed the introduction of the so-called opt-in requirement? Somebody give me a guess: how many submissions, out of more than 400 submissions, recommended that particular change? There was only one. And I invite the chamber to guess where that submission came from—it was from the Industry Super Network, which suggested that the Gillard Labor government should make Australia the world champion in financial services red tape by imposing this requirement. Incidentally, the super funds also said, 'make sure you exclude us from the scope of that requirement, so that when we provide intrafund advice, not only do we not have to disclose the fees that we charge—they can be bundled into an overall admin fee—but also we will not have to offer even the opportunity for people to opt out from that fee'. People do not know that they are paying the fee. They pay the fee irrespective of whether they access the advice or not. So Bill Shorten, as Minister for Financial Services, was doing special deals left, right and centre.

What is our objective with what we are doing here? The changes that we are making are not actually that dramatic. If you listen to the speeches by Senator Dastyari and Senator Whish-Wilson, you would think that we were going back to the Dark Ages somehow, with the changes that we are making. Let me just quickly take the chamber through the changes that we are actually making. As I always said we would do, we are removing the requirement to keep re-signing contracts on a regular basis—because that is unnecessary, additional red tape which does impose a cost, and that cost ultimately comes out of people's retirement savings, in the way of additional fees. Senator Ludwig talked about regulatory impact statements; well, guess what? The previous government did not do a regulatory impact statement on their changes, but we do know that their changes cost $750 million to implement, and $350 million, ongoing, in additional compliance costs. The changes that we have been putting forward—the changes which we put forward first in a regulation and which are now currently working their way through the parliament in the form of legislation—are delivering $190 million in savings by reducing unnecessary and costly red tape—that is, $190 million in savings every year. And—for all of us in this chamber—our objective should be that our financial services sector is as efficient, as transparent and as competitive as possible, so that competitive tensions force financial service providers to bring down the cost of providing advice, so that people across Australia—who are saving for their retirement and managing financial risks through life—can access financial advice and can do so in the most affordable way possible, and so that as little money as possible comes out of their savings to pay for all the unnecessary compliance costs. That is what we are all about.

The other suggestion that has been made, quite dishonestly, at various times by people during the debate over the last few months is that somehow we are getting rid of the requirement for advisers to act in the best interests of clients. That is just not true. The requirement for financial advisers to act in the best interests of their clients remains in the Corporations Act. It remains unchanged, in section 961B of the Corporations Act—as does the requirement for the adviser to provide advice that is appropriate, in section 961G; as does the requirement for an adviser to provide a warning if there is any incomplete or inaccurate information, in section 961H; as does the requirement for an adviser to prioritise their client's interests ahead of their own, in section 961J; and as does the requirement for licensees to ensure that their representatives are complying with these sections, in section 961L. So the proposition that, somehow, we are getting rid of the requirement for advisers to act in the best interests of their clients is wrong. We have clearly demonstrated that it is wrong. And, Madam Acting Deputy President, if you look at the agreement that we have reached with the Palmer United Party and the Australian Motoring Enthusiasts Party, as supported by Family First and by the Liberal Democrats, you will see that one of the features of that agreement is that we are introducing a requirement in the amended legislation to ensure that, in the statement of advice, there has to be an explicit mention of those obligations in the Corporations Act on the adviser.

Then there is the suggestion that somehow we are bringing back conflicted remuneration. That is not true either. Again, don't take my word for it. I have listened to the speeches by Labor and Greens senators. Labor and Greens senators usually have a very high regard for the ABC, but ABC Fact Check has looked very closely at the claims that were made by shadow treasurer Bowen. ABC Fact Check identified those claims as being false and inaccurate. They said that those claims were scaremongering. These are not my words; these are the words of ABC Fact Checkthat the shadow treasurer, Mr Bowen, was scaremongering. During the debate here, people have said, 'but people can still be paid when they provide advice'. Well, I did not think that the objective was to abolish all remuneration. But what we have supported all the way through, and what we have made even more explicit in these regulations which have been in effect since 1 July, is that any remuneration which would conflict with the advice given is banned and continues to be banned. Mr Shorten actually said that where incentive payments do not conflict with the advice given, they will be permissible. Well, I agree with him. That is what he said in his second reading speech, when he introduced the legislation. But somehow, now when we say, 'well, we agree with that proposition', we are going back to the Dark Ages! It is just completely false.

Various senators, including Senator Whish-Wilson, made reference to the events that have been widely reported in relation to activities by Commonwealth Bank financial planning. They are terrible stories; I agree with you, Senator Whish-Wilson. But they are stories in relation to a period between 2003 and 2005—that is, before the changes that were passed—with the support of the coalition—by this parliament. The best interest duty remains. The ban on conflicted remuneration remains. What we have done—and what these regulations do and what the legislation, which has been supported by two Senate committees, will do—is do away with unnecessary and costly red tape which pushes up the cost of advice wherever the previous government imposed it.

Everybody can come into this chamber and point to problems, and we can all agree that a particular circumstance is a serious problem, but the question is not whether we agree on whether something is a problem. The question is: how do we best fix the problem? Just because we agree that there is a problem does not mean that whatever you do makes things better. As policymakers, we have a responsibility to ensure that, when we try to deal with a problem, we make things better, not just more complex and more expensive. I know that it is a hard argument. I know that it is much easier to say, 'There is a problem—let's put in more red tape, let's give more powers to X, Y and Z and let's throw more money at it.' That is the easy, lazy way to go about things. We are going the harder road—I understand that—but we are going the road that is good for consumers and we are going the road that is in the public interest.

We believe Australia needs to have a regulatory system in place for the financial services sector that is robust but efficient, that is competitively neutral and that does not try to favour one segment of the financial services market by using regulatory power to try and give that sector a competitive leg-up against other sectors of the financial services market. That is exactly what then Minister Shorten did. He was totally driven in everything he did by giving a competitive advantage to one sector of the financial services market; whereas we believe that it is in the public interest to have a robust and efficient regulatory system in place that is competitively neutral, whereby Australians saving for their retirement and managing financial risks through life can have access to high-quality, affordable advice that they can trust.

What else are we doing? We are saying that we support annual fee disclosure requirements, which come on top of the fee disclosures that are already required to be provided by product providers. We support additional annual fee disclosure requirements by financial advisers, but we do not think that they should be imposed retrospectively. When you make a new change, that should be a prospective change, because if you impose that change retrospectively then you impose an excessive and unnecessary cost burden. That is not fair, it is not reasonable and it is not good public policy.

We also had to fix a couple of technical issues created by the Labor Party in their rush to get changes through. Talk about a rush, Senator Whish-Wilson—the Labor Party was always in a rush when it came to the Future of Financial Advice changes. The Labor Party has been on the record in opposition as saying that there is a need for some changes to the grandfathering arrangements. In fact, when we last spoke about this disallowance in July, that same afternoon, at the last minute, quite desperately, shadow Treasurer Bowen and the shadow minister for financial services, Mr Ripoll, for whom I have a very high regard, wrote me a letter saying, 'By the way, maybe we can do a deal.' They were complaining about the deal that we did with the Palmer United Party, the Australian Motoring Enthusiast Party and various other senators on the crossbench, but the Labor Party wanted to do a deal too. In that letter, they said: 'We agree that your changes to grandfathering arrangements are sensible. We think that if we could agree to make those changes only then we could come to an understanding.' I did not hear Senator Dastyari or Senator Ludwig today acknowledge that Labor stuffed up when it came to the grandfathering arrangements. I did not hear Senator Ludwig or Senator Dastyari explain to the chamber today that there were issues in terms of the impact on stockbrokers and the like of some of their ill-thought-out changes, which we have tidied up.

We are looking after the public interest. We are not doing anybody's bidding other than looking after the public interest. Of course, what we did over an extended period of time was assess all of the facts and be part of all of the Senate committees and all of the parliamentary joint committee inquiries over the last parliament. We have also monitored very closely all the discussions in more recent inquiries, and we have made judgements in the public interest.

Some people have made observations in relation to the notice of disallowance that was given by the Standing Committee on Regulations and Ordinances last week. I used to be a member of the regulations and ordinances committee and I know that we used to give these notices all the time; it is part of Senate housekeeping. When the regulations and ordinances committee want to give themselves some more space to have a longer look at something, that is what they do. They give a notice just before the expiry of the 15-sitting-day period asking some more questions of the government, which of course the government will respond to. We believe that we have all of the answers that are required to satisfy the regulations and ordinances committee. To the extent that there are any remaining concerns, they will be addressed on an ongoing basis as soon as the Senate has dealt with the legislation.

May I say again that the legislation to implement the commitments that we made in the lead-up to the last election has now been considered by two Senate economics committee inquiries—one which reported on 16 June and one which reported in late September. Both of those inquiries by the Senate economics committee recommended passage of the legislation implementing our improvements to the Future of Financial Advice laws.

I cannot remember whether it was Senator Ludwig or Senator Dastyari, but one of them said that we are making draconian changes. Let me remind the chamber that we are removing the requirements to keep re-signing contracts because we believe, fundamentally, that every Australian is entitled to decide whether he or she wants to enter into a short-term, a long-term or an ongoing contract. People across Australia are big and strong enough to make their own judgements as to whether they want to enter into a one-year contract, a two-year contract, a five-year contract or an ongoing contract. People across Australia, having access to transparent information, will be able to make judgements on whether or not they perceive that they are receiving value from a particular service provider. That is fundamentally what I believe. By making sure that we do not have this additional compliance burden which makes us the world champions in red tape, we are taking cost pressures out of the system, which will leave people saving for their retirement with more money in their own pocket and more money in their nest egg

May I say to the chamber that this disallowance motion ought to be defeated because it is not in the public interest for the excessive changes that were pursued by the previous government, in excess of the recommendations of the Ripoll inquiry, to remain. The changes the government made were sensible and they are indeed in the public interest. I commend them to the chamber.

Stephen Parry (President) Share this | Link to this | Hansard source

The question is that the disallowance motion moved by Senator Dastyari be agreed to.