Thursday, 9 February 2017
Corporations Amendment (Professional Standards of Financial Advisers) Bill 2016; Second Reading
Labor will be supporting the Corporations Amendment (Professional Standards of Financial Advisers) Bill 2016. The bill makes amendments to the Corporations Act to raise the education, training and ethical standards of financial advisers. It applies to financial advisers providing personal advice to retail clients on more complex financial products to meet a number of requirements. These financial advisers will have to hold a degree or equivalent qualification, undertake a professional year, pass an exam, undertake continuous professional development and comply with a code of ethics. In addition, the bill will make amendments to the Corporations Act to provide for a restriction on the use of the titles 'financial adviser' and 'financial planner' and amendments to the content requirements for the register of these financial advisers. There is an obligation on the Australian Financial Services licensee to ensure that advisers comply with the new education standards and are covered by a compliance scheme. There is the provision of appropriate sanctions where an adviser or licensee fails to meet the new obligations. There is a recognition of a new standard body that will be set up to detail the new education standards and develop the code, and there are transitional arrangements for existing financial advisers.
The existing provision under the Corporations Act requires licensees to ensure that their financial advisers are adequately trained and competent. ASIC has put out Regulatory Guide 146 setting out in more detail what this principle means. This regulatory guide states that a diploma-level qualification is required of financial advisers advising on Tier 1 products. Yet back in 2014 Adele Ferguson in The Sydney Morning Herald reported:
The current basic RG146 standard to qualify as a financial planner can take less than eight days to complete in an open book, non-supervised environment.
It has created a lax environment riddled with widespread cheating on exams…
This was a concerning report. It is unfortunate that the existing minimum standards of training have not always been met across the industry. It is unfortunate that the training standards of financial advisers have not always measured up to the principle of 'adequately trained and competent'.
What this has ultimately led to is the detailed legislative regime contained in this bill. These reforms have been a long time coming. It was back in September 2014 that the Financial Services Council called for an independent body to have control of education and professional standards for financial advisers, declaring:
Self-regulation is no longer a credible option for establishing higher standards.
The FSC urged the industry to redefine itself through robust oversight and high competency standards to rebuild the trust and confidence of consumers so that more Australians seek financial advice. It was in December 2014 that the Financial Systems Inquiry's final report was released, recommending the raising of the competency of financial advice planners. It was also in December 2014 that the Parliamentary Joint Committee on Corporations and Financial Services handed down a report recommending that financial advisers be required to hold degree-level qualifications and undertake mandatory ongoing professional development. The FSI and the joint committee report highlighted five main deficiencies in the current education and training requirements, which include that the current requirements prescribed in the Corporations Act are low, that the standards are vague, that the standards are not holistic, that they do not require all financial advisers to undertake ethical courses and that there is only a cursory reference to continuous professional development. But stakeholders have raised concerns that the training requirements are not in keeping with changing market conditions and there is no central database with information about the quality of various education and training courses.
I have mentioned that this bill will also provide for recognition of a new standards body which will set out the details of the new education standards and develop the code. The standards body will be a Commonwealth company limited by guarantee, with a board of directors appointed by the minister. The body must have nine directors, including the chair. The board must comprise at least three directors with experience in operating a financial service business or providing a financial service, three directors with experience in representing consumers in relation to financial services, one director with practical experience in designing education courses or degrees, and one ethicist.
I make the point here that this parliament should watch closely who is appointed to the board of the new standards body. The board has a great deal of responsibility in setting the new degree requirements that financial advisers have to meet. This task is anything but simple. The body will need to consider which courses of study to approve, which courses need to be developed and also how bridging courses would be combined with the vast array of existing qualifications. You just have to look at the Tax Practitioners Board, which oversees qualification requirements for tax agents, to see how crucial this work is in ensuring high standards. We should all watch closely whom the government appoints to the board, because if the government is serious about these reforms then they need to be people of high calibre and significant experience. The board needs to include people with a strong track record of standing up for consumers. The make-up of the board needs to be such that it can ensure that these standards are set to a robust level. If the standard-setting body is weak then the regime will be weak, and the 68 pages of law and the 96 pages of explanatory material that are before the parliament will count for very little.
Unfortunately, Labor's concerns about the government's commitment to measures like this one are not unfounded. While these improvements to the professional standards of financial advisers are welcome, it is worth noting that not so long ago those opposite were quite opposed to changes that improved protections for those seeking financial advice. Not so long ago the Liberal and National parties were voting against Labor's Future of Financial Advice reforms. They were voting against reforms that were all about improving trust and confidence in financial planning. When the coalition got into government they set about trying to wind back the FoFA reforms.
Labor had to fight to get them to back down, and it is fortunate that we did fight, because the FoFA reforms have been vindicated again and again. In fact, just months ago ASIC's Financial advice: fees for no service report revealed that Australia's biggest banks, and AMP, had spent years charging over 200,000 customers fees for financial advice that they did not receive. The report showed that customers who initially signed for financial advice had been charged thousands in fees for services they did not even receive, in some cases years after they had any contact with their bank. ASIC's report also showed that there were great systems in place to record incoming revenue but very little to ensure that customers were actually getting anything in return for the fees being charged. Customers were even charged fees for advice from financial advisers who had left or retired, and for services that involved nothing more than three unanswered phone calls.
In its report ASIC commended Labor's Future of Financial Advice reforms. In particular, ASIC praised the requirement to provide an annual fee disclosure statement to each customer. It also praised the requirement for the client to opt-in to the advice relationship every two years. You would have thought that such a requirement was simply common sense. Yet, in the last parliament, Labor had to fight to stop this government from scrapping the opt-in requirement and fee disclosure statements for existing clients. This government said that these were red tape, and they criticised the cost. It is yet another occasion on which they sided with the banks and against customers.
As I conclude, I would like to note some words of the government chaired joint committee report into professional standards for financial advisers. The report said:
Increasing the professional, ethical and education standards applied to financial advisers is not intended to be a silver bullet or a single solution to all of the issues that may arise in this policy area, but rather is seen by the committee as one of a range of measures intended to improve the quality of advice and outcomes for investors.
While Labor supports this bill as a welcome step forward, the joint committee's words are a reminder that there is a lot more to be done to resolve the issues surrounding the culture, practices and consumer protections in banking and the financial services sector.
I welcome the Corporations Amendment (Professional Standards of Financial Advisers) Bill 2016. I thank the office of Minister Kelly O'Dwyer for putting it together. I have been involved in this all way through. Senator Collins is right when it comes to RG146. I have said before that you could walk out of a shearing shed and do a few days in a crash course and then you are qualified financial planner and can advise someone where to invest their superannuation or inheritance or whatever. It is just outrageous and I am very pleased to see the standards are coming forward. The board will be informed, the CEO, and policing—if I can use that word—to raise the standard of financial planning, because it is most important that people in Australia, with their lifelong savings, their self-managed superannuation funds or whatever, get good, honest advice to protect their future.
I also thank former Labor senator Mark Bishop, who chaired the committee when we had the inquiry into ASIC. That is where the revelations of the financial planning scandal came out. Some 600,000 Australians were written to to have their cases reviewed—the Commonwealth Bank, Macquarie Private Wealth and others then reviewed those claims of wrong advice and wrongdoing, and are still reviewing them, with compensation being paid. I also commend Adele Ferguson of Fairfax—I will disclose that she is a very good friend of mine. She worked very well on bringing this out. I also commend Jeff Morris, the whistleblower at the Commonwealth Bank.
I agree with you totally, Senator Dastyari. Jeff Morris is a man who seems to have had his career finish because he was honest and decent and reported the wrongdoings to ASIC. He and the 'ferrets', as they called themselves, brought this whole fiasco out into the open, hoping this parliament is doing the right thing for the future of financial advice and the future for all Australians. I am sure there is much more to go. I commend the bill to the Senate.