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Parliamentary Joint Committee on Corporations and Financial Services - 22/04/2013

FRASER, Mr Bede, Manager, Intermediaries and Regulatory Powers Unit, Retail Investor Division, Markets Group, Treasury


CHAIR: I welcome the officer from the Treasury. I again draw the committee's attention to privilege resolution 116. I invite you to make a short opening statement.

Mr Fraser : I did not want to make a statement per se. I want to flag a couple of key points. As we would all be aware, the terms, financial adviser and financial planner, are not currently restricted. By restricting these terms the bill will enable consumers to identify genuine providers of financial advice, thereby enhancing investor protection and consumer confidence. That is certainly a theme that has been raised in all of the submissions received and I noticed also that was a common theme from the FPA submission just then. While there are current provisions covering misleading and deceptive conduct, it can be very difficult for regulators to take action and that has been identified in a number of submissions, including the Australian Shareholders' Association submission to this inquiry. The new amendments will make it easier to take action against unauthorised advisers and that is consistent with the approach that has been adopted for a number of other important professions including stockbrokers.

Finally, I would note the widespread support for the amendments in submissions. I think there have been six submissions to this inquiry, at least the six on the website, and they have all been supportive. Treasury received 16 submissions when we put the draft bill out and there was widespread support for these proposed amendments. The last thing I want to note is that there is a very limited impact on legitimate providers, so it is only going to be the unauthorised advisers that are going to be hit. That is all that I want to say. I am here to answer questions.

CHAIR: Thank you, Mr Fraser.

Senator BOYCE: Deloitte's made the point that they did not think that there should be restrictions on, as they used the term, financial advisers—a more generic term. Why did you make the decisions that you did including that one and what would be the consequences for accountants and insolvency practitioners and others who might actually currently call themselves financial advisers?

Mr Fraser : I think the Institute of Chartered Accountants and CPA Australia also made the same point. In terms of our assessment, we are much of the view that these terms are used interchangeably and I think that was also repeated by the FPA, so it is very hard for the government to restrict just financial planners and not financial advisers given that there is that sort of common usage. The legislation also restricts terms of like import and there is also a regulation making ability. If people are trying to get around the restriction by using similar words they can be defined in the regs. What it means is that people, to provide these types of advisory services, will have to have an AFSL licence and if they do not have that licence and they still call themselves a financial planner or a financial adviser they will be contravening that section and there will be restrictions in place.

Senator BOYCE: I think, along with the Financial Services Council, we are not talking about the people who might be trying get around the regulation but people who are inadvertently caught up in the regulation because of terms or terminology that is currently used within their industries.

Mr Fraser : They do have to be conducting a business as a financial advisory business as well. We did have some submissions around whether this would pick up academics. The answer is that it will not because those academics are not in the business of providing financial services.

Senator BOYCE: Could it, for example, pick up someone who is currently called the chief financial officer?

Mr Fraser : We were not envisaging that. As long as they were not holding themselves out to be providing financial advice we think that they would not be picked up.

Senator BOYCE: You are confident that they would not be picked up?

Mr Fraser : We certainly were not envisaging a chief financial officer being captured by these arrangements.

Senator BOYCE: What would you then suggest to those persons, such as accountants and tax advisers and the like, about how they would go about restructuring their designations or whatever?

Mr Fraser : That is a bit of a hard question to answer. As long as they are not calling themselves financial planners or financial advisers—

Senator BOYCE: The point of the Deloitte submission was that they are. They do use that term. Without being financial planners they might use the term 'financial adviser' in that they are advising about finances in some way.

Mr Fraser : Words such as chief financial officer or financial controller the types of words that would probably be okay. We were not envisaging those types of words being caught.

Senator BOYCE: There has also been the suggestion made that the bill should not simply come into force when it receives royal assent and that there should be a transitional period. I think one of the submissions talks about it coming in with the other FOFA reforms in July 2014. Why was it decided that this legislation should come into force on a day-one type of basis rather than have a transitional approach?

Mr Fraser : We are trying to match up the commencement date of these with the FOFA reforms so that they do become mandatory from 1 July 2013. These arrangements would kick in then or on the date of royal assent.

Senator BOYCE: That allows very little time for transition, doesn't it? There are dozens of websites and business cards, et cetera, that would presumably have to be rearranged.

Mr Fraser : That is true. These reforms have been signalled previously. They were announced as part of the eight broader financial reforms. There is a sort of a 12-month period where people would have been aware of these reforms. There has also been a period of consultation on the draft regs. There has been a bit of a lag in the timeframe for people to be aware of these arrangements coming into place.

Senator BOYCE: In terms of the number of people who are financial planners in Australia, are you able to clarify the figures that are being used or not used?

Mr Fraser : Again, that is a difficult one, and the FPA noted that. It is probably more a question for ASIC. Certainly when we do our press releases on behalf of the minister we talk about a number of 18,000 financial advisers. I think that number was also quoted—

Senator BOYCE: Where do you get that number from?

Mr Fraser : Largely from ASIC. I would be happy to take it on notice if you wanted me to talk to ASIC about it.

Senator BOYCE: It would be interesting to see what detail you can provide us, also what detail there is on AFSL holders who provide advice and detail on people with exemptions. We would like whatever information there is to be had in terms of the current structure and the people who actually have the qualifications that we are hoping they have. Does that make sense?

Mr Fraser : Yes.

Senator BOYCE: When we are talking about whether you are a financial adviser or a financial planner there are terms like private wealth adviser used. Would that get picked up by this legislation? I know it could be picked up, but would that be one of the things that would immediately be flagged and then followed up to ensure that those people met the same requirements as a financial adviser?

Mr Fraser : It wasn't one of the immediate ones we were looking at.

Senator BOYCE: What are the other immediate ones you are looking at?

Mr Fraser : In the explanatory memorandum we include a couple in paragraph 2.15: such terms as ‘financial planning adviser’ or ‘financial advising agent’. They are the two that identified that they could be considered as of like import. Then, as I mentioned before, we do have the regulation-making ability, so if there are people trying to use different terms to get around these provisions we have the ability to put it in through the regs.

Senator BOYCE: And ASIC will be the people who will be responsible for noting and—

Mr Fraser : We certainly work very closely with ASIC.

Senator BOYCE: But Treasury itself will not have a way of knowing, will you, if there is a group out there using some new term that makes them think they can get around this legislation?

Mr Fraser : No, that is true. ASIC as the regulator would be the point person. They would be the ones coming back to the government saying: 'We may or may not have an issue.' That said, we get submissions directly ourselves and people make ministerial representations as well. So there are other ways that we can find out, but we would expect most of that information to come through ASIC.

Senator BOYCE: So this term that has been raised with us 'private wealth adviser'?

Mr Fraser : I am happy to take that on notice. We were not envisaging that one.

Senator BOYCE: This is all useless if the consumer does not know that they should be looking for someone whose title should guarantee them that that person has some expertise and some qualifications, isn't it?

Mr Fraser : Yes. As I think has been mentioned before there is a role for professional bodies to be advising the community of these changes. The minister has certainly made a number of announcements about the importance of this bill. We have also mentioned ASIC. ASIC has its MoneySmart website and successive governments have provided a lot of funding for that website. That would be another mechanism for communicating this important change.

Senator BOYCE: I have spent a lot of time haranguing ASIC on the topic of its MoneySmart website, because I think financial literacy is—if we had financial literacy we would not need any of this legislation, I suspect. What about government—is there a role for Treasury here?

Mr Fraser : Treasury through the minister with announcements and the like. There have been a number—

Senator BOYCE: I think it is more than ministerial announcements if we are going to get—I hate the term mum and dad investors—the relatively unsophisticated investor.

Mr Fraser : In terms of that, broader consultation would be through ASIC.

CHAIR: I will ask a question on section 911A(2) of the Corporations Act. We have had a couple of very short conversations with people and asked for information on notice. If a person has an AFSL exemption under this subsection (2) why should they not be allowed to call themselves a financial adviser or financial planner?

Mr Fraser : Would it be okay if I took that question on notice?

CHAIR: Yes, that would be great. I do have another question relating to that, which I will get to you in writing. Essentially, has Treasury considered how many people who currently call themselves financial advisers and financial planners operate without an AFSL and would therefore be affected by the legislation if they were unable to obtain an AFSL?

Mr Fraser : I think that is a bit linked to that issue we talked about, the quantums and characteristics, so again I might take that one on notice.

Senator BOYCE: The industry superannuation network suggests that there was an error in paragraph 1.12 of the EM where you talk about designated products lists, the only products on which advice can be provided, whereas the draft legislation excludes those simple products. Are you aware of that and what is the outcome of that?

Mr Fraser : That has been corrected. A couple of people raised that we identified that ourselves.

Senator BOYCE: The other point that has been suggested is that in the EM it talks a lot about property spruikers. Did you mean property spruikers or product spruikers or both?

Mr Fraser : I think the term was used a bit interchangeably.

Senator BOYCE: Is that something that needs to be reconsidered in terms of its subsequent helpfulness to others trying to interpret this?

Mr Fraser : The primary focus was around property spruikers and the concerns we have in that area. There are other terms to other providers such as mortgage brokers and the like.

CHAIR: I have another question regarding the AFSL representation exemption for a representative financial adviser or planner. One of the truly awful experiences of being in this parliament has been being part of the inquiry into Trio. I was not so much involved with Storm. With Trio it remains with this legislation, does it not, that you can have a AFSL holder and working for that licence holder can be somebody who operates under the licence who does not really practice in the best interests of clients necessarily. Essentially a business can have a licence but can be acting in what many of the consumers in my local area would call pretty dodgy practices. Are there gaps within the legislation? Is this legislation going to provide the sort of protection that people expect when they are engaging with somebody who is purporting to be employed under licence?

Mr Fraser : That is covered in the broader FOFA reforms. As you would be aware, they introduced a range of requirements. They are on the licensees and authorised representatives of licensees so it is around banned and conflicted remuneration. There is also the best interests duty is. Those best interests duties will be covered for those advisers and authorised reps under those licensee arrangements.

CHAIR: If I went to my financial adviser or financial planner after this legislation goes through and I saw the little sign in front of them saying 'financial adviser' with advertising in the background telling me 'I am a wealth creator' and all the other things but they do not have their own licence because they are operating under somebody else's licence, will I be able to be confident that that person operating under somebody else's licence is accountable for what they do with my money? How sure can I be of that now?

Mr Fraser : That all comes down to the actual licensing arrangements and then it is the responsibility of the person with the licence to make sure that any authorised rep to whom they have given the ability to provide advice on their behalf monitors and manages that.

Senator BOYCE: What is the recourse then if the individual has not behaved accountably?

Mr Fraser : Then ASIC has the ability to take action with respect to the licence holder.

CHAIR: Put in place an enforced undertaking or something like that?

Mr Fraser : That would be one option.

CHAIR: What would happen to my money if it were lost?

Mr Fraser : It would be covered by the general compensation arrangements under the Corporations Act. The onus is really on the licensee to ensure that any authorised reps are acting in accordance with the obligations of the licence.

CHAIR: Are those reps required to be part of a professional association? Or can anybody operate under the licence of another person?

Mr Fraser : At the moment they just have to meet the licensing requirements, which does not include being a member of a professional body. I think that was an issue that was just discussed with the FPA.

Senator BOYCE: Or even to have any particular qualifications other than to meet those imposed by the licence holder?

Mr Fraser : They would still have to meet licensing requirements imposed by ASIC.

CHAIR: Could you just flesh that out. If somebody holds a licence, I roll up for a job tomorrow, what qualifications do I have to have to operate under their licence?

Mr Fraser : I will take that on notice. There is a whole sort of regulatory guide around the types of requirements licensees, as well as authorised reps, need to have. But we can easily flesh it out for you.

CHAIR: Thank you. I appreciate that.

Committee adjourned at 15:12