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- Start of Business
- QUESTIONS WITHOUT NOTICE
- DISTINGUISHED VISITORS
QUESTIONS WITHOUT NOTICE
Emissions Trading Scheme
(Rea, Kerry, MP, Combet, Greg, MP)
(Ley, Sussan, MP, Rudd, Kevin, MP)
Carbon Pollution Reduction Scheme
(Bradbury, David, MP, Tanner, Lindsay, MP)
(Hockey, Joe, MP, Rudd, Kevin, MP)
(Rishworth, Amanda, MP, Garrett, Peter, MP)
(Truss, Warren, MP, Rudd, Kevin, MP)
Emissions Trading Scheme
(Campbell, Jodie, MP, Ferguson, Martin, MP)
Building the Education Revolution Program
(Pyne, Chris, MP, Rudd, Kevin, MP)
(D’Ath, Yvette, MP, Gillard, Julia, MP)
(Dutton, Peter, MP, Rudd, Kevin, MP)
People with Disability
(Zappia, Tony, MP, Macklin, Jenny, MP)
(Baldwin, Robert, MP, Rudd, Kevin, MP)
- Emissions Trading Scheme
- AUDITOR-GENERAL’S REPORTS
- MINISTERIAL STATEMENTS
- MATTERS OF PUBLIC IMPORTANCE
- HEALTH INSURANCE AMENDMENT (COMPLIANCE) BILL 2009
STATUTE LAW REVISION BILL 2009
AVIATION TRANSPORT SECURITY AMENDMENT (2009 MEASURES NO. 2) BILL 2009
- NATIVE TITLE AMENDMENT BILL (NO. 2) 2009
- COAL MINING INDUSTRY (LONG SERVICE LEAVE FUNDING) AMENDMENT BILL 2009
- ACIS ADMINISTRATION AMENDMENT (APPLICATION) BILL 2009
- AUSTRALIAN CENTRE FOR RENEWABLE ENERGY BILL 2009
- Nation Building Economic Stimulus Plan
- Property Rights
- Page Electorate
- Assisting the Victims of International Terrorism Legislation
- Assisting the Victims of International Terrorism Legislation
- Start of Business
- Swan Electorate: Crime Prevention Programs
- Newcastle Electorate: Mr Kurt Fearnley
- Gilmore Electorate: Institute of Design
- Climate Change
- Cook Electorate: St Patrick’s Parish
- Kingston Electorate: Defence Force Cadets
- Disability Services
Lindsay Electorate: St Marys North Public School
Councillor Jackie Greenow
- Cowan Electorate: Wanneroo Agricultural Show
- Shortland Electorate: Belmont Medicare Office
- Corporations and Financial Services Committee
- Infrastructure, Transport, Regional Development and Local Government Committee
- Health and Ageing Committee
- Employment and Workplace Relations Committee
- Industry, Science and Innovation Committee
- QUESTIONS IN WRITING
Tuesday, 24 November 2009
Mr RIPOLL (5:04 PM) —by leave—Thank you very much, Mr Deputy Speaker Georganas, and to the opposition, for allowing me the time to speak. History is a hard lesson to learn again. That is something that I always have in the back of my mind. In 1927 the internationally renowned economist John Maynard Keynes categorically said, ‘We will not have any more crashes in our time.’ This profound observation just before the greatest market crash of all time teaches us that making sweeping statements or being overly excited about one’s self-importance are both recipes for disaster. Today many will expect legislators to find the silver bullet that prevents the likes of the Storm Financials of the world and others from ever happening again in the future. But history should teach us that a complete cure is elusive while meaningful reform and progressive improvement are the best medicine, although I have got to say that they are not quite as colourful at the time.
Reform in the financial services sector has been evolving continuously over the past 30 years. But rarely does an event on the scale of the global financial crisis give us the opportunity to accelerate reform in a sector crying out for a fresh direction. Some would argue that because Australia fared better than most in the global financial crisis then reform is only necessary at the margins or that investors should be better informed. Unfortunately, this is the case of the selective analysis, where some are all too willing to forget the catastrophic lessons learned by many unfortunate souls.
Of course short memory is not new and the status quo always suits some more than it does others. But I am certain that that would not be the view of the tens of thousands of investors that have lost in agribusiness management investment schemes, lost their life savings and more with Storm Financial, and all those caught up in the Opes Prime Stockbroking swindle along with dozens of other similar enterprises. Court cases, legal action and compensation schemes aside, people are seeking acknowledgement of their circumstances and someone with authority to recognise the devastating impact of what has happened to them. People want simple answers and they want practical solutions. While the basic principles of life and money have never changed—the only things that are guaranteed are death and tax; if it is too good to be true then it usually is; don’t put all your eggs in one basket; and don’t believe everything you read or hear—we also need to recognise that life is not always that clear or that transparent.
Everyone at some point in time needs protection from those that would take advantage of all of us—the vulnerable, the elderly or those without sufficient understanding. Hence there is the need to regulate markets, behaviour and corporations in this sector, which I think is essential. No-one should argue that without the rules or in a free-for-all environment not much would work in any effective manner. Survival of the fittest sometimes also equals survival of very few. Of course too much of this good thing—regulation—can also be a bad thing. Striking a balance between the cost of regulation and a free market is always the challenge of governments and industry. This is not a question of how much regulation but how well it works and how efficient it is for the sector that makes any real sense in the end.
Under reforms from past governments and regulators the financial services sector has made good progress, albeit with the expected cries of concern at the time for the end of the sector as we know it with tens of thousands of jobs at risk—similar to the cries you will hear at other times of reform. Of course this is to be expected and does not reflect in any way the reality either in the industry or in the growth in products and innovation or jobs that are created through progressive reform.
That is exactly what the recommendations of the Parliamentary Joint Committee on Corporations and Financial Services aimed at delivering, and I believe did deliver. The report on the financial services sector lays down clear markers and a plan for the future about direction, about the quality of advice and about the appropriateness of remuneration models. With current research indicating that only two to three people get advice at all, it is clear that something in the sector does not work today. It indicates the problems faced by the sector are wide ranging and require a rethink. My view has always been that rather than squabble over the small industry pie we must consider serious reform for growth to capture the other 75 per cent and to understand why they cannot afford financial advice or do not see the possible value in it in the first place.
Reform at its core must be principles based, with a focus on consumer protection and value for money. An industry standard of financial services that are a fair exchange of a fee for a service based on actual work performed must be the basis of the relationship between client and adviser, not between manufacturer and adviser. This, in concert with an explicit obligation to have a fiduciary responsibility—that is, a responsibility for those in a special position of trust—will drive the lifting of standards, drive the lifting of the quality of advice and remove the conflicts of interest that currently exist. As with most things in life, you get what you pay for. Unfortunately for many in recent years, they got more than they bargained for and are still left wearing the cost.
I had a short opportunity in the House recently to introduce the report, and I know that most people are focused on just a few of the recommendations, but I want to turn in the few minutes I have left to the other recommendations of the report, which I think are as significant as the major recommendations which underpin what needs to take place. Certainly I think that the heart of this report is about the fiduciary responsibility. It is about making clear to people in the advice industry that they have a responsibility to their clients and that that responsibility extends to the fact that it should be their clients’ interests first, ahead of their own interests. I think that is an important principle. Coupled with that principle is that of a complementary remuneration model, one that is fair. It is based on a fee—something that is tangible and understood, something that can be turned on or off and something that is a deal or a bargain between the client and the adviser, not something that is hidden, embedded or complicated into some product and that cannot be disentangled. I think that those two principles, along with quality of advice, form the basis of what this report is about.
But I want to turn also to ASIC. We certainly believe that ASIC ought to have much more focused attention on its role in this very complex area. ASIC covers a vastly greater proportion of people than APRA. It really regulates the consumer market and, as such, faces a much more difficult task. But we believe that ASIC has the appropriate people, the skills, the knowledge and the history to be able to do more in these areas. There is an expectation that ASIC as the regulator do more, and that is our expectation as well. That is not so much a critique of ASIC but just our expectation of what it ought to do in the future. We have made a number of recommendations around the regulator specifically.
That is coupled with extending the powers of ASIC to ban individuals from the sector, because all too often what we heard during this inquiry was that you had ‘bad people’—it is always the few rotten apples that make it bad for the whole sector. Unfortunately, they finish work on a Friday in a particular organisation—whether forced to leave or otherwise—and end up on a Monday morning working for somebody else down the road and continuing their poor practice. The industry say to me that that has to stop, and we agree with them. We think that has to stop. If there are bad people in the sector, they ought to go, because in the end it ought to be the client’s interests that are ahead of the adviser’s interests.
We believe that, in particular in relation to agribusiness MI schemes, those schemes ought to demonstrate a sufficient working capital to meet their current obligations. We saw the disaster of Great Southern and Timbercorp, which left more than 60,000 investors out of pocket. That is not good enough, and I think that there ought to be rules that reflect a better regulatory environment to make sure that people have confidence in the people that manage these schemes on their behalf.
We also agreed with ASIC, the regulator, that they could deny an application for a licence on the basis that a licensee may not comply with regulation or the law. That is a fairly big step forward but I think an important one in a preventative measure. All too often we have heard from the regulator that they can only act after the fact, after the incident or after a complaint. We believe that some more powers in this area are appropriate and can be well managed by the regulator. We also believe that having a strong, independent, industry based professional standards body that works in complement with the regulator would be a huge step forward in making regulation and compliance in the sector—which we acknowledge is very complex—an easier task.
We went further to say that we believe that there does exist a circumstance where an absolute last resort statutory compensation scheme could benefit some investors. We understand the moral hazard but we also believe that where particular organisations or individuals do the wrong thing, they are no longer covered by their insurance and investors should still have some minimal compensation in those circumstances. We took note of the great work done by the Financial Ombudsman Service and in the United Kingdom in this particular area.
All of these recommendations, if taken as a totality or as a whole, do work together. They work as complements to each other; they work in concert and can deliver a much more effective industry that is focused on consumer protection first. It is focused on standards and it is focused on lifting the educational levels within the sector. We have also made recommendations in terms of ASIC working more closely with the sector to develop those educational activities to be targeted at the right people. In particular the advisers themselves need to have a higher standard of education as the current standard is just far too low, as is acknowledged by the sector. All of these things coupled together can produce some real significant change, a real difference. It can restore credibility to financial services in this country and can provide the confidence that consumers need.
If we get all of those things right we can grow the market. I think that 25 per cent of people in Australia seeking financial advice is way too low. I know the industry agrees with me; it is too low. But currently there is nothing being done at a wholesale level which will actually take that 25 per cent of people to 50 per cent. I believe that people should have more ability to be independent in their retirement beyond what is provided as a safety net through a pension system provided by the government. There needs to be a little bit more and people do that through superannuation, through their own savings and through their home. They need to be more involved and more independent. They can do that through getting good, solid, sound financial advice about how to manage their savings and how to have a more independent retirement. That is an important thing.
But to do all of that you have to get the principles right in the sector first. I acknowledge how much work is being done currently in the sector by representatives—I will not mention any because I know if I leave some out the others will be cranky with me. There is some really good work being done to make sure that we lift those standards and make those improvements. If we get all of that right, not only will we grow the market, not only will we protect consumers but we will make a more effective and more efficient financial services sector in Australia. It can really be seen as a financial services hub in the Asia-Pacific region, which is where I believe there is huge growth potential for jobs in this country.
Lastly—and I have left it to last because I think it is significant that I mention it last in terms of the tax deductibility issue—unless we get all of those things right first we cannot get to the tax deduction. For me, I see it as the big carrot or the big opportunity for the financial services sector and for each individual person who works in it whether they are a licensee themselves or an authorised representative. If they want that big carrot in order to be able to deliver for individuals and grow that market then they need to get the rest of it right first. The regulatory system needs to be more effective and efficient. We have understood, in the work that we have done, that there is a cost to regulation. This is not about more regulation; it is about effective regulation. It is about setting the goals and the markers. I want to see a thriving financial services sector in the next five to 10 years. I want to see the base grow from 25 per cent to 50 per cent but I want to see it done in the right way. I believe that with the principles we have put down in this report we will achieve that.
Mr Laming interjecting—
The DEPUTY SPEAKER (Mr S Georganas)—Are you seeking an intervention, Member for Bowman?
Mr Laming —Mr Deputy Speaker, would the member for Oxley accept a question?
The DEPUTY SPEAKER —Will the member for Oxley accept an intervention?
Mr RIPOLL —Yes.
Mr Laming —Would the member provide his advice on whether he supports the shift from commission-based to fee-based remuneration for financial advice?
Mr RIPOLL —Absolutely, and I thank the member for his question. Recommendation 4 in the committee report is very clear. I will read it. It says:
The committee recommends that the government consult with and support industry…
I think that is really important.
… in developing the most appropriate mechanism by which to cease payments from product manufacturers to financial advisers.
What that clearly says is to stop payments, all payments, whatever form they take. People can decide for themselves. We did not limit ourselves to one type of payment but the committee decided unanimously that it was all the payments. That can be volume bonuses, shelf fees, soft dollar incentives and commissions right across the board. We felt there was inherent conflict of interest that existed with a person being paid to sell you something. Often it is not clear that you are actually being sold a product rather than being provided advice. That is the clear point.
You can separate the two. People can genuinely pay to receive advice, and that advice does not need to be attached to a product. You can receive advice and have a product as well, and as long as that is transparent and clear you can live in both worlds. But currently there is a problem. There is a big grey area where often people who advise actually do not know whether it is advice or whether it is a product, and all too often we have seen people get caught up in that problem.
I am very happy with the recommendations in this report. I want to thank the Liberal Party, National Party and Labor Party members of the committee for their great work. (Time expired)
Debate (on motion by Ms King) adjourned.