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Monday, 19 March 2012
Page: 3323


Mrs PRENTICE (Ryan) (19:36): I rise today to discuss the many concerning elements contained in the Corporations Amendment (Future of Financial Advice) Bill 2011 and its cognate Corporations Amendment (Further Future of Financial Advice Measures) Bill 2011. I am pleased to have the opportunity to speak on this important issue which will adversely affect the financial sector, consumers, advertisers and small business. In their current form, quite simply, these bills will unnecessarily increase red tape, increase the cost of financial advice for Australians and, at the same time, reduce consumer choice and competition.

Australia has a strong regulatory framework for the financial sector, with a clear regulatory divide between APRA and ASIC. This framework, strengthened by the Howard government in 2001, greatly assisted how this nation weathered the global financial crisis. However, our country has also seen several notable system failings which have left many Australians suffering financial difficulties, including the collapse of Storm Financial and Opes Prime.

I recently met with a constituent to discuss their experiences with the fallout of the Storm collapse. Hearing their story and knowing many others are in the same situation does point towards the need for some reform in this sector. That is why the coalition offered bipartisan support for the imposition of obligations for fiduciary duties for financial advisers, which require them to place their clients' interests ahead of their own.

The coalition was encouraged by the very widely supported recommendations of the original Ripoll inquiry in 2009. However, more than two years have passed since then without significant action and now the government has gone too far, as they so often do, in promoting overregulation and ignoring what is actually happening on the ground in the industry. Treasury itself has noted that the collapses of Storm Financial and Opes Prime were the result of underlying poor business models whilst also noting that the global financial crisis was a contributing factor. To be very explicit, the collapses, dreadful as they were, were not expressly the result of an inadequate regulatory structure. Moreover, many of the concerns listed in the original Ripoll inquiry were passed through parliament—for example, through the Corporations Legislation Amendment (Financial Services Modernisation) Bill 2009 and other bills. As demonstrated on 29 February 2012 by the member for Oxley, the government is continuing to use the collapses of Storm and Opes Prime as a smokescreen and pretence to impose unnecessary burdens and imposts on financial advisers and their customers.

It needs to be put on the record that financial advisers play a key role in this country. It is a well-known fact that the movement of the baby boomer generation into retirement will have a major impact on younger generations, and prudent financial management throughout an entire lifetime will become more and more important as burdens on the public purse increase. With our busy lifestyles, however, few people have the necessary knowledge or time to undertake the research needed to make informed decisions regarding investments. This is where financial planners provide a specialised service. They help Australians who voluntarily choose to purchase their services better manage financial risks and maximise their own financial opportunities. As they handle other people's money, it is fundamental that we must have a vigorous regulatory system for the industry, which is why in 2001 the Howard government legislated important reforms to protect Australian consumers and provide a stable regulatory environment for the industry.

The proposals we are debating today to reform the future of financial advice are complex. They include the annual disclosure of advice fees to retail clients, the need for advisers or fee recipients to obtain the agreement of retail clients before continuing to charge ongoing fees, effectively acting as an opt-in clause, and also explicit incorporation in law, legislating the current common practice that retail clients can opt out or terminate their ongoing contract at any time.

Of course, this government purported to undertake what they called:

… extensive targeted consultation on key aspects and implementation details of the reforms through one-on-one consultations with stakeholders and meetings of the peak consultation group.

The proof is plain to see that the government has not been listening, as many key industry stakeholders, including the Association of Financial Advisers, have advocated that these FoFA bills be rejected.

The committee was advised time and time again that this legislation would cause huge additional costs, reduce employment levels in the industry and, for consumers, ultimately reduce the availability and access to quality advice. The Gillard Labor government did not listen to the Australian public when they implemented the world's biggest carbon tax. The Gillard government did not listen to the mining industry when they decided to impose the very damaging Minerals Resource Rent Tax. And the Gillard government are not listening now to the industry of financial advisers. As a result, the industry is quite rightly very worried and concerned about how these reforms will affect their businesses and how much these changes will cost them and, most importantly, their clients.

One of the most fundamentally concerning aspects of this bill, as noted by the coalition's dissenting report, is that the government has not prepared a proper regulatory impact statement for the actual effects that these reforms will have on the industry. Providing a proper impact statement is supposed to comply with the government's own best practice legislation requirements, and the government has again failed to meet its own standards.

With the erratic development of these bills— for example, the additional introduction of the further future of financial advice bill on 24 November 2011—the government has not provided adequate assessments of what these reforms will mean for the financial advice industry. In a Senate committee, Senator Mathias Cormann asked Mr Jason McNamara, the Executive Director of the Office of Best Practice Regulation, whether the government had enough 'adequate information to assess the cost benefit of the FoFA regulation changes'. Mr McNamara said that the government did not have such information. Senator Cormann then asked Mr McNamara whether the proposal to introduce a mandatory opt-in requirement was 'properly assessed'. Again, Mr McNamara agreed that it was not in fact properly assessed. Quite frankly, that is alarming. Clearly, it is yet another indicator of the dysfunctional nature of this Labor government. The government needs to take up the first recommendation of the coalition's dissenting report that the parliament defer the legislation until a regulatory impact statement is submitted that complies with the Office of Best Practice Regulation.

Unfortunately, the government's lack of attention to detail with respect to these bills gets worse. The Assistant Treasurer and the Minister for Financial Services and Superannuation tried to go further to force these bills through parliament without due consideration and consultation by parliament. As circulated by the government for the week of 13 to 16 February, they attempted to bring the FoFA legislation on for debate in parliament before the Parliamentary Joint Committee on Corporations and Financial Services had actually been able to deliver its report, recommendations or dissenting report. Again, this is evidence that the government is not serious about fulfilling the most fundamental role of parliamentary committees or following appropriate parliamentary and legislative processes. The consequence for the Australian people is legislation that does not receive sufficient consideration or deliberation. However, as I mentioned, the coalition have now released their dissenting report, which provides a robust assessment of the failings of this bill and the failure to fully deliberate on many of the proposed reforms. Regretfully, Mr Deputy Speaker, there is yet another example of the government failing to consult, this time regarding retrospective fee disclosure statements. While the government did suggest prospective fee disclosure statements—that is, for new clients and new customers—such a recommendation was never in the report of the Ripoll inquiry, and it was pointed out by many people to the Parliamentary Joint Committee on Corporations and Financial Services that the government had not discussed it at all with the industry. Mr Richard Klipin, the Chief Executive Officer of the Association of Financial Advisers, expressed it very succinctly when he said:

Fee disclosure statements were never part of the conversation and never part of the consultation.

The first time anyone saw a proposal of retrospective fee disclosure statements was when the minister tabled the proposal in October 2011. Regarding the opt-in proposal, there are serious concerns that this measure will merely increase red tape in the industry and add further costs at every stage of client-customer interaction. Treasury was unable to advise whether any other country in the world has enacted an opt-in requirement, and that is because there is no precedent for a measure of this kind. Forcing Australians to re-sign contracts with their financial advisers on a regular basis will have no appreciable benefit for clients, as there is already the opt-out feature. At present, if someone is unhappy with the service being provided they can decide to terminate their contract at any time, in most cases without any loss. It does not make sense to force them to re-sign a contract if their preference is to stay with that same financial planner. They can fill out a form to change who handles their super or to cancel an insurance contract. They can call their adviser, tell them they are not happy with the situation and go to someone else.

All this opt-in measure does is add another level of administrative burden—something which the members opposite always seem eager to do—for questionable benefit. For example, this bill creates a government mandated maximum time frame, during which consumers have 30 days to submit their opt-in agreement, whether it be to enter, renew or revise an agreement. Many Australians may inadvertently fail to comply with the government mandated maximum time frame of 30 days to submit their opt-in agreement. Considering the very technical language and careful consideration required before entering into an agreement, as noted in public hearings by the Financial Ombudsman Service, it is not difficult to foresee that many arrangements will by default cease to exist even if a client genuinely wishes to continue an agreement. This will create uncertainty and ramifications for the industry and their clients. Again, I encourage the government to remove this measure from their bill.

An additional ramification which concerns financial service providers is the cost and timing of implementation. We are debating today structural changes to an industry. It is proposed that these changes come into force on 1 July 2012, fewer than four months away. I have spoken to some certified financial planners in my electorate of Ryan, and they told me bluntly that it will be impossible for them to comply with the planned implementation date of these reforms by 1 July. All firms will need to spend a considerable amount of time, energy and money to change the fundamental structure of their business in only four months. They will have to retrain staff, change their IT systems and spend a considerable number of non-earning hours to make changes—and, I ask the government: for what appreciable benefit? As a result of rushing the implementation and of the increase in red tape and bureaucracy, the Financial Services Council has estimated that the regulatory impact of this bill will amount to approximately $700 million as the cost of upfront implementation and to a further $350 million annually. This government should know that when you suddenly impose an artificial increase on input costs only the very big businesses will be able to absorb the costs or pass them on to their customers. Many financial planners from smaller firms have commented to me that the industry super funds will be very happy with this arrangement because their smaller competitors will be unable to cope. These bills are very likely to cause a concentration of advice providers and ultimately reduce the competition and choice available for consumers.

Ultimately, the two fundamental proposals behind the bills are, firstly, to increase transparency in the industry and, secondly, to increase the access of consumers to quality advice. These two intentions will simply not be achieved and will in fact make it more difficult for consumers to access appropriate financial advice. The government should instead listen to the very constructive recommendations made in the coalition's dissenting report. I encourage the government to take on board the 16 recommendations and to listen to the industry so that they can get the policy balance right in this area.

It is absolutely crucial that the government goes back to the drawing board with these bills. When a government is trying to introduce important reforms that affect so many, it is imperative that such regulatory changes go through the proper process. I will always support sensible reforms which increase trust and confidence in the financial services industry. I will always support measures to increase transparency, measures to increase choice and measures to increase competition. However, I cannot support reforms which have negative impacts and ramifications. As such, I recommend that the House reject the bills before us.