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Thursday, 22 March 2012
Page: 4060


Mr HOCKEY ( North Sydney ) ( 18:13 ): by leave—I move amendments (1) to (30) as circulated in my name:

(1) Schedule 1, items 14 and 15, page 4 (lines 14 to 21), omit the items, substitute:

14 Section 960

Insert:

life risk insurance superannuation product has the meaning given by subsection 963B(2).

15 Section 960

Insert:

MySuper product has the meaning given by subsection 963B(3).

(2) Schedule 1, page 4 (after line 21), after item 15, insert:

15A Section 960

Insert:

personal intra - fund superannuation advice has the meaning given by section 964N.

(3) Schedule 1, item 21, page 5 (lines 18 and 19), omit "a meaning affected by section 964A", substitute "the meaning given by subsection 964A(2)".

(4) Schedule 1, item 23, page 7 (line 6), after "identified", insert "through instructions, so far as is reasonably possible in the circumstances".

(5) Schedule 1, item 23, page 7 (line 30), omit "circumstances;", substitute "circumstances.".

(6) Schedule 1, item 23, page 7 (lines 31 to 33), omit paragraph 961B(2)(g).

(7) Schedule 1, item 23, page 9 (lines 13 to 20), omit section 961E.

(8) Schedule 1, item 24, page 16 (after line 10), before paragraph 963B(1)(a), insert:

(aa) the benefit is given to the licensee or representative solely in relation to the provision of general advice;

(9) Schedule 1, item 24, page 16 (lines 13 to 18), omit paragraph 963B(1)(b), substitute:

(b) the benefit is given to the licensee or representative solely in relation to a life risk insurance product, other than a life risk insurance superannuation product (see subsection (2));

(ba) each of the following is satisfied:

   (i) the benefit is given to the licensee or representative solely in relation to a life risk insurance superannuation product;

   (ii) the product is not issued to an RSE licensee of a registrable superannuation entity, or a custodian in relation to a registrable superannuation entity, in relation to a MySuper product (see subsection (3));

   (iii) the benefit is given by, or on behalf of, a person to whom the licensee or representative provided advice in relation to the life risk insurance superannuation product;

(10) Schedule 1, item 24, page 16 (lines 23 to 25), omit subparagraph 963B(1)(c)(ii), substitute:

   (ii) the benefit is not for financial product advice in relation to the product, or products of that class, given to the person as a retail client by that licensee or representative;

(11) Schedule 1, item 24, page 16 (after line 31), after paragraph 963B(1)(d), insert:

(da) the benefit is given to the licensee or representative by an authorised representative of the licensee (the purchaser) in relation to the sale of a financial services business by the licensee to the purchaser;

(12) Schedule 1, item 24, page 16 (line 34) to page 17 (line 18), omit subsections 963B(2) and (3), substitute:

(2) A life risk insurance product is a life risk insurance superannuation product ifthe product is issued to an RSE licensee of a registrable superannuation entity, or a custodian in relation to a registrable superannuation entity, for the benefit of a class of members of the entity or for one or more members of the entity.

(3) MySuper product has the same meaning as in the Superannuation Industry (Supervision) Act 1993, as in force on and after the commencement of item 6 of Schedule 1 to the Superannuation Legislation Amendment (MySuper Core Provisions) Act 2012.

(13) Schedule 1, item 24, page 17 (lines 34 and 35), omit "the provision of financial product advice to persons as retail clients", substitute "carrying on a financial services business".

(14) Schedule 1, item 24, page 17 (line 37), at the end of subparagraph 963C(c)(iii), add ", which must not require the benefit, or the education or training, to be provided in Australia".

(15) Schedule 1, item 24, page 18 (lines 4 to 6), omit all the words from and including "in relation to".

(16) Schedule 1, item 24, page 18 (after line 14), after paragraph 963C(e), insert:

(ea) the benefit provider is the employer of the licensee or representative;

(17) Schedule 1, item 24, page 21 (line 21), omit "a financial services licensee or an RSE licensee", substitute "the responsible entity of a registered scheme, an RSE licensee or the issuer of a managed investment product".

(18) Schedule 1, item 24, page 22 (lines 11 to 29), omit subsections 964A(2) and (3), substitute:

(2) A volume-based shelf-space fee is a monetary product access payment which is not administrative in nature paid by a funds manager to the platform operator.

(3) To the extent that the benefit is not a volume-based shelf-space fee, a platform operator may accept an investment management fee scale discount on an amount payable or a rebate of an amount paid to the funds manager.

(19) Schedule 1, item 24, page 25 (after line 7), at the end of Division 5, add:

Subdivision C—Fees for personal intra-fund superannuation advice

964J Application to a financial services licensee acting as an authorised representative

   If a financial services licensee is acting as an authorised representative of another financial services licensee in relation to the provision of personal intra-fund superannuation advice, this Subdivision applies to the first licensee in relation to the advice in that licensee's capacity as an authorised representative (rather than in the capacity of licensee).

964K Financial services licensees must not accept fees for personal intra-fund superannuation advice other than from member to whom advice provided

(1) A financial services licensee that is a trustee of a regulated superannuation fund must not accept a fee in relation to the provision of personal intra-fund superannuation advice to a member of the fund, other than from that member.

Note: This subsection is a civil penalty provision (see section 1317E).

(2) A financial services licensee contravenes this subsection if:

(a) the licensee is a trustee of a regulated superannuation fund; and

(b) a representative, other than an authorised representative, of the licensee accepts a fee in relation to the provision of personal intra-fund superannuation advice to a member of the fund, other than from that member; and

(c) the licensee is the, or a, responsible licensee in relation to the contravention.

Note: This subsection is a civil penalty provision (see section 1317E).

(3) The regulations may provide that subsections (1) and (2) do not apply in prescribed circumstances.

964L Licensee must ensure compliance

   A financial services licensee that is a trustee of a regulated superannuation fund must take reasonable steps to ensure that representatives of the licensee do not accept a fee in relation to the provision of personal intra-fund superannuation advice to a member of the fund, other than from that member.

Note: This subsection is a civil penalty provision (see section 1317E).

964M Authorised representatives must not accept fees for personal intra-fund superannuation advice other than from member to whom advice provided

(1) An authorised representative, of a financial services licensee that is a trustee of a regulated superannuation fund, must not accept a fee in relation to the provision of personal intra-fund superannuation advice to a member of the fund, other than from that member.

Note: This subsection is a civil penalty provision (see section 1317E).

(2) The regulations may provide that subsection (1) does not apply in prescribed circumstances.

964N What is personal intra-fund superannuation advice?

(1) Advice is personal intra-fund superannuation advice if:

(a) the advice is personal advice; and

(b) the advice is provided by a trustee of a regulated superannuation fund, or an authorised representative of the trustee, to a member of the fund as a retail client; and

(c) the trustee holds an Australian financial services licence that covers the provision of personal advice in relation to superannuation products; and

(d) the advice relates to the member's interest in the fund and does not also relate to:

   (i) any other financial product (except eligible insurance (see subsection (2)) in relation to the member's interest in the fund); or

   (ii) anything mentioned in subsection 765A(1) that would be a financial product but for that subsection (except eligible insurance in relation to the member's interest in the fund); or

   (iii) any other matter specified in the regulations for the purposes of this subparagraph; and

(e) the fund is not a self-managed superannuation fund (within the meaning of section 17A of the Superannuation Industry (Supervision) Act 1993).

(2) For the purposes of subparagraphs (1)(d)(i) and (ii), eligible insurance is insurance of a kind that the trustee maintains in relation to the members of the fund for the purpose of financing benefits to the members that are within the scope of the Superannuation Industry (Supervision) Act 1993.

964P Meaning of trustee and member of a regulated superannuation fund

   The following expressions have the same meaning when used in this Subdivision as they have in the Superannuation Industry (Supervision) Act1993:

(a) member;

(b) regulated superannuation fund;

(c) trustee.

(20) Schedule 1, item 28, page 26 (lines 7 and 8), omit paragraph (jaah).

(21) Schedule 1, item 28, page 26 (after line 26), after paragraph (jaap), insert:

(jaapa) subsections 964K(1) and (2) (financial services licensee responsible for breach of fees accepted for personal intra-fund superannuation advice);

(jaapb) section 964L (financial services licensee to ensure compliance with duty about accepting fees for personal intra-fund superannuation advice);

(jaapc) subsection 964M(1) (authorised representative must not accept fee for personal intra-fund superannuation advice other than from relevant member);

(22) Schedule 1, item 30, page 27 (lines 12 and 13), omit subparagraph (1E)(b)(v).

(23) Schedule 1, item 30, page 27 (after line 30), after subparagraph (1E)(b)(xiii), insert:

(xiiia) subsections 964K(1) and (2) (financial services licensee responsible for breach of fees accepted for personal intra-fund superannuation advice);

(xiiib) section 964L (financial services licensee to ensure compliance with duty about accepting fees for personal intra-fund superannuation advice);

(xiiic) subsection 964M(1) (authorised representative must not accept fee for personal intra-fund superannuation advice other than from relevant member);

(24) Schedule 1, item 30, page 27 (line 34), omit "or (v)".

(25) Schedule 1, item 30, page 28 (line 3), omit "or (v)".

(26) Schedule 1, item 33, page 29 (lines 15 to 18), omit all the words from and including "if:", substitute "if the benefit is given under an arrangement entered into before the day on which that item commences".

(27) Schedule 1, item 33, page 29 (lines 21 to 24), omit all the words from and including "where:", substitute "where the benefit is given under an arrangement entered into before the day on which that item commences".

(28) Schedule 1, item 33, page 29 (lines 32 and 33), omit "a financial services licensee, or an RSE licensee", substitute "the responsible entity of a registered scheme, an RSE licensee or the issuer of a managed investment product".

(29) Schedule 1, item 33, page 30 (lines 2 and 3), omit "a financial services licensee, or an RSE licensee", substitute "the responsible entity of a registered scheme, an RSE licensee or the issuer of a managed investment product".

(30) Schedule 1, item 33, page 30 (after line 26), at the end of Part 10.18, add:

1532 Application of ban on other remuneration—fees for personal intra-fund superannuation advice

(1) Subdivision C of Division 5 of Part 7.7A, as inserted by item 24 of Schedule 1 to the amending Act, applies in relation to the provision of personal intra-fund superannuation advice on or after the day on which that item commences (whether or not the advice was sought before that day).

(2) Despite subsection (1), that Subdivision does not apply in relation to the provision of personal intra-fund superannuation advice to the extent that the operation of that Subdivision would result in an acquisition of property (within the meaning of paragraph 51(xxxi) of the Constitution) from a person otherwise than on just terms (within the meaning of that paragraph of the Constitution).

The Ripoll inquiry did not make any recommendation to ban commissions paid for risk insurance products. Where is the member for Oxley? The government's position on this matter has been confused and I must say that it is ever changing. In April 2011, Minister Shorten stated: 'The government has decided to ban upfront and trailing commissions and like payments for both individual and group risk within superannuation from 1 July 2013.' The coalition do not agree with this position, because we do not agree with Labor's assertion that commissions on risk insurance are in themselves a conflicted remuneration structure. Banning commissions on risk insurance will increase costs for consumers, remove choice and leave many people worse off, particularly small business people who self-manage their super.

We already have a problem of underinsurance in Australia, and this proposed ban would only make that worse, because it increases the upfront cost of taking out adequate risk insurance. To treat commissions on all risk insurance inside super differently from insurance outside super will also create inappropriate distortions, which would not be in the best interests of consumers. We agree that those Australians who receive automatic risk insurance within their super fund without accessing any advice should not be required to pay commissions. However, those Australians who require and seek advice to ensure adequate risk cover, whether inside or outside of their super fund, should have the same opportunity to choose the most appropriate remuneration arrangement for them.

In August 2011, Minister Shorten seemed to adopt the coalition's sensible position and agreed to limit any ban on commissions to automatic risk insurance arrangements within super where fund members do not access any advice. However, many submissions to the PJC inquiry on these bills expressed concern that the government's proposals as contained in the legislation before the committee would not achieve the stated aims and might lead to unintended consequences. Much of the industry concern centres on the government's decision to ban commissions on risk insurance advice considered to be group risk, which catches not only the default option of automatic insurance provided in a superannuation fund with no advice provided but also any advanced risk insurance that is selected and purchased by a fund member after receiving specifically tailored individual advice if that risk insurance was covered by the group policy held by the fund.

The coalition amendments will ensure that commissions will not be paid on life risk insurance inside MySuper products or within superannuation if the cover is automatic cover. However, if a consumer seeks specific advice on life risk insurance, whether outside super or within a choice super environment, there will be a level playing field for remuneration and there will be no change to existing remuneration structures. The amendments give effect to what was the government's stated policy back in August 2011.

I now want to speak to my amendments (2), (19), (21), (23) and (30). (Extension of time granted)Intrafund advice is the provision of financial advice by superannuation funds to their members. Such advice provided by various superannuation funds can vary widely from very general advice to product specific advice to advice on retirement options to even more specific or individualised holistic financial advice. Today, intrafund advice only exists by an ASIC class order exemption—and I bet that you did not know that, Mr Speaker. Despite intrafund advice clearly being a type of financial advice, there is no definition or scope of such advice provided in the FoFA legislation. There is no limitation on what may constitute intrafund advice and there are no provisions determining who should pay for that advice.

Coalition members of the Parliamentary Joint Committee on Corporations and Financial Services found that, if intrafund advice were to continue to be provided in the future, it should be provided under the same legislative and regulatory framework as all other financial advice. They also found that the complete lack of consideration, definition or restriction of intrafund advice within the FoFA legislation is a serious omission on the part of the government that exposes consumers to the sorts of risks the government says that it wants to remove with FoFA.

In particular, intrafund advice would not be subject to any best interest duty. Industry super funds bundle the cost of such advice into the overall administration fee, which means that it is not transparent. All members of the fund pay for the advice provided to some, irrespective of whether or not they access such advice themselves. That is, fund members are put in a position such that they have to pay for advice that they do not receive without any requirement to opt in and without any capacity to opt out. This is quite hypocritical and a further illustration of the minister's bias towards union dominated—

Mr Shorten: That's terrible.

Mr HOCKEY: You do not know what I am saying the bias is toward. This further illustrates the minister's bias towards union dominated industry super funds. The minister is clearly conflicted and it shows. This is just more one example. Given the reliance of many industry super funds on the provision of intrafund advice for marketing advantage and the attraction of new members, we are concerned that the government has avoided defining and limiting the scope of intrafund advice because it has bowed to the interests of the union dominated super funds.

These coalition amendments ensure that all super funds will be able to continue to offer intrafund advice. Where this is advice is general in nature rather than personal and specific there will no change to existing arrangements. However, these amendments ensure a level playing field in the provision of financial advice whenever that advice is provided. The amendments achieve this by providing a new definition for personal intrafund superannuation advice. Such advice will be the subject to the best interest duty and all of the other consumer protections in the FoFA legislation. This will ensure that people who access such personal advice through their super fund will be afforded the same protections and safeguards as all other consumers of financial advice. Importantly, the amendments also ensure that the person who is accessing such advice will pay for the advice they receive, just like every other consumer of financial advice has to do. This will ensure that such advice is not cross-subsidised by other superannuation fund members who choose not to access advice through their super fund.

I now move on to amendments (3), (17), (18), (28) and (29). The coalition supports the ban on conflicted remuneration, which has the potential to influence the provision of advice. However, the wording of the FoFA legislation creates confusion, with the varied payments and the term 'volume based shelf-space fees'. Unlike a supermarket analogy, dollar based shelf-space fees are not paid for preferential placement on a menu but rather, for the administration of the fund manager's investment option, on the platform menu. The platform generally charges the same fee for each investment option on the menu.

In recent years volume based shelf-space fees may have been charged by some platforms of fund managers of preferential programs. There is broad consensus and agreement that these volume based shelf-space fees should be banned. However, volume based rebates have been consumed in the proposed legislation under the same definition as volume based shelf-space fees. Not only is this erroneous, but to simply ban these or to make the burden of proof in receipt of these rebates so arduous that it is hard to prove that they should not be banned is to potentially legislate preference for certain types of fund management structures over others. (Extension of time granted) We believe that this will lead to further undesirable consolidation and concentration in the financial services industry and will lessen competition—and the minister at the table knows that. Consequently, the end result of this bias will be a profound impact on the structure of the funds management industry and on the cost of investments for many Australians, particularly through their superannuation.

The coalition amendments are based on the recommendations made by the hardworking coalition members of the PJC and have the strong support of the financial services industry. Importantly, they give effect to the government's stated policy intention. We are doing the heavy lifting for the government, and they do not want to take it. We are providing the industry with a practical, clear and certain pathway forward as they implement some very dramatic changes to their business models to give effect to the policy intention in relation to volume based fees.

The amendments clarify the definitions of a fund manager, ensure that dollar based fees are not caught up in the ban on volume based shelf-space fees and permit rebates from fund managers to provider platforms in line with government announcements to ensure system neutrality in a retained consumer scale-benefit discount.

I now refer to amendment (4). One way of ensuring that consumers are able to access affordable and appropriate financial advice would be to allow advisers and their clients to limit the scope of the advice to a series of discrete areas identified by the client, rather than to mandate a full financial plan in every case. This concept of focusing advice to areas specifically identified by a client has become widely known as scalable advice. Numerous submissions to the PJC inquiry expressed concern that the wording of the best interest provisions in the proposed legislation does not allow for scaled advice to be provided. The government has acknowledged that the bill in its current form would prohibit scalable advice and it has proposed an amendment to the explanatory memorandum. This is typical. It is clumsy and it is confusing. Changing the explanatory memorandum instead of changing the legislation is ridiculous.

However, the coalition amendment explicitly allows scalable advice to be permitted within the legislation itself rather than the explanatory memorandum. This amendment will enable more Australians to access affordable and appropriate high-quality financial advice.

I now refer to amendments (5), (6) and (7). The coalition considers that a properly drafted best interest duty would enhance and improve the consumer protections afforded to clients of financial advisers in Australia by enshrining the principle that financial advisers must place their clients' interests ahead of their own when providing financial advice. However, we are concerned that the catch-all provision contained in section 961B(2)(g) would create uncertainty for both clients and their advisers and leave the legislation subject to potentially protracted legal arguments. This amendment removes section 961B(2)(g) to remove uncertainty about the practical operation of the best interest duty.

I now refer to amendment (8). This amendment addresses concerns expressed at the PJC inquiry by the Law Council of Australia, the Australian Bankers Association and other groups that the current drafting of the ban on conflicted remuneration is too broad and it is not limited to personal advice. The amendment expressly exempts general advice, such as the advice provided by bank staff on basic banking products, from the operation of the conflicted remuneration provisions. It is consistent with the government's policy intention that conflicted remuneration provisions under this legislation should only apply to the provision of personal advice.

I refer now to amendment (10). This amendment ensures that for a payment to be banned as conflicted remuneration there must be a causal link between the payment and the provision of financial advice. The amendment corrects yet another unintended consequence identified by coalition members of the PJC.

I refer now to amendment (11). This is another amendment correcting another anomaly identified during the PJC inquiry. It ensures that a financial advice business can be sold to employees of the business without the sale proceeds being caught up in the conflicted remuneration provisions. This is commonsense stuff. It enables proper succession planning by financial advisers and allows good employees to be rewarded with an equity share in a business without triggering the ban on conflicted remuneration. So this is saying to a small business financial adviser, 'If you want to sell your business to your staff here is an easy way of doing it.' But, no, FoFA catches them up and creates a triggered ban on conflicted remuneration. (Extension of time granted)

I now turn to amendments (13), (14) and (15). These amendments also arise from issues identified during the PJC inquiry. The current provisions of the bill allow training to be provided only in relation to the provision of financial product advice. It therefore seems to preclude other important and essential training, such as training on how to run a business, how to use software and issues such as equal opportunity and occupational health and safety. The proposed coalition amendments (12) and (14) would allow such broader but more important training to be conducted without triggering the conflicted remuneration provisions.

The current provisions in the proposed new regulations would restrict training to be provided only in Australia and New Zealand. As was pointed out during the PJC inquiry, this would be counterproductive as it would prevent Australian financial planners from attending events that would broaden their knowledge and keep them up to date with international developments. It would hinder our attempts to become a regional financial services hub. Come on! These guys on the government side have been talking about the Asian century; now they are saying that anyone who goes to a conference outside Australia and New Zealand does not get anywhere—it does not work; it does not satisfy the training requirements. No other profession in Australia is prevented from attending overseas. So our amendment (13) would ensure that these counterproductive geographical limits are removed from the legislation and would ensure that our financial service industry can remain world class in a world training environment.

Amendment (16) covers benefits to employees. This amendment clarifies that the limitation of a non-monetary benefit applies on a per-employee basis and addresses concerns expressed at the PJC inquiry that the current wording would impose a $300 limit across the whole of a financial advice business, irrespective of the number of employees the business might have.

I hope the Independents are listening to these. These are commonsense practical amendments that are fixing up the fundamental flaws. But it seems that they are, as I said before, Labor Independents.

Amendments (20), (22), (24) and (25) are consequential amendments that relate to making annual fee disclosure statements prospective. They remove the penalty provisions that apply to the sections proposed to be omitted by the third set of amendments.

I move now to amendments (26) and (27). The coalition considers that it is a fundamental expectation of any legislative reform that existing contractual arrangements should be recognised and grandfathered to preserve existing property rights. The financial services industry expressed strong concerns during the PJC inquiry that the grandfathering provisions relating to the ban on conflicted remuneration did not achieve this aim and that the wording in the provisions would create uncertainty for many of these existing property rights, in particular payments made by platform providers to dealer groups. These amendments to the grandfathering provisions of the bill recognise and preserve existing and longstanding property rights and ensure the commission payments from platform providers are not banned retrospectively.

Given that I have one minute, and that I am not sure that I will be on my feet again, I will take the opportunity to thank my colleague Senator Mathias Cormann and his office—Peter Katsambanis in particular—for their outstanding work. This is an extremely complicated bill that has been further complicated by the fact that there have been a raft of amendments in and out of the equation. They have done an outstanding job. It is a great credit to Senator Cormann, not only because he kept up with all of this but, importantly, because he was able to consult widely with industry. That leaf should be taken out of his book by the government—consult widely, not narrowly.