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Wednesday, 21 March 2012
Page: 3850

Mr CIOBO (Moncrieff) (10:06): I rise to speak on the Corporations Amendment (Future of Financial Advice) Bill and the Corporations Amendment (Further Future of Financial Advice Measures) Bill of 2011. These are important bills because they go to an issue that affects the community at large: the ability of people to provide for their retirement.

There is no doubt that one of the principal channels that enable people to provide for their retirement is well-informed advice over a long time about what they should be doing with their money to best equip them to live as comfortably as possible for as long as possible. In that respect, financial advice and the responsibility that financial planners have to their clients is tantamount. Good government policy should create an environment that maximises the opportunity for people to obtain good advice and that ensures there is in place a legislative framework with appropriate safeguards to ensure that consumers—the clients of financial planners—are not adversely affected by, for example, conflicted remuneration.

In this respect I think it is important to deal with the fact that historically in large this has been an issue with in many respects bipartisan support, with the bona fides of all sides of government and opposition to deal with the issue. In 2011 the former coalition government made a whole host of reforms with respect to financial planners and financial advice.

I had the good fortune, as a very new member, of sitting on the Joint Standing Committee on Corporations and Financial Services in the latter stages of that round of reforms, and hearing from an array of different stakeholders in the industry who provided their input about the reforms that the coalition was undertaking then.

There has, of course, been much water under the bridge since then. One of the biggest issues that have afflicted the world since then is what is referred to as the global financial crisis, the GFC. There is no doubt that the GFC shook to their core very many people in Australia—literally millions—and around the world hundreds of millions of people, if not billions, who thought they were approaching an age when they would be well equipped and well established to live a life in retirement drawing down on the funds that they had set aside for exactly that purpose.

The GFC has seen significant erosion in asset values and in returns from financial investments. This has raised the level of anxiety, not only in the Australian community but globally, among people who thought that they were well equipped for their retirement but now find themselves hundreds of thousands of dollars short. This is coupled at the same time with a very real erosion of government ability to provide pensions to what is a growing, ageing population.

These two events have culminated, effectively reaching a crisis point in many countries, where there is an inability of the state on the one hand to provide for their citizens in a way that many citizens thought they would be and on the other hand an erosion of the very real balance that people had provided for their retirement. At that point it is little wonder that there has been a very high level of scrutiny on the financial planners who are working in the community and who are ideally partnering with their clients as they undertake life's journey by providing for their retirement funds.

Mindful that that is the context in which the community finds itself looking at the issue of the advice provided by financial planners and mindful that there is a requirement for financial planners to provide good advice—not conflicted advice, but bona fide advice—that does ensure that the clients' needs are met by the investment protocol that they take, there has been a further round of analyses, examinations and now recommendations to ensure that financial planners do the best things by their client.

In 2009 the member for Oxley, Bernie Ripoll, undertook as chair of the Joint Committee on Corporations and Financial Services an inquiry into what was happening in financial planning. It was commonly referred to as the Ripoll inquiry and it looked very closely at all the issues that I have just touched upon. It examined the best legislative way to ensure that clients had the best opportunity to match their investment profile with their particular needs. Obviously the needs of someone who is 55 years of age, has a paid down mortgage and has adult children who have left home would be radically different to a person who is 25 years of age and maybe recently married—someone who is at the very beginning of the journey of paying down their mortgage and someone who might be expecting to have children in the foreseeable future. The needs of both of those clients are very different stages of their lives, but ultimately they culminate at the point where they are hoping to be in a position at their retirement where they can live a comfortable and well-funded existence, one that ideally does not need to draw upon taxpayer support and one that ensures that those people can have an adequate retirement they are comfortable with.

Mindful of those differences, it is crucial that financial planners know their clients and are in a position to provide advice that accord with their respective needs. The Ripoll inquiry looked at this in great detail. Importantly—and this is perhaps the most significant point—the inquiry found there was not a legislative lacuna; there was not a problem with the regulations and the legislative framework that applied to financial planners, where there were examples of failure of financial advice for clients. Rather the Ripoll inquiry found that the problem was that there were financial planners who operated outside of the legislative parameters and did not do the right thing by their client. There was not a problem with the legislation or the regulation, rather there was a problem with those operating outside it—in other words, the issue of enforcement. That is not to say that the system was perfect, but just to say that there was no glaring or obvious example of widespread failure in regulatory oversight.

That notwithstanding, the bills before us today attempt to address some perceived shortcoming in the financial legislation and regulatory oversight such that a raft of new regulatory burdens will be imposed on the financial planning industry at the behest of this particular government, at the behest of this particular Labor minister and on the basis of the arguments put forward—that is, it is in clients' interests. It is the coalition's view, and I certainly subscribe to this, that this is simply not the case.

The Ripoll inquiry, I would remind the chamber, was headed by a Labor member. The Labor member in that particular example did not find a massive shortcoming in regulatory oversight. One of the principal and most contentious initiatives that the Minister for Financial Services and Superannuation is undertaking is the decision, through legislation, to enshrine an opt-in provision. This is an example of massive regulatory overreach. This is an example of bad practice when it comes to red tape and additional compliance burden on the industry. Opt-in will require clients, on a regular basis, to opt back in to obtain financial advice. In other words, financial planners will be required to constantly go back to their clients to encourage or ask them to sign back on with them for a further period.

Where did this idea come from? We know that opt-in does not apply anywhere else in the world. We know that opt-in was not a recommendation of the Ripoll inquiry. Perhaps a bulk of submissions to the Ripoll inquiry said that opt-in would be one of the panaceas to ensure good financial advice. The reality is that that is simply not the case. Only one submission dealt with opt-in—and that was from the Industry Super Network. The Industry Super Network was the only group that called for opt-in. And, lo and behold, the minister for trade unions, the minister with a strong background—

The DEPUTY SPEAKER ( Ms AE Burke ): The member will refer to ministers appropriately. You will use his—

Mr CIOBO: Madam Deputy Speaker, I would argue that it was appropriate. For protocol reasons—

The DEPUTY SPEAKER: No, you cannot argue that that was appropriate. I am still willing to use my 15-minute chuck from the chamber. Find his right title or we may sit you down.

Mr CIOBO: For protocol reasons I will refer to the minister as the minister for financial services. He is the person who took the decision that opt-in was in the best interests of financial planners and their clients. It is, to say the least, farcical. This particular requirement will significantly add to the red-tape burden that financial planners face. This significant initiative will add a great deal of extra complexity and extra burden on financial planners. It is not just the financial planners; it is also their clients, who will now be constantly harassed to re-sign with financial planners.

But it is more than that. There is the implementation date that the government is attempting to roll out. This again underscores the shambolic and, I would argue, incompetent manner in which the government has approached these particular reforms. The minister seeks to have these reforms commence on 1 July this year. That is less than four months away. The notion that we could have such significant reform to a sector, commencing in four months, is ludicrous.

For some time the coalition has been calling for the reforms not to commence until 1 July 2013, which incidentally aligns with the introduction of MySuper, knowing full well that rolling those two out concurrently provides maximum opportunity for a more thorough approach to be adopted by industry and more time for systems to be put in place. But, again, the government has not listened. The government insists that 1 July this year will be the start date. I note that, because of the widespread angst in the financial planning community about the consequences of the government rushing headfirst into this and trying to do it within four months, the minister has now indicated that there will be, to use his words, a 'soft launch' of the reforms on 1 July—whatever that means! I believe that the minister has foreshadowed that there will in fact be, as part of this soft launch, further legislation that comes into the parliament in the winter sittings to deal with this issue.

An area on which we can agree—I will touch upon this and conclude on a good note—is the implementation of best interest duty. It is the view of the coalition—and we support the Labor Party on this—that the implementation of a fiduciary duty with respect to the relationship between financial planners and their clients is a positive step forward. We note that the financial planning community itself agrees with this point. It is good that we have consensus. It underscores the bona fides of the coalition in arguing the case that, where good policy is rolled out, we will support it. Where good policy can be implemented, we will not stand in the way; we will do what we can to assist. For that reason, we think decisions to implement the best interest duty is a step in the right direction. That said, of course the devil is always in the detail. In that respect, the first exposure draft that outlined the provisions that would apply to the best interest duty were convoluted and it was not clear to industry or to consumer advocates how it would work.

There will be impacts as well with respect to the opportunity for scalable advice—that is, a need for clients to not have to adopt a whole-of-life plan if a client does not want that. If a client goes to a financial planner and seeks only to have financial advice on one discrete area, the coalition's view is that it is ludicrous to argue that that should not be available. We think it is without basis to say no, that it should only be on a whole-of-life basis, on a know-your-client basis, to such an extent that effectively you achieve overservicing as a consequence of the government's reforms.

My final point is with respect to regulatory impact assessment. We know the government's Office of Best Practice Regulation said that they did not have adequate information to determine whether the FoFA changes and their impact on business and consumers were appropriate. We think that is a great shame. We are committed to less red tape. We are committed to less complexity. The reality is that the amendments the coalition have put on the table are good amendments that should be supported by the government, recognising not only that these are going to be appropriate safeguards for consumers but also that the sector should not be unduly and inappropriately burdened with additional compliance costs.