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Wednesday, 21 March 2012
Page: 3860


Mr CHRISTENSEN (Dawson) (10:51): I associate myself wholeheartedly with the comments of the member for Bradfield, who obviously is in touch with his electorate on this matter. I welcome the opportunity to speak on the Corporations Amendment (Future of Financial Advice) Bill 2011. This bill has been widely anticipated by the industry but is considered with increasing concern. What should have been a considered approach to preventing potential financial disaster for this government has turned into nothing more than an attempt to destroy an entire industry while rewarding union mates for their support of the Labor Party. If this is the future of financial advice, then the future is pretty grim.

The original intent behind this bill was commendable. It was necessary. The Storm Financial collapse during the global financial crisis was a huge blow to the industry and an absolute financial catastrophe for the families who lost their life savings. In some cases, seniors lost all their life savings and their family home and are now in debt. What happened with Storm, with Trio and with Westpoint provided an opportunity to review the industry and an opportunity to create a regulatory framework to prevent the same thing happening again.

The unfortunate outcome we have is the result of a Labor government with absolutely no understanding of any business or any industry and which is completely out of touch with the real world. At least, I hope that is their excuse, because the alternative reason is that they have deliberately constructed legislation that will condemn an industry to the scrap heap and condemn low-paid Australian families to a poorer financial future. Under the pretence of preventing situations like Storm, the Labor Party have managed to throw the baby out with the bathwater. As baby boomers transition to retirement, the government have focused more and more on encouraging individuals to take responsibility for their own financial future and retirement. That being the case, we have millions of Australians in need of financial advice to ensure they get the best value out of their savings. They are not financial experts; they are plumbers, welders, receptionists, farmers, miners and perhaps even doctors and lawyers. Any regulations introduced today will deny these people access to expert financial advice or make it unaffordable, or even less affordable. It is a direct hit on the hip-pocket of tomorrow's retirees.

There was originally some good intent behind this legislation, and I hope those opposite will appreciate the benefits to all Australians of the amendments to this bill that the opposition are proposing. If the government just come out and say no to those amendments, as is their custom, they are admitting that the damage they are doing to the industry and to the future of Australian workers is actually intentional. An attack on the financial advice industry is an attack on professional people who provide an important service. There has been considerable regulation of this industry already and what we are looking at with these amendments are regulations for the sake of regulation. They do not serve a purpose other than making life difficult for individuals and the industry.

I invite this government and any members considering supporting this bill, or planning to vote against the coalition's amendments, to ask themselves a question: what are we doing this for? If the bill does not make the industry better, if the bill does not protect people from disasters like Storm Financial, then why are we interfering? If we fail to identify what went wrong and if we fail to create regulations to prevent things like the Storm collapse happening again, all we are doing is killing off an industry. That is much worse than throwing the baby out with the bathwater.

As Martin Lambert, a local in my electorate from Stamford Financial in Mackay, says, 'The proposed changes would not have prevented things like Storm.' So this is actually throwing out the baby and keeping the bathwater. This situation arises because the government refuse to listen to advice from the industry. This is what happens when the government's actions are driven by their need to do anything but what is advised, what is needed and what is proven to work.

Why would the government take the recommendations of the Ripoll inquiry and throw them out the door? One of the key recommendations from the Ripoll inquiry was:

The committee is of the general view that situations where investors lose their entire savings because of poor financial advice are more often a problem of enforcing existing regulation, rather than being due to regulatory inadequacy. Where financial advisers are operating outside regulatory parameters, the consequences of those actions should not necessarily be attributed to the content of the regulations.

The Ripoll inquiry tells us that new regulations are not the answer. More red tape is not the answer. More onerous regulations that grind business to a halt and drive Australians away from getting expert financial advice is not the answer. We in this place find ourselves—and the Australian people generally—asking the same question, again and again: How do the government manage to get things so spectacularly wrong? It boils down to the same old thing: they refuse to listen. They have taken the recommendations of the Ripoll inquiry, which on their own were worthy of support, and they butchered the entire blueprint.

This government has deleted the good bits, changed what was left and then added some rubbish to produce the most negative outcome it could possibly contrive for the financial industry. One of my constituents, Nigel Thomas, from Avalon Financial Services in Mackay, likened the process to the transformation of Medusa in Greek mythology. Medusa was a beautiful maiden and priestess in Athena's temple. She attracted many suitors but her tryst with Poseidon caused the jealous Athena to transform Medusa's beautiful hair into a crown of snakes and made her face so ugly that onlookers would turn to stone. Mr Thomas points out that this is what is happening with financial planning. He writes:

Once a beautiful thing, which attracted many suitors (advisors) to the industry to assist with clients' needs, FoFA now seeks to transform the industry to something less attractive to advisers to practise and more difficult to access for most people, creating a generation with ill-informed financial understanding.

Unfortunately, the government has allowed this process to be hijacked by vested interests who stand to benefit from making the industry as ugly as possible. Part of this bill is designed to ban commission on risk insurance. I can understand imposing a ban on conflicted remuneration, such as product commissions in the financial services industry. But commission on advised risk insurance is a different kettle of fish. The Ripoll inquiry did not say to ban these. I wonder why there was an inquiry in the first place? This ban would increase costs and remove choice, making people worse off, especially small business owners who manage their own superannuation. This measure is nothing more than a means of distorting the market in favour of the superfunds and industry superfunds. In effect, this regulation encourages people to enter into risk insurance, inside superannuation, with no advice. This regulation discourages people from getting expert advice.

I received a letter from another financial adviser who points out the effect that the ban will have on the industry. Mark Dunsford writes:

The Labor Party is making a deliberate push to get money into union funds by deliberately legislating through ridiculous reforms. After advising for 30 years, can I say, the proposed reforms will remove financial planning advice away from ordinary Australians and make it unaffordable. The massive under-insurance problem we have in Australia will not be remedied by removing commission from the product. The is 99 per cent of our clients still want us to be paid via the product, rather than writing out an additional cheque.

Another financial adviser, Brian Mallon, put it a little more bluntly, saying the proposed legislation was:

… a thinly veiled corroboration between trade union controlled industry superannuation funds and the trade union controlled federal government to create, for the Industry Superannuation Network (ISN) a monopoly in the superannuation industry.

Similarly, Mark Kerr does not mince his words in telling how it is. He says:

It does absolutely nothing towards protecting investors but goes a long way in giving a 'free kick' to the Minister for Financial Services' buddies in the union movement and the industry super funds.

It is interesting to note just how much weight the Industry Super Network actually carries with this bill. The network provided the only submission to the original Ripoll inquiry that argued in favour of opting in, and that inquiry rejected the proposal—rejected it!

The government, despite being unable to cite an example anywhere in the world where this kind of regulation actually exists, went against the expert advice to introduce a mandatory requirement for consumers to re-sign contracts with their financial adviser on a regular basis. This move defies all logic and smacks of another grubby deal between a grubby government and the union grubs that they answer to. The union based super funds know that forcing this red tape down people's throats will encourage them not to opt in. The government knows red tape will encourage people not to opt in. The people know it also and they are desperately waiting for the opportunity not to opt into another term of this government. Mike Goggan from Australian Capital Financial in Mackay told me:

The opt-in is insane; in my opinion this will be the decline of the financial planner-adviser industry, which will cause a bigger under-insurance problem than exists now.

There are three more areas of this bill that I would like to focus on. The first is about implementation. The bill sets out an implementation date of 1 July 2012—that is about 100 days from now. Given that we are only now starting to debate this bill, and knowing that passage through this place and also the other place will take some time, we are looking at a very tight lead time.

I might provide some assistance to the government by pointing out what should be obvious—and this is why it keep stuffing things up: if you let a bad government implement bad policy, you can expect bad outcomes. When you do all this in a rush, you are destined for disaster. Poor government and rushed implementation is what gave us the pink batts debacle, with houses burning down; the school halls fiasco, where tuckshops cost a million dollars or more, and a long list of other spectacular failures. It is almost as if this government is in a hurry to see what it can stuff up next.

The people who work in the financial advice industry are the next ones who will pay the price of a bad government in a hurry to stuff things up. The working families who will be denied the benefit of expert financial advice are the ones who will pay the price of a government desperate to ignore sound, expert advice that it itself sought. If this government had the slightest bit of business nous it would move to delay the implementation by a year to align with the changes to MySuper.

Another point on timing is this bill's requirement for retrospective fee disclosure statements. There is no benefit to be derived from this whatsoever. It was not recommended by the Ripoll inquiry. It was not part of the consultation process. It was not even in the government's plans until the last minute. According to the Financial Services Council, the cost of fee disclosure statements will be $54 per new client and $98 for existing clients, for no benefit and on no-one's advice. What is the point of having a consultation process if the government is just going to make things up on the spot?

The final aspect of this bill that I would like to address is the introduction of a best interest duty for financial advisers into the Corporations Act. While I do believe that looking after the best interests of the client should be a matter of course for any service business, I have no problems with the concept being enshrined in legislation. Unlike other components of this legislation, the best interest duty can be introduced without a huge cost and without the introduction of huge amounts of red tape. However, there is some scope for improvement. The coalition is concerned about the uncertainty for clients and advisers that would be created by the catch-all provision in clause 961B(2)(g). Removal of the clause would improve the introduction of the best interest duty provisions.

I would like to make one further comment on how this bill could be altered to provide better outcomes for people. With reference to what happens in the real world—what real people with real financial situations actually need—financial advisers must be able to offer scaled advice. The current wording of the best interest duty does not allow financial advisers to offer a specific service that the client needs at an affordable price. It should not be necessary to provide a full financial plan if a client neither requires it nor can afford it. To avoid putting expert advice out of reach for many families this legislation should allow advisers to limit the scope of their advice to a series of discrete areas identified by the client.

These are concerns that have been raised with me by financial advisers, many in my electorate of Dawson. They include people such as James Wortley from Magnitude Financial Planning, Damien Arboit from Progressive Wealth Solutions, Kim Evetts from Whittaker Macnaught, Gareth Hall from Lifestyle Financial Services and Kerry Neyland from RBS Morgans. If the government were serious about genuine reform it would be listening to these people, it would be listening to the industry. If the government were serious about genuine reform it would address all of the participants in Storm, including ASIC, the banks, the insurance companies, the producers of investment products, the fund managers, the investment industry, accountants, auditors, the legal profession and research houses. This is the very advice that was given to the Minister for Financial Services but it simply was not taken. Perhaps the minister should have chosen to opt in on that advice, on what people were telling him, for the sake of this industry but also the sake of the government's own credibility.