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Wednesday, 21 March 2012
Page: 3864

Mr BUCHHOLZ (Wright) (11:05): I rise to speak on the Corporations Amendment (Future of Financial Advice) Bill 2011 and the related bill. When I first saw this bill I thought it was an oxymoron, or an interesting juxtaposition, for a Labor government, with its current handling of the economy, to be trying to give financial advice. Look at the financial advice given by our Treasurer when it comes to trying to forecast deficits and surpluses. You need look back no further than the MYEFO documents for 2010-11, when the Treasurer forecast a $12 billion deficit. And in the budget papers last year he forecast a $22 billion deficit for the same period, and that was recently adjusted to a $37 billion deficit. So, this government has no credibility to advise the financial services sector on how they should best be conducting their operations.

The coalition cannot support the future of financial services bill in its current form. However, the legislation can be significantly improved if the government accepts a series of amendments to be moved by the coalition. Only when those moments are supported will the legislation be worth supporting. As it currently stands, the bills are unnecessarily complicated. They are likely to cost about $700 million to implement and a further $350 million annually to comply with. Most significantly, they are likely to cause an increase in unemployment as the burden is put on the financial sector. For Australians seeking financial advice it will mean increased cost and decreased choice. Could anything be more Labor than that? You can see it in most of the bills that come through this House. It is about extra layers of bureaucracy and compliance. It normally has an associated price tag which at some time is going to come out of the pockets of mums and dads. This is just another example of how Labor does its business.

The coalition will be moving a series of amendments which will require: most importantly, that the government table in the parliament regulatory impact statements assessed as compliant by the government's Office of Best Practice Regulation; that the opt in be removed from FoFA; that the retrospective application of the additional annual fee disclosure requirement also be removed; that the drafting of best interest duty be improved; that the ban of commissions on risk insurance inside super be further refined; and that implementation of FoFA be delayed until 1 July 2013 to align it with MySuper. These are good and necessary reforms and I urge both the minister and the members of the crossbench to support them.

The financial services and advice industry provides an important service helping Australians with their financial health and wellbeing. In doing so, financial services providers deal with other people's money, which is why it is important to have an appropriate, robust regulatory framework in place. Quite obviously the goal of any legislation affecting this sector should be to balance effective consumer protection with access to high-quality financial services that are both accessible and affordable. Subjected to stress-testing of the global financial crisis, the Australian financial services industry performed well overall. While there is no doubt that Australian financial services reforms, legislated in 2001, provided a solid regulatory foundation for the industry there is always room for improvement. However, in pursuing regulatory change, the parliament needs to focus on making things better, not just making them more complex and more expensive. One of the things we must avoid is regulatory overreach, where additional red tape increases costs for both business and consumers while providing little or no additional consumer protection benefit.

In the wake of the global financial crisis there was a number of high profile collapses of financial services providers across Australia—the well-documented Storm Financial situation in North Queensland, Trio and Westpoint are cases in point. Following on from those collapses, it was important for policy makers to assess what went wrong and what we could do better in the future to prevent—or at least minimise the risk of—such collapses occurring in the future. This is why in February 2009 the parliament asked the Joint Committee on Corporations and Financial Services to conduct a comprehensive inquiry into Australia's financial products and services. That inquiry, known as the Ripoll inquiry, reported back in November 2009 and made a number of well-considered and reasonable reform recommendations.

The centrepiece of the Ripoll inquiry was the recommendation to introduce a fiduciary duty for financial advisers requiring them to place their clients' interests ahead of their own. The report's recommendations provided a blueprint the government could have adopted with bipartisan support. One of the key observations of 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 regulations than being due to regulatory inadequacy.

Instead of implementing the recommendations of the Ripoll inquiry, the Labor Party allowed its Future of Financial Advice reform package to be hijacked by vested interests. Over the past two years there have been constant and completely unexpected changes to the proposed regulatory arrangements under FoFA, right up until the introduction of the current legislation. Invariably, this was done without proper appreciation or assessment of the costs involved of any unintended consequences or of implications flowing from the proposed changes. Important reforms have been delayed by more than two years so the government can press ahead with a number of contentious issues.

In pursuing regulatory changes, government must rigorously assess increasing costs and red tape for both business and consumers. It is incumbent on the government to conduct a proper regulatory impact assessment to a standard which is consistent with its own best practice regulations requirements. According to the government's own Office of Best Practice Regulation, the government did not have adequate information to properly assess the impact of FoFA on business and consumers or to assess the cost benefit of the proposed changes. This is highly unsatisfactory, given the complexity and the costs associated with contentious parts of the proposed FoFA changes.

Furthermore, the current implementation time frame of 1 July 2012 is completely unrealistic, given that the proposed commencement date is less than four months away. It would make more sense to implement FoFA and MySuper simultaneously. These two major changes require significant changes to the same financial services provider of IT systems. It is symptomatic of the government's chaotic approach to this area and its lack of understanding of practical business realities that it seeks to impose two different implementation dates involving significant and costly system changes in relatively quick succession. The coalition believes that these bills, if amended, should not commence until 1 July 2013.

Opt-in imposes a mandatory requirement on consumers to re-sign contracts with their financial advisers on a regular basis. This is a significant increase in red tape and costs for both planners and consumers. It will make Australians world champions in financial services red tape. We will lead the world when it comes to red tape within the industry. Opt-in was not part of the initial Ripoll inquiry recommendations and it is important to note that the only submission to the Ripoll inquiry which argued in favour of opt-in came from—guess where—the Industry Super Network, which is top heavy with Labor's union mates. More often, we are seeing legislation put through this House that has union fingerprints all over it. It is also important to note that the Industry Super Network proposal for a mandatory opt-in requirement was not accepted by the inquiry. The government have been unable to point to another example anywhere in the world of a government that has sought to impose a mandatory requirement on consumers to re-sign contracts with their financial advisers on a regular basis. With the best interest duty in place, appropriate transparency of fees, charges and an ongoing capacity of clients' financial advisers to opt out of any service relationship at any stage, the coalition believe there is adequate consumer protection without the need to impose additional costs and red tape for both business and consumers.

The Ripoll inquiry made no recommendations to introduce an additional annual fee disclosure statement over and above the current regular statements provided by financial services product providers to their clients. Retrospective fee disclosure adds absolutely no additional consumer protection benefit and it will almost certainly cost. In the FoFA consultation session, it was the industry's clear understanding that the government's proposal to impose an additional annual fee disclosure statement would be prospective—that is, it would only apply to new and not existing clients. The Financial Services Council estimated that implementation of the fee disclosure requirement will cost approximately $54 per client prospectively for new clients and $98 retrospectively for existing clients. This is yet another example of a very poor and deeply flawed consultation process engaged in by the government in relation to FoFA. The government must be held to account for the commitment it made during the consultation process that these additional annual fee disclosure requirements would apply prospectively only.

The best interest duty is an important central part of the FoFA changes. The coalition support the introduction of a statutory best interest duty for financial advisers under the Corporations Act. However, to avoid confusion and minimise the risk of future disputes, it is important to get the drafting right. It is obvious that the government have struggled to come up with an appropriate definition of best interest duty. The version of best interest duty was included in the draft exposure of what became the Corporations Amendment (Future of Financial Advice) Bill 2011, but was hastily removed from that version of the bill when it was ultimately introduced into the parliament. The current version of the proposed best interest duty included the subsequent second FoFA bill and it is certainly an improvement to the version, including the exposure draft.

However, the coalition remain concerned that the catch-all provision contained in clause 961B(2)(g) will create uncertainty for both clients and their advisers. We therefore recommend that this clause be removed from the best interest duty. One of the ways to ensure that clients are able to access affordable 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 everyone's case. This concept of focusing advice on areas specifically identified by clients has become widely known as a scalable service. Numerous submissions to the committee expressed concern that the wording of the best interest provisions in the proposed legislation does not allow for scaled advice to be provided. The legislation should allow the provision of scalable advice where the request for such limited or scalable advice is instigated by the client. This would allow many people to access advice more frequently and it would be a very good starting point for clients to seek financial advice for the first time without being required to undertake a costly and sometimes unnecessary complete financial plan.

The coalition will amend the best interest duty to explicitly allow for clients and advisers to contact for such scalable advice. The coalition committee members support the banning of conflicted remuneration structures such as product commissions within the financial services industry and commend the industry for moving proactively and effectively to abolish such conflicted remuneration structures. However, we do not consider that commissions paid on advice on risk insurance, they may be within policies or individual policies outside superannuation, are conflicted remuneration structures. We agree that the Australians who receive automatic risk insurance with their super fund without accessing any advice should not be required to pay commissions. However, those Australians who require and seek advice pursuing adequate risk cover, whether inside or outside of the super fund, should have the same opportunity to choose the most appropriate remuneration arrangements available to them.