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Wednesday, 21 March 2012
Page: 3881

Ms O'DWYER (Higgins) (12:21): We have a Prime Minister and a Treasurer who have said repeatedly that 'lifting productivity is essential to the nation's prosperity'. Yet in the Corporations Amendment (Future of Financial Advice) Bill 2011 and the Corporations Amendment (Further Future of Financial Advice Measures) Bill 2011 we are debating yet another set of government bills that will increase administrative burdens, increase compliance costs and, consequently, decrease productivity.

You must always look at not only what the government says but what the government does through its actions. We on this side of the House, as has been so eloquently put by many of my colleagues, have some serious concerns about this legislation. There are five key areas in which we think the legislation is flawed. Firstly, the legislation is unnecessarily complex and, in many parts, unclear. This in and of itself leads to uncertainty and increased compliance costs. It contradicts the government's claims of a productivity agenda, because, in being so unclear, it will lead to many unintended consequences.

The Association of Financial Advisers have identified proposed sections 961B(2)(g) and 961E as creating uncertainty with respect to the best interest duty. They are concerned that the legislation is so unclear that it will inevitably have to be tested in the courts. This will lead to increases in professional indemnity premiums and, as they point out, 'lead to uncertainty in the application of the transitional agreements that will negatively impact on the value of advice practices'. Obviously, with any increase in professional indemnity premiums, any uncertainty will lead to increased costs for consumers who use the advice of financial advisers.

We think it is very important that Australians be given the very best financial advice. When we were in government, we believed very strongly that consumers needed a strong and transparent set of arrangements that would provide them with the information that they required to make decisions about their own financial future and the products that they purchased. Financial advisers are very important to the wellbeing of so many Australians who rely on their expertise to be able to make decisions about their future and the future of their families. We want to arm Australians with the ability to provide for themselves and for their families. So to put financial advisers out of reach of so many consumers by increasing the cost seems to make very little sense. Secondly, for a government that says it is all about jobs, jobs, jobs, it is pretty clear that the changes as a result of this legislation will lead to massive job losses in the financial services industry as firms try to adapt to the increased costs. The parliamentary joint committee heard testimony from Mr Craig Meller, Managing Director of AMP Financial Services, that these measures could result in as many as 25,000 job losses in the industry. Mr Richard Klipin, CEO of the Association of Financial Advisers, was even more pessimistic, estimating that up to 30,000 job losses would result. Yet this is not something we have heard about from those on the government benches. This does not seem to be a consideration for them.

We cannot forget that many people who are involved in the financial services industry are themselves small business men and women who have risked their own capital to set up a business, to use their expertise, to employ others and to provide advice. This legislation, as I have said, could result in many significant job losses, which does concern us on this side of the chamber.

Thirdly, the bill will legislate what many describe as an unlevel playing field amongst advice providers. As the dissenting coalition report suggests:

… the disproportionate increase in costs to the industry and consumers, the reduction in the number of financial advisers in Australia, the associated additional job losses and the further concentration of financial advice services providers will have detrimental impacts on the cost, availability and accessibility of financial advice across Australia.

Financial advisers have themselves said that they are concerned about the potential decrease in competition in the industry—and competition, as we all know, is incredibly important for consumers. It is through competition that consumers are able to get the best deal and it is through competition that many advisers have to ensure that they are providing the very best advice and service for those consumers.

The fourth point I would like to make today relates to the opt-in provision. We are concerned that the opt-in provision is seriously flawed and not based on any logical or empirical evidence. In the dissenting PJC report it was noted that there was only one submission to the Ripoll inquiry, from the Industry Super Network, arguing in favour of the opt-in provision. The Ripoll inquiry then refused to accept that recommendation, yet the government, in its infinite wisdom, decided that it would defy those findings and set a world-first precedent. This does concern us. I would like to directly read into my speech today a letter that was received by me from a financial provider in my electorate, who specifically notes these concerns. I will quote directly from him. He says: 'A particular concern to us is the direct cost that the opt-in obligations will have on our business. In April 2011 our business was unable to replace a departing employee due to the ongoing contribution of the GFC to our operations. With over 600 active clients, we are now faced with an annual cost to administer opt-in, which has been estimated at up to $120 per client per annum. This could potentially be an additional cost to our business of $72,000 per annum.' This drives up the cost of advice and reduces the opportunity for many within our community to access professional advice services which would otherwise enhance their years in retirement. Noting the increased cost, as I have said before, is something that concerns us and it is something that we think the government has not fully thought through. We think, like so many of the government's pieces of legislation, like so many of the announcements made by this government, they have a thought bubble which they then legislate on. This is no different.

Fifthly, this legislation will greatly increase compliance costs, with evidence given by the Financial Services Council that suggest it will cost up to $700 million to implement in the first year alone followed by $350 million in each additional year. This is, indeed, a massive increase and is completely in contrast to the Prime Minister's calls that she will be addressing red tape and regulation through her belated formation of the so-called deregulation forum, which I note follows a deregulation task force announced by Tony Abbott in December last year, of which I am a part and which is led by Senator Arthur Sinodinos AO.

I have some advice for the government: if you want to reduce red tape then it is very flawed to introduce bills such as this. It is yet another example of the government saying one thing and doing something completely different. This seriously flawed legislation needs immediate attention before it is put to a vote. The coalition, led by so capably by the shadow Assistant Treasurer, Senator Cormann, has outlined many vital recommendations that need to be adopted before the passage of this bill should be contemplated.

This bill must undergo a full regulatory impact statement that complies with the government's very own Office of Best Practice Regulation. According to the dissenting report:

According to the government's own Office of Best Practice Regulation, the government did not have adequate information before it to assess the impact of this bill on business and consumers or to assess the cost-benefit of the proposed changes.

This is a pattern that has formed with this government. It does not assess the impact of the changes that it is making and it is ultimately the consumer, the everyday Australian, who pays. When quizzed at a Senate estimates committee, the executive director of the OBPR, Jason McNamara, admitted that the government did not have an adequate regulatory impact statement in front of it when it made the changes.

We know that the minister, Bill Shorten, has admitted that the commencement date that he was trying to force the industry to meet was completely and utterly flawed and he has had to admit this failure and push it back. As we have argued consistently throughout, we believe the commencement should be at the same time as the My Super changes, and that the rushed introduction of the bill simply did not allow industry sufficient time to adjust to the changes—again, adding to administrative costs.

The opt-in provisions must be removed. There is no other marketplace in the world whereby an opt-in process is implemented. Forcing customers to consistently re-sign contracts is not only cumbersome to the customer but adds huge levels of administrative cost to financial providers. There is no doubt that the increased regulatory and financial burden of opt-in mechanisms far outweighs any supposed benefit it may provide. It simply cannot be explained why, if this is such a brilliant measure, we are the only country that is contemplating introducing it. We are also incredibly concerned about the retrospective nature of this bill. As it stands, the annual fee disclosure statements would be applied retrospectively, again adding huge administrative costs with very questionable consumer benefits as outcomes. As a principle, we on this side believe that an incredibly high threshold needs to be met to be able to apply legislation retrospectively. We think, as a matter of principle, or as a rule of thumb, this should not occur for fairly obvious and good reasons. Yet this is a very common occurrence with this government—that it seeks to impose retrospective legislation to implement its program.

I have much more to say about this bill, but let me simply conclude in the time remaining by saying we are very keen to ensure that consumers have appropriate financial advice provided to them. We are very keen to ensure they have appropriate transparency. We do not think that this bill will in fact assist without significant changes. We think it is inherently flawed and we think the minister himself is responsible for bringing forward a very flawed bill.