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Wednesday, 21 March 2012
Page: 3896


Mr MATHESON (Macarthur) (16:26): The Corporations Amendment (Future of Financial Advice) Bill 2011 and the Corporations Amendment (Further Future of Financial Advice Measures) Bill 2011 seek to address the obvious need for reform within the financial advice industry, as highlighted by the collapse of Storm Financial in 2009. Most financial advisers would agree—indeed, as ASIC found—that Storm Financial acted recklessly and not in the best interests of their clients. The fact that Storm Financial collapsed leaving thousands of clients destitute and bankrupt highlights a need for a stronger regulatory framework within the financial advice sector.

However, this legislation in its current form does nothing more than increase red tape and regulatory costs for businesses and in turn pushes financial advice products out of the reach of the ordinary consumer. This legislation will deliver little to no additional protection to consumers and will make the cost of providing quality financial advice to consumers more expensive and cumbersome.

The coalition members of the Parliamentary Joint Committee on Corporations and Financial Services made 16 recommendations in their dissenting report which address many of the shortfalls of this legislation. These recommendations have been positively received and supported by a number of key industry groups and associations. It astounds me that, despite going through a rigorous committee process, the Corporations Amendment (Future of Financial Advice) Bill 2011 and the Corporations Amendment (Further Future of Financial Advice Measures) Bill 2011 are still unnecessarily complex and unclear in a number of parts.

It is of no surprise to me that the government's own Office of Best Practice Regulation, the OBPR, has issued a damning assessment of these FoFA proposals. I support, as do my colleagues in the coalition, sensible reforms to financial advice and the financial services industry. However, when these reforms create unnecessary complexity and produce unclear and convoluted regulations, the result is the creation of a barrier rather than an incentive to more consumers receiving quality financial advice. For the best interests of consumers and industry alike, the parliament should adopt the first recommendation of the dissenting report and defer consideration of the FoFA legislation until the government provides a full regulatory impact statement in relation to the legislation currently before the parliament.

Moreover, this regulatory impact statement must be compliant with the requirements of the government's own Office of Best Practice Regulation. Anything less is an insult to those thousands of professionals practising in the financial advice sector and will let down millions of Australians who seek professional and quality financial service.

The FoFA reforms are going to completely restructure the financial advice industry. It is only common sense that the government does its homework now on how these reforms will affect the industry and consumers. Specific industry concerns regarding the FoFA reforms include high implementation and compliance costs as well as a reform package that favours larger, concentrated financial advice service providers. Last year, industry bodies warned the government that the FoFA reforms in their current form would cost jobs. We are already seeing a watershed, with jobs going out of the financial advice sector as firms prepare for the pain of more red tape and the extra cost caused by these reforms. Conservative industry estimates place the cost to implement these reforms at around $700 million, with a further $35 million a year for compliance.

One of the most contentious aspects of the FoFA reforms is the mandatory opt-in requirement, under which consumers must re-sign contracts with their financial advisers every two years. This requirement removes from clients' control when and how they terminate their relationship with a financial adviser. This will significantly increase red tape and costs for financial planners and consumers involved in long-term financial advice relationships. The creation of the opt-in requirements also takes away key protection mechanisms for advice and dispute resolution schemes.

It is very important to remember that in 2009 the parliament asked the Parliamentary Joint Committee on Corporations and Financial Services to conduct a comprehensive inquiry into Australian financial products and services—the Ripoll inquiry. This very comprehensive inquiry received a vast number of submissions and made a number of recommendations. However, instead of implementing the recommendations made by the Ripoll inquiry, which would have resulted in bipartisan support as well as industry support and approval, this government has allowed its own self-interest and the vested interest of the Industry Super Network to hijack the FoFA reform package until it is almost unrecognisable.

As a number of my colleagues have noted, the Industry Super Network provided the only submission to the Ripoll inquiry that advocated a mandatory opt-in requirement. Its proposal was not even accepted as a recommendation by the Ripoll inquiry—that fact should be well noted. Yet now this unworkable provision is being thrust by a vested interest into an incredibly important reform agenda to the detriment of the industry, the consumer and the economy. I cannot even begin to express how frustrated and angry financial advisers are about the constant changes and last minute additions, along with the overt political interference and policy reversals that have occurred during the creation and passage of these FoFA reforms.

Financial advisers provide professional advice to Australians about how to better manage financial risks and maximise financial opportunities. This legislation sends the wrong message about the professionalism of financial advisers and presumes that clients are not in a position to make an educated decision about their relationship with their financial adviser.

Until this legislative reform package, payments for financial services have been flexible and accessible, especially fees paid by commission from a customer's superannuation. I have canvassed the views of a number of financial advisory companies in the Macarthur electorate about their thoughts on the proposed FoFA reforms, especially with regard to the practical workings of the legislation. The common theme that has arisen in my conversations is that this legislation will create a number of key problems for businesses and clients and will fail to deliver the intended protections and benefits to their clients. However well intended the FoFA reforms may be, making the financial advice industry over-compliant will push up fees and in turn make this important and valuable product unaffordable for many hardworking Australians. This is especially true in my electorate of Macarthur, which has a very high proportion of young families who are mortgaged to the hilt and who often do not have available finances for additional financial products, especially for risk insurance outside their superannuation.

The government clearly has not given enough thought to the complexity of, and costs associated with, many of the initiatives within the FoFA package. The government has already failed its own standards with this reform package and it is creating a legislative nightmare for smaller financial advice businesses. While the government has at least decided to adopt the coalition policy of allowing commission payments on risk insurance products outside of superannuation, it is still stubbornly pursuing a ban on commissions inside superannuation. That will increase costs for consumers, remove choice and leave many people worse off, particularly small business people who self-manage their super.

The government's decision to draw a line in the sand, and ban commissions on risk insurance inside superannuation, will cause pain to the consumer. It will limit consumers' choice and the flexibility of remuneration options. In fact, just two years ago the United Kingdom went through this same process of banning commissions on risk insurance. They have discovered that banning has not worked. The UK have learnt from their actions and they recently reversed that decision. That has hardly got a mention in this chamber. We should learn from that experience, as opposed to putting our financial advice industry through the wringer. Australians are already underinsured. This legislation will greatly exacerbate this significant problem.

Another failure of these bills is the last-minute addition by the government of the additional fee disclosure statements for both existing clients and new clients. These additions occurred after the minister assured industry groups that this last-minute addition would not be retrospective. This legislation will require financial advisers to report to each client, whether the adviser had a relationship with the client before the reforms or not, with a detailed outline of every service performed. While this may not seem onerous on paper, in practice it will result in financial advisers sending reams of paper to clients outlining every phone call, transaction, decision, meeting and inquiry made on the client's behalf. This is especially burdensome as fee disclosure obligations already exist for advisers and product advisers in disclosing to the client the fees paid.

The government's addition of overly prescriptive fee disclosure statements will dramatically increase administrative costs and red tape. I urge the government to accept recommendations 4 and 5 made by the coalition members of the Parliamentary Joint Committee on Corporations and Financial Services. In their dissenting report, they call for the government's prescriptive fee disclosure statements to require a summary of fees to be given to clients annually only and for these fee disclosure statements to not be applied retrospectively. These recommendations strike an effective balance between the need for transparency and accessible information of financial advice services by not placing an overly prescriptive legislative burden on the industry.

The last point I make about these two bills is with regard to the best interest duty that will be established by this legislation. The Ripoll inquiry made a number of recommendations regarding the duty of financial advisers to provide advice in the best interests of their clients rather than the adviser's own financial interests, including that of their providers and wholesalers. This is an important provision and one that I am glad the government has chosen to adopt. However, in its usual fashion, the government has failed to provide a robust and well thought out framework for this new duty. I urge the parliament to adopt the coalition's recommendations 6 and 7, which will resolve much uncertainty within the industry about the practical operation of duty and facilitate the provision of scalable advice.

One of the firms in my electorate, Macarthur Financial Planning, has expressed concerns about the future of scalable advice under the FoFA reforms in their current form. Change is good when it brings improvements, efficiencies, transparency and better value for consumers. With the recommended amendments to this legislation, the FoFA reforms could deliver a balanced result for the financial planning sector and their clients. However, this legislation in its current form is unnecessarily complicated and unclear. In particular, the opt-in renewal measures of the legislation create a number of significant barriers rather than incentives to people receiving quality financial advice at an affordable price.

Even on conservative industry estimates, the changes these bills seek to legislate will cause job losses in the financial services industry. They are likely to cost the industry around $700 million to implement and a further $350 million per annum for industry to comply with many of the onerous requirements. These amounts will surely be borne by the consumer. This legislation will enshrine an unlevel playing field amongst financial advice providers and will increase red tape, an additional cost for both businesses and consumers, with little to no additional benefits to protect the consumer.

Today, I urge the House to accept the coalition's amendments to this legislation. They will improve this legislation and turn around a good intention that has been poorly executed into a piece of legislation that will bring positive change to the industry. But it wants and needs real reform rather than pandering to the whims of the minister's mates.