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Wednesday, 21 March 2012
Page: 3908

Mr TUDGE (Aston) (17:21): The objectives of the Corporations Amendment (Future of Financial Advice) Bill 2011 and the Corporations Amendment (Further Future of Financial Advice Measures) Bill 2011 are sound. They aim to improve the quality of financial advice while building trust and confidence in the financial planning industry through enhanced standards which align the interests of the adviser with those of the client and reduce conflicts of interest. The bills aim to facilitate access to financial advice through the provision of simple or limited advice. They also aim to create a requirement for advisers to act in the best interests of clients and a ban on conflicted remuneration. Many of those are very sound principles.

Our concern is that the government, in putting forward a package to try to meet these objectives, has gone too far. As it currently stands, the legislation will lead to increased costs and reduced choice for Australians seeking financial advice. So we have put forward a number of amendments, and it is these amendments which we would like to discuss today. Our amendments seek to get the balance right, with a sensible regulatory framework providing appropriate levels of consumer protection while ensuring financial advice remains available, accessible and affordable. This is because we recognise the important service provided by financial advisers helping people to improve their financial health and wellbeing.

The reforms we are debating today have their origins in the 2009 Ripoll inquiry. This inquiry into financial products and services made a number of well-considered and reasonable reform recommendations. The pivotal point was to require financial advisers to put their clients' interests above their own—a very sensible point. Had the government proceeded in this direction and just agreed to the basic recommendations of the Ripoll inquiry, I think the bills would have received bipartisan support. Some of the recommendations of the Ripoll inquiry included making the cost of financial advice tax deductable for consumers; getting ASIC to work together with the industry to form a professional standards board that advisers would be required to join; giving additional powers to ASIC; and having the government investigate options for a last resort compensation scheme.

All the industry bodies supported the committee's recommendations in the Ripoll inquiry and, as I said, had the government limited its legislation to matters which were recommended in the Ripoll inquiry then this legislation would have received bipartisan support. But it did not do that and that is why we are here today putting forward a number of amendments which we believe will improve the legislation.

These include amendments for: the government to be required to table a regulatory impact statement; the opt-in to be removed from FoFA; the retrospective application of the additional annual fee disclosure requirement to be removed; the drafting of the best interest duty to be improved; the ban of commissions on risk insurance inside super to be further refined; and the implementation of FoFA to be deferred a year until 1 July 2013, to align it with MySuper. I do not want to go through every single one of the 16 amendments. I want to focus on three of the more important ones. The first is the amendment which requires the government to undertake a regulatory impact statement. We believe that is important, given the very heavy financial cost imposed on the industry by the proposed changes and the associated potential for job losses. As an absolute minimum, there should be a regulatory impact statement done on this, which would comply with the government's own best practice regulation requirements in other areas. The parliament should insist on a proper regulatory impact statement before dealing with any of these bills. Based on the evidence provided to the committee, the coalition committee members concluded that this legislation would lead to increased costs and reduced choice for Australians seeking financial advice. In pursuing regulatory changes, the government must rigorously assess increasing costs and red tape for both business and consumers.

The second issue is the opt-in provisions, which we believe should be removed, and one of our amendments would implement that. The coalition does not support the government's push to force people to re-sign contracts with their financial adviser every year through a so called opt-in process. This would add an unnecessary regulatory burden, imposing too much additional cost for both small business and consumers, for questionable additional benefit. It would create additional red tape. Financial advisers would have to spend an inordinate amount of time chasing up contract renewals. According to Treasury, there would be increased costs for the average financial advisory firm of about $100,000 every year if the opt-in provisions go ahead. It will be small businesses and individuals who pay the cost. The move will add to the Australia-wide problem of underinsurance, and a large proportion of people may well miss out on advice at a time when they need it most.

The third area is the proposed ban of commissions on risk insurance. We do not support the ban. Our view is borne out by the experience in the UK when they went down this path. They have since reversed the move. Like opt-in, banning commissions on risk insurance would make the problem of underinsurance in Australia worse, as access to risk insurance would become much more expensive upfront. I have been approached by a number of concerned constituents from the industry in relation to that provision in the draft bill. One of them, Garry, puts it well when he says:

When I provide advice to my clients or would be clients, they are not required to pay for the advice received. If they proceed with the insurance recommended, and an application for insurance is accepted, then we receive a commission. This covers my costs and provides my remuneration. In the service I provide, I do not discriminate, be it a large client with significant needs, or a smaller client whose needs and ability to pay premiums are modest, the service provided is the same. The bigger client has needs and if asked would be able to afford a fee for my time, the smaller clients whose needs are just as important to them, may struggle to obtain advice if a fee had to be paid.

Garry illustrates his point with an anecdote which, to my mind, characterises best practice with regard to fees and commissions. He reports:

Last year a client of mine died in tragic circumstances at work. We assisted his widow with all of the necessary paperwork for the claims process. This was made much longer than was reasonable as the coroner was delayed in handing down a final decision due to delays in obtaining toxicology results. Despite this, with constant and regular follow up by our office, we were able to obtain a release of the much needed life Insurance proceeds, enabling her to own her home and get on with her life and care for her young children.

The client paid no fees at all for our work and nor should she. It's our job. Being paid commissions for new sales and on renewals of existing insurance we are able to offer a high level of service to all our clients, and when assistance is needed we are able to do so.

I think that is a very good anecdote. It illustrates the type of service that would be at risk if were to go down this path of banning commissions on risk insurance.

There are a number of other issues which we have identified with the draft bill. We on this side have pointed out that it is unnecessarily complex and many parts remain unclear. We have pointed out the problem that it may lead to underinsurance in the industry. We have pointed out the problem that it may lead to further job losses, something that we do not need at this time of job insecurity. The amendments which we have put forward are sensible amendments. There are 16 in total. I have emphasised three of them today and other members on our side of the chamber have emphasised other amendments. We believe that they would make some sensible improvements to the draft bill. If those amendments were agreed to by the government, then we would support the bill. If those amendments, on the other hand, are not agreed to by the government, then it would be very difficult for the coalition to support the legislation as it is, due to the problems which I and my colleagues have outlined.

We are always prepared to consider sensible proposals to improve the regulatory framework for financial services. However, to get the coalition's support, proposed changes have to be focused on addressing genuine issues, be practical and make things better. We simply ask that the government put its legislation through the proper scrutiny and deal with the clear and obvious problems by taking on our sensible amendments. Then we will support this legislation, but in its current form we are unable to do so.