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Wednesday, 6 December 2017
Page: 9811


Senator BERNARDI (South Australia) (10:37): From the outset, may I express my reservations about the Treasury Laws Amendment (Putting Consumers First—Establishment of the Australian Financial Complaints Authority) Bill 2017. This is another attempt by the government—like governments of all persuasions—to appear to be doing something meaningful to address a substantive problem that they've tried to avoid addressing for a very long time. In this case, it dates back to Mr Hockey. When he was Treasurer in 2013, he had the Financial System Inquiry. It reported in 2014. Then we had the Ramsay review, commissioned in 2016, into the complaints framework in financial services. That report was released on 9 May of this year. Both of those inquiries were designed to avoid a royal commission into the banking and financial sector, and they've gestated and given birth to the bill that we see before us now.

I've never been a supporter of a royal commission into banks. I believe—and I said this to some senior banking executives—there was a degree of inevitability about it because of what the National Party was doing, with the support of the Greens, the Labor Party and others. That doesn't mean that I fully support it, but it will be coming into being now, with the government having initiated it. The terms of reference may not satisfy some in the building, but at least the royal commission will provide a complete ventilation of many of the issues that people have been talking about, including the Financial Complaints Authority. That's why my advice to the government, for what it is worth, is that they shouldn't be proceeding with this bill. This is front running that was designed to avoid a royal commission and an inquiry into the financial services sector, but principally the banks. They now have that and, yet, they're still proceeding with this bill. It's not saving a substantial amount of money, it's not reducing bureaucracy. In actual fact, I think what it's going to do is create an environment where people will be treated differently according to how their advice was received.

Currently, within the financial services framework, there is a huge difference between a bank wealth management arm, for example, with all the billions of dollars' worth of resources available to it—and the inherent conflicts of interest that also go with that, I must say—to an independently owned financial planning arm, a licensee of a broader financial services licence holder, a truly independent fee-only adviser versus your suburban accountant who might be providing some advice on self-managed superannuation funds, or they might have a specialist financial planner in there. They're different entities. The people accessing them have different expectations. As a result, I believe that those individual entities should have the right to choose a complaints mechanism that will work for them, that is going to be responsive and understanding of the different applications that go right through the financial services sector, rather than merging entities into one that is essentially going to be operating for the big corporates. That's the conclusion that I've drawn—it will be operating for the big banks, it will be mired in bureaucracy, it will force a compliance regime almost that will make the independently owned financial planner or the smaller shop almost unviable.

Choice in complaints resolution is critical, in my view. Not only does it foster competition and more responsiveness but it will, I think, keep costs down. And let's make no mistake about this. The cost of compliance when you're providing advice to clients or providing any services associated with money means it's becoming almost prohibitive to provide specialised or personalised financial advice to the smaller mum-and-dad investor, if I can put it like that. For the person that is starting out and accumulating a nest egg, saying, 'Well, I'd like some financial planning advice,' it's not viable. It's not viable for them to access personalised financial planning advice, because the compliance is enormous.

I understand that this compliance has grown over the course of time because of rogue advisers, dishonest acts and the fact that, wherever there is a pool of money, you will find rogues and sharks attracted to it. That is simply the way. But legislating for the aberrations is wrong. I think what is much more important is: where something has been done incorrectly, where criminal activity has taken place, that that be pursued to the full extent of the law, not that you should have to cause people to fill in 150 pages of documents before they can access it. Where rogues exist, kick them out of the industry. Ensure that clients are compensated. But the best way you can do it is to make it crystal clear what people are signing up to—and say, 'This is what we're putting you into. This is the fee that's going to be attached to it. This is the service you can expect'—and not hide it at the back of the fat bit of puffery in the client forms. Put it front and centre, explain it to them, get them to initial every particular point and get them to understand the risks attached to it.

It highlights, I must say, the lack of financial education that is taking place in this country. It is another area where governments of successive persuasions have been abject failures, quite frankly. They say they've got the ASIC MoneySmart website to warn of scams and all of that. That's great; it's fantastic. But when our children come out of the school system and don't understand the difference between compound and simple interest, or even the most basic fundamentals of investing, you think it is a scandal. Education shouldn't just be about history or the application of literature; it should be about equipping them with very sound and sensible life skills.

There are two areas in this where I think you can radically change individuals' lives, and particularly children's. If you equip them with good money habits and an understanding of investment, you will offer them choices and freedom that is otherwise unavailable to them. Similarly, I would say that, if you can teach people to maintain good health habits, you will equip them with a lifetime of, all things being equal, mobility that is going to serve them in good stead as well. I put my money where my mouth is and I wrote a couple of little books for children in this regard on both of those topics because I think they are absolutely critical to the success and the well-rounding of an individual.

They are two abject failures of our education system, and no amount of tinkering around the edges will protect individuals where their own knowledge is deficient. I don't say that to malign the individuals, but, if you do not understand even the most basics of what is being put in front of you, whether it comes to investment, finance, interest rates or fees, then how can you possibly make an informed judgement? It is little wonder, then, that those people, when it doesn't work for them, start to complain about how they've been mistreated and wrongly sold a product or an environment.

That is why the relationship between the adviser and the client is critical—so that they get to know each other, so that they get to know the goals and so that the client can trust them. If we deny individuals that by removing the choice of a complaints mechanism and driving up the cost of financial advice and planning, we limit the ability for individuals to access financial advice. Then, of course, they're driven into the one-size-fits-all fund, which often is the most expensive. These massive retail funds, run by banks or anyone else in their wealth management arms, often have onerous fees and duplicate multiple levels of fees. I'm inherently not attracted to the consolidation of these complaints mechanisms and review mechanisms. I think that it is critical that we provide choice.

I understand that the Labor Party have some amendments to excise the Superannuation Complaints Tribunal from this bill. I also understand that the motives may be less than pure, if I can put it like that.

Senator Jacinta Collins interjecting

Senator BERNARDI: I'm sorry to make those suggestions to you, Senator Collins, through you, Acting Deputy Chair, but the fact that the ACTU and the CPSU are opposed to the incorporation of the Superannuation Complaints Tribunal suggests that it's more about the unionised workforce than almost anything else. However, notwithstanding my misgivings regarding your motivations, I'm inclined to support the amendments because I do think that even having two choices in the superannuation space, for example, is much better than having only one.

My preference would be to shelve this bill, quite frankly—and, if the government were smart, they would shelve it and wait for the outcome of the royal commission that they've initiated. I say that because, by their own amendment—I was looking at the running sheet—there is a review of operational amendments still to come. So they're acknowledging that they're going to have a look at this in 18 months time to see if it works and they're doing that in light of the results of the royal commission, which is expected to report in 12 months.

Why are we passing legislation that is going to require a massive amount of change and is going to disrupt an industry? There are many in the financial planning area who have expressed concerns to me with this consolidation and amalgamation and how it's going to affect them and their clients. So why would we be making a change that is going to require a cost—which is, I guess, deleterious to many in the industry—and is going to act in favour of the big banks, whilst at the same time we are having a royal commission, ostensibly into the financial services industry, that is going to examine the conduct of the big banks, amongst many others, and then come back after that and review this legislation? It would be much better, much simpler and much more efficient, given that there is actually a cost to implementing this, to wait until after the royal commission and then say, 'Let's have another look at this.' I'd be happy to go along with that. That would actually be the preferred option.

Whilst I will support the second reading of this bill, I do not commit to its passage or supporting its passage in the third reading. I note there are many concerns in the industry. I note there are many concerns amongst the players involved in it, including the credit industry ombudsman, who said that a banking royal commission should come first before the impact of this and that it impacts upon them. I'm concerned about access to independent financial services, in particular, for the smaller consumers. I'm concerned about the professional indemnity requirements that are going to arise from this, and there are many in that industry as well. This is literally a can of worms that I think is unnecessary, particularly given it was designed to stave off a royal commission. The royal commission has now been enacted, and this bill should be put on the too-hard shelf until the outcome of the royal commission is known.