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Tuesday, 7 February 2017
Page: 99

Mr CRAIG KELLY (Hughes) (18:21): I am pleased to rise this evening to speak on the Corporations Amendment (Professional Standards of Financial Advisers) Bill 2016. This bill makes amendments to the Corporations Act to raise the education, training and ethical standards of financial advisers by requiring relevant providers to hold a degree or a higher or equivalent qualification, to pass an exam, to undertake a professional year, to undertake continuous professional development and to comply with the code.

The reason for this legislation is that, in recent years, numerous cases of inappropriate financial advice have been shown to have a negative impact on consumers' confidence in the financial services industry. This lack of trust is said to have become a barrier to consumers seeking legal advice. The financial services industry, consumer groups, the government and the Australian Securities and Investments Commission have raised concerns with the existing education and training requirements for financial advisers.

The bill includes the following amendments to the Corporations Act: new education and training standards that must be met by individuals who provide personal advice on relevant financial products to retail clients; transitional arrangements that apply to existing advisers; a new requirement that relevant providers comply with a code of ethics; an obligation on an Australian financial services licensee to ensure that its relevant providers comply with the new education standards and are covered by a compliance scheme; a restriction on the titles 'financial adviser' and 'financial planner' so that they can only be used by persons who are relevant providers; amendments to the content requirements for the register of relevant providers; the provision of appropriate sanctions where a relevant provider or licensee fails to comply with the new obligations; recognition of a new standards body which will set out the details of the new education standards and develop the code; specialist knowledge about the specific products an adviser provides advice on, and the markets in which they operate; and generic knowledge requirements, including training on the economic environment, the operation of financial markets and financial products.

Having said that, it is very important for members of the public who take financial advice to realise that financial advisers do not always get it right. One of the books I read over the holiday break was titled The Tyranny of Experts. It listed the many times throughout history when so-called experts have got it exactly wrong. Just look at some examples from our recent history. Back in February 2008 the price of oil hit US$140. Oil is a finite resource, the demand from China and India was growing and growing; surely the price of oil would continue to increase? That is what all the expert financial advisers said. But from US$140 in February 2008 oil hit a low of $29 in January 2016. How many experts predicted that?

Last year we saw the price of coal stuck around the $50 mark. All the experts told us, 'Coal is on the way out.' There was an abundant supply of coal on the market, therefore nothing would happen. But in the second six months of last year we saw the price of coal increase 100 per cent. Yet again, hardly a single financial expert picked it.

Then we have currency fluctuations. I can tell you, Mr Deputy Speaker, from over 25 years of watching how the Australian dollar moves against the US dollar and what all the experts predict, that the best advice I can give to anyone is: do exactly the opposite of what the experts tell you when it comes to currency forecasts.

And then we had the recent Trump rally. All the experts told us that if Donald Trump were successful in the US presidential election it would be disastrous for the world economy, yet we have seen a Trump rally—an almost 10 per cent increase in US stock prices, almost $2 trillion extra created. Again, it is the complete opposite of what the experts told us.

Brexit was meant to be a disaster for the British economy. We were told by the experts that if Britain decided to leave the EU it would be disastrous for the economy. Yet an article in The Australian on 6 January this year said:

Britain ended last year as the strongest of the world's advanced economies with growth accelerating in the six months after the Brexit vote …

Business activity hit a 17-month high …

…   …   …   

Andrew Haldane, chief economist at the Bank of England, suggested that economic forecasters were facing a 'Michael Fish moment' over their mistaken predictions, referring to the BBC weather forecaster. Mr Haldane, comparing the profession's failure to spot the 2008 recession to Mr Fish's infamous assurance of 'no hurricane' on the eve of the great storm of 1987, said: 'It's a fair cop to say that the profession—

that is, financial advisers—

is to some degree in crisis.

He also admitted to shortcomings in pre-Brexit predictions, saying that 'the data has surprised to the upside.'

…   …   …   

An assessment by Cambridge University criticised 'flawed and partisan' Treasury forecasts of Britain's economy outside the EU.

I am glad that the member for Port Adelaide is at the table, because I know he has been one who has been listening to the experts who tell us, 'If we get all this renewable energy, electricity prices will go down.' We have seen—history has shown us—what a complete and utter nonsense that is, and nowhere more than in the member for Port Adelaide's home state of South Australia.

If financial advisers are looking at expert advice, there are a few other good examples from history. I have given you some recent examples, Mr Deputy Speaker. I would like to go back to a few historical examples of how the experts have got it wrong. A prediction from the President of the Michigan Savings Bank was: 'The horse is here to stay, but the automobile is a novelty and a fad.' Thank goodness people did not follow the predictions of that expert. HM Warner of Warner Brothers—who would be more expert in his industry?—in 1927 said, 'Who the hell wants to hear actors talk?'

Another expert, Dr Dionysius Lardner, a science writer and academic back in 1828, said, 'Rail travel at high speed is not possible because passengers, unable to breathe, would die of asphyxia.' Lord Kelvin—would there have been anyone with greater qualifications than Lord Kelvin, President of the Royal Society?— said in 1883, 'X-rays will prove to be a hoax.' Thomas Watson, chairman of IBM, another expert, in computer fields—where else could you have someone with higher qualifications?—in 1943 said, 'I think there is a world market for maybe five computers.' The head of 20th Century Fox—an expert from the entertainment industry—said, 'Television won't be able to hold onto any market it captures after the first six months. People will soon get tired of staring at a plywood box every night.'

Of course, there is the exact opposite. There are those who have not had the formal education but have had the streetwise sense to get their predictions right. In the time allowed, I would like to go through a few examples. Henry Ford, the founder of Ford Motor Company, was someone who had no real education and yet revolutionised the world with the Ford Motor Company. JD Rockefeller, the business magnate, left school at 16 years of age. Larry Ellison, the co-founder of Oracle—a self-made billionaire—dropped out of two colleges and never completed his degree. Ralph Lauren, that famous fashion designer, left college after two semesters and never attended a fashion school, and yet the Ralph Lauren name is synonymous with high fashion. Steve Jobs, the co-founder of Apple, only graduated from high school and dropped out of college. So did Steve Wozniak, the other co-founder of Apple. Richard Branson never completed high school and dropped out at the age of 16 years—not only that; he was said to be dyslexic and had poor academic performance. I could go on and on. We need to be very careful that we do not think that there is this 'expert opinion' that is always right, because our history tells us it is the opposite.

I would also like to make a few comments about what the member for Fenner said when he talked about the need for a royal commission into the banks. The member for Fenner said—and I think I have got the quote right—'Only a royal commission will allow victims to be heard.' That is absolute, complete and utter nonsense, and it shows that the member for Fenner does not understand the problem. The victims need either a tribunal or a one-stop shop or a commissioner that can hear their complaint. And it is not just about hearing their complaint; it is about getting compensation for these people—and that is exactly what we have seen. We have seen the Kate Carnell report recently released—and I congratulate the minister at the table, the Minister for Revenue and Financial Services, for commissioning that report. That report went and looked at some of these things. Something that a royal commission would take years and years to do, and would cost tens of billions of dollars, has already been done. The Kate Carnell report has found that in several cases there has been unconscionable conduct. What the people who are victims of that unconscionable conduct do not need—the very last thing that they need—is some longwinded royal commission that goes on for years and years. By the time that royal commission was finished, they would be time-barred for their cases under our Trade Practices Act, now called the Competition and Consumer Act. We need the procedures so those people can be heard and they can get their compensation done. If there is unconscionable conduct by the banks, we have the laws; we have the regulation. Let the cases be heard in the tribunal or the courts.

That is what this coalition is doing. We are not about grandstanding about a royal commission. We want to get compensation for those people who have been victims of unconscionable conduct by a bank. Those on the other side are only interested in complete grandstanding about a royal commission. It is a different thing. We on this side of the chamber are about getting the job done and about getting results. Those on the other side are just about grandstanding and being show ponies.

While I am on the issue of financial advice and advisers, one thing any financial adviser would look at in the years to come is the competitiveness of an Australian business. We currently have a corporate tax rate of 30 per cent. That may well have been suitable back in the early part of this century, when Peter Costello the former Treasurer of this nation lowered our company tax rate from 36 per cent back to 30 per cent. That may have been right for that time, but we now live in a world where we have the UK at 20 per cent corporate tax rate. We have Hong Kong and Singapore at 15 and 17 and we have the USA about to go to 15. We can no longer expect to get the investment that we need in this country if we are going to have an uncompetitive corporate tax rate that is double the USA's.

I say to those on the other side of the chamber: 'Forget your grandstanding. Forget politicking. Do what is right for this country, for this country's economy and for the businesses out there. If you want to get jobs created, if you want to get economic growth going, join with us in our enterprise tax plan. Let's get these tax cuts, this legislation for a reduction in the corporate tax rate, through the House and through the Senate as soon as we possibly can.' And then we may need to go again.