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Wednesday, 20 June 2012
Page: 3817


Senator FIERRAVANTI-WELLS (New South Wales) (09:32): I rise to speak on the Corporations Amendment (Future of Financial Advice) Bill 2012 and the Corporations Amendment (Further Future of Financial Advice Measures) Bill 2012. The coalition will not be supporting the Future of Financial Advice bills in their current form. As has been outlined by other speakers, this legislation could have been significantly improved if the government had accepted a series of amendments that will be moved by the coalition. Certainly with those amendments there would be a strong case for this legislation to be worth supporting.

The FoFA package of legislation in its current form suffers from a number of deficiencies. It is certainly unnecessarily complex and, in large parts, very unclear. It is expected to increase levels of unemployment in the sector and it legislates to enshrine, regrettably, an unlevel playing field amongst advice providers, inappropriately favouring a government-friendly business model. Most importantly, it is likely to cost about $700 million to implement and a further $350 million per annum to comply with, according to conservative industry estimates.

As I have indicated, as it currently stands, this legislation will lead to increased costs and, most importantly, will reduce choice for Australians seeking financial advice, and in that category are many older Australians, for whom I have a particular interest in my shadow Ageing portfolio. As I have indicated, the coalition will be moving a series of amendments, the most important of which are as follows: that the government be required by parliament to table a regulatory impact statement on FoFA, assessed as compliant by the government's Office of Best Practice Regulation; that the opt-in provisions be removed from FoFA; that the retrospective application of the additional annual fee disclosure requirements also be removed from the legislation; that the drafting of the best interest duty provisions be improved; that the ban on commissions on risk insurance inside superannuation be further refined; and that the implementation of the FoFA legislation be delayed until 1 July 2013 to align it with MySuper.

These recommendations were part of the amendments suggested by coalition members of the Parliamentary Joint Committee on Corporations and Financial Services. Crossbench senators should seriously consider these amendments and support them. These are important and sensible coalition amendments and, if they are not supported by the government, the coalition, if it is successful at the next federal election, will fix both bills by implementing these amendments. In particular we would completely remove the opt-in provisions, simplify and streamline the additional annual fee disclosure requirements, improve the best interest duty, provide certainty around the provision and accessibility of scaled advice and refine the ban on commissions on risk insurance inside superannuation.

These bills, of course, received examina­tion by the economics committee, and I would like to go to their report of March 2012 to pick up some of the points and some of the concerns raised, particularly in the dissenting report by coalition senators. In making their comments, coalition senators recognised that the financial services and advice industry provides an important service in helping Australians with their financial health and wellbeing, and, as I indicated earlier, many of those are older Australians. Of course, financial advisers help Australians to better manage their financial risks and maximise their financial opportunities. They are dealing with other people's money, and that is why it is important that the regulatory framework that regulates their activities not only is an effective one but also balances the need for effective consumer protection with the need to ensure that the financial advice and the financial services that are provided are of high quality and that that high-quality advice remains accessible, remains available and also remains affordable. Certainly when you look at the financial reforms and particularly the financial reforms that were legislated by the coalition when we were in government in 2001, they did provide a solid regulatory foundation for our financial services industry. I think that that solid foundation and framework stood us in good stead in relation to the global financial crisis. But, as coalition senators indicated, there is always room for improvement.

Any change that should be considered is not about making things more complex; it is about making things better. Therefore, in any change—and this is really where the concern from the coalition side is in relation to these proposed changes—we need to avoid more regulation or avoid regulation overreach, as coalition senators indicated in their dissenting report, where this leads to increased red tape and in turn results in increased costs for business and consumers without in the end affording them any greater consumer protection.

As we know, in the wake of the global financial crisis there were a number of high-profile collapses of financial service providers across Australia, such as Storm Financial, Trio and Westpoint. After those collapses it is very important to look at what went wrong, and I will come to some of those issues, in particular in relation to Trio, where I want to highlight in particular the work that is currently being done by the victims of financial fraud. Many of those who suffered are from the Illawarra, which is where my electorate office is, and I have had representations from those people. In the Illawarra it certainly led to a lot of very sad stories in relation to the consequences of those investments and the financial collapse. It may be said that this legislation could have avoided the Trio collapse, but, as Senator Cormann and other senators have indicated, it would not have done so.

Can I now look at February 2009, when this parliament asked the Parliamentary Joint Committee on Corporations and Financial Services to conduct a comprehensive inquiry into Australian financial products. That inquiry has become known as the Ripoll inquiry, after its chair, Bernie—

Senator Conroy: You're just jealous. It should be the Ripoll-Fierravanti-Wells—

Senator FIERRAVANTI-WELLS: One is French; one's antecedents are from another area of Europe. There is always rivalry there, Senator Conroy! That inquiry made a number of very important recommendations. I will come to those in a moment, but I want to highlight, to go back to the previous point I made, that it makes particular reference to the Trio collapse, which raised distinct and—as the committee executive summary notes—in some ways more troubling issues than those raised as a consequence of the Storm and Westpoint collapses. Trio in itself involved fraud. As I have indicated, nearly 6,000 Australians, many of whom are in the Illawarra, invested in Trio and suffered as a consequence of that.

The Ripoll inquiry made 14 recom­mendations. Certainly the coalition supports those recommendations. If you look at some of those—and I will not delve into many of them—one of those recommen­dations goes to encouraging greater partner­ships between regulators and experts in the private sector. It recommends that the Australian Taxation Office include clear, understandable, large-print warnings on its website that self-managed superannuation funds trustees are not covered in the event of theft and fraud and make sure that greater warnings are there. Those recommendations set out a whole range of other things in relation to compliance plans, regulatory arrangements relating to custodians, roles of ASIC, funding, involvement of the Australian Federal Police and cooperation with ASIC and APRA to pursue criminal investigations—and, as I said, a range of different matters which that committee dealt with very, very comprehensively. As the coalition senators indicated, the centrepiece of the Ripoll inquiry report was the recommendation to introduce a fiduciary duty for financial advisers requiring them to place their clients' interests ahead of their own.

The report's recommendations, as coalition senators have indicated, provide a blueprint that the government could have adopted in a bipartisan way to make important improvements to the regulatory framework of our financial services, and that certainly has been a position that the coalition has wanted and has advocated. Instead of implementing very sensible and widely supported recommendations—or those recommendations of the Ripoll inquiry—regrettably, the government, as coalition senators indicated, allowed its Future of Financial Advice reform package to be 'hijacked by vested interests, creating more than two years of unnecessary regulatory uncertainty and upheaval in our financial services industry'.

The concern is that the government's decision to make the processes around FoFA in the past two years leaves, to say the least, much to be desired. There were constant—and, as coalition senators indicated, at times completely unexpected—changes to the proposed regulatory arrangements under FoFA, which did very little to properly appreciate or assess the costs involved and of course any unintended consequences or other implications, which have now led to this legislation.

The important reforms that were recommended by the Ripoll inquiry have been delayed for more than two years while the government pressed ahead with a number of additional measures, contentious as they have been, such as the costly Industry Super Network initiated proposal that would force Australians to re-sign contracts with their financial advisers to a timetable imposed by the government and not chosen by consumers—the so-called 'opt-in' proposal.

In the time available to me, I will make some general observations. Financial services are a very important sector. Financial services help us all to make better decisions, but it is very important that, in ensuring that financial advice is available to the broader community—and, as I have indicated, most especially to older Australians, who are increasingly finding it difficult to manage their financial pressures, particularly with the increasing cost-of-living pressures—as we have indicated, there is always room for improvement.

Let me go to some of the specifics of this legislation and some concerns and criticisms that the coalition have. Firstly, the bills do not meet the government's own standards. In pursuing any regulatory changes it is important that the government must itself rigorously assess, as I have said, increasing costs and red tape for both business and consumers. And it is incumbent on the government to conduct a proper regulatory impact assessment to a standard which is at least consistent with its own practice regulation requirements. 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 the FoFA package on business and consumers or to assess the costs/benefits of the proposed changes. Of course, this is highly unsatisfactory, given the complexity of this legislation and the costs associated with these bills, particularly the more contentious parts of the proposed changes.

There is also an unrealistic imple­mentation time frame. The current time frame of 1 July 2012 is completely unrealistic, given the proposed commence­ment date being imminent. As I have indicated earlier, and other speakers have indicated, it would have made sense to have implemented this package at the same time as MySuper was implemented.

Also, there are components of this package which require significant changes to the same financial service provider IT systems. It is in many ways symptomatic of the chaotic approach that this government has adopted in this area, as we have seen in so many other areas. And it is that lack of practical business understanding—under­standing the practicalities of business realities, in that it is seeking to impose two different implementation dates involving significant and very expensive changes in relatively quick succession. For this reason, the coalition believes that these bills, if amended, should not commence until 1 July next year.

Another contentious issue is the opt-in provisions. They impose a mandatory requirement on consumers to re-sign contracts with their financial advisers on a regular basis. This will mean a significant increase in red tape and costs, not just for the planners but most importantly for the consumers. It would certainly put us right up there leading the world in terms of financial services red tape. Opt-in, most importantly, was not one of the recommendations of the Ripoll inquiry. In this context it is very important to remember that Industry Super Network provided the only submission to the original Ripoll inquiry arguing in favour of opt-in—so one really questions why this opt-in provision has been pushed.

In conclusion, as I said, the coalition will not be supporting these bills— (Time expired)