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Tuesday, 10 February 2015
Page: 335

Senator O'NEILL (New South Wales) (17:23): I would like to take this opportunity to bring to the attention of the Senate and those listening to the broadcast this very important report, and its recommendations, from the Joint Committee on Corporations and Financial Services which was handed down on 19 December last year after the parliament had risen for the Christmas break. I do endorse the comments Senator Williams has made about the committee and its endeavours to address this critical issue for Australians. This is a bipartisan report, and it is important to put that on the record.

The committee was tasked with inquiring into the professional, ethical and educational standards in the financial advice industry. It is a sector that deals in units of billions of dollars and involves the savings of millions of Australians. It was Labor's vision that grasped the importance of building a national savings space as a counterweight to the economic pressure an ageing population would bring to the economy in future generations. We believe Australians have the right to live their retirement in dignity with savings built by investing in their superannuation. Labor had the foresight under Prime Minister Paul Keating in 1992 to recognise that such a demographic swing would place an unbearable strain on the economy if it was not addressed. The voluntary savings of Australians—the money they put away and invest for their retirement—is one of the three foundation pillars of the superannuation philosophy, along with employer contributions and the age pension. Wealth management became a growth industry in response to this initiative, and a whole new profession grew up around managing and growing people's savings. Labor created this industry.

To give some idea of the sector's size and importance, financial services account for 9 per cent of GDP, and more than $1.8 trillion in super funds are currently under management. But the development of this industry opened door for cowboys and shysters, as is typically the case when the opportunity to use someone else's money arises. Labor believes these vital private savings must be properly protected. While there is always a threat to investments from market forces and global economic crises, we can take away the threat from the cowboys above and beyond the legislation in place to protect consumers. Recent experience has sadly shown that the savings can too easily fall prey to fraudulent or incompetent financial advisers. The level and efficacy of protection for consumers when dealing with the finance sector came to a head with the shocking 2009 collapse of Timbercorp and the Great Southern agribusiness investment scheme with losses estimated at $3 billion.

It also has to be acknowledged that the committee's hearings were conducted in the context of revelations of the Commonwealth Bank of Australia financial planning scandal, to which Senator Williams alluded. As we know, large sums of money were involved and large numbers of investors lost on these occasions. Individuals' lives were ruined and, sadly, some of the largest institutions in this country were implicated. We have a problem with the professional standards of our financial services industry, and that was addressed in this inquiry and report. There was another large loss on the small side of the equation—the small investors, the mums and dads, the retirees who banked a lifetime of earnings, often risking their homes and property only to have their lives shattered by poor financial advice. It was incentivised in many ways by bad practices in the industry. The losers were not the big guys in this; they were the little ones—the ordinary investors. The majority of these people were left with nothing of their investment—no financial security and little in the way of wherewithal to fight for the return of their money. They had their lives ruined by an act of fraud in some cases on a massive scale and others lost their savings just because of inefficient and incompetent practitioners.

While the inquiry heard submissions dealing with the misery these collapses and scandals inflicted, I believe there is a positive message to take from the report's recommendations, which, as deputy chair of the committee, I wholeheartedly support. The message is one of opportunity to secure the financial future of investors, for the mums and dads, and restore integrity to the vast majority of the sector that acts responsibly. The message to take away is in essence a road map to redress the wrongs of the past and to establish a new professionalism in this burgeoning sector. It is not of great comfort now to those who have lost their life savings, but I know there will be some comfort if this report can be enacted to prevent it from happening to other Australians. It is an opportunity for real and genuine change to bring about vital improvements to the industry. The overarching theme of these recommendations is that those offering financial advice have responsibilities that are life-impacting on a significant scale. They need to act in a professional way. They have the power of professionals; they need the skills, values and attitudes of professionals—just as doctors and lawyers are assumed to act in their clients' best interest. People managing people's life savings are viewed in the same way and, sadly, that has been misplaced up to now on too many occasions.

The government's announcement on 24 October of a register of financial advisers was a step forward, but that that has also been uncertainly changed over a number of occasions by the minister. What we are proposing is that an industry based, independent financial professional education council be established to set the standard of qualification, and these standards would increase to meet degree standards, and a competence for financial advisers would follow. The move supports findings of previous reviews of the sector that called for an independent body to be created to formulate and oversee the education standards of those who are or will be giving vital advice to consumers.

The make-up of the professional education council would include representatives from each of the professional associations approved by the professional standards council; an agreed number of academics; at least one consumer advocate, whose voice has been too quiet in the past, and preferably two who represent different sectors; and an ethicist, vital to consider the detailed, careful consideration of ethical behaviour in this field. The body would be controlled and funded by relevant professional associations. It would oversee a qualification process that would require the completion of an undergraduate course followed by a structured professional year where the graduate is in the employment of an Australian financial services licence holder for a year before sitting a registration exam that would be overseen by an independent monitor, as in the case of certified accountants. There would be no more of this eight hours off the internet, get an RG146 and off you go, handling people's life savings at the local bank, pretending you are a qualified professional adviser when, really, that sort of a licence is a licence to do danger and to damage people's life savings.

The FPEC would not only set the curriculum for coursework, consisting of core subjects and adjunct sector specific subjects for things like self managed superannuation, financial advice, risk insurance and markets, but also develop a standardised framework for the graduate professional year which would in turn be administered by the appropriate professional associations. But the education and qualification process would not be a set-and-forget proposition and end with registration. It is vital, in the view of the committee, that practice would be continually developed over the course of a whole career, with continuing professional development mandatory and required to be audited and ongoing.

For existing financial advisers, previous appropriate qualifications and experience should be taken into consideration, and they would be given under what we have proposed as a provisional registration from the introduction of the government register until 1 January 2018. There are a number of signposts that we indicated in our report about the orderly way in which this would proceed, with markers in July this year, June 2016, July 2016, January 2017 and 2019 to keep the process on track and keep the sector accountable to the public who have very high expectations. The committee envisages a target date of July 2016 for the second vital plank of the process and that is setting in stone a code of ethics for the sector which would require financial advisers to be members of professional associations. A code of ethics is far different from a code of conduct. Observing external behaviours and practices is a vital part of professional behaviour.

At the heart of this financial services sector we need professionals who have an ethical disposition to put the clients' interests first. A best interest test needs to be passed. The fact that there have been attempts over the years to legislate towards this indicates that for too many years already the best interests have not been at the heart of those giving financial advice, and this report goes a long way to providing a road map which will end, I think, a lot more happily for those Australians who have now the income and the benefit of Labor's vision for investing in superannuation. Thank you to the secretariat for their great work on this report. I seek leave to continue my remarks later.

Leave granted; debate adjourned.