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Financial advice plans - cutting red tape or giving rogue operators a green light? -

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SARAH FERGUSON, PRESENTER: More than 100,000 Australians recall with bitterness the collapsed investment schemes like Storm Financial and Great Southern that cost them millions of dollars and in some cases ruined lives.

In the aftermath of those collapses, new laws were introduced to protect consumers seeking financial advice but the Federal Government says those rules created too much red tape and ended up costing investors money. Now a senate committee has approved changes that will wind-back the rules.

Critics are worried it will mean the return of rogue financial advisers and a repeat of the collapses seen in the past.

Greg Hoy report.

GREG HOY, REPORTER: If there's one individual who personifies consumer calls for tough financial advice laws in Australia, it's this man.
(to Peter Holt) Can we have a brief word with you, please?

GREG HOY: Melbourne accountant Peter Holt was belatedly banned from financial planning by ASIC for three years.

He's supposedly bankrupt but still drives a big Mercedes, still operates his business in a partnership and still lives in his sprawling home.

Peter, Greg Hoy from ABC TV.

PETER HOLT: Get off my property.

GREG HOY: Can you answer a couple of questions for us, please?

His comfortable lifestyle is salt to the wounds of former clients whose lives have been ruined, whose houses are about to be foreclosed, living them pleading with the banks for mercy.

BERNIE KELLY, TIMBERCORP INVESTOR: This was supposed to be the family home and my handover or stepping stone for the kids and that's my biggest fear it's going to go.

IAN BYRNE, TIMBERCORP INVESTOR: Please give us a fair go.


IAN BYRNE: Let us keep our house. Be gentle on us.

MEREDITH BYRNE: Don't let people like Peter Holt trade. Don't let people like him suck people in.

GREG HOY: How do you feel that so many of your clients are now facing bankruptcy?

PETER HOLT: Get off my property.

GREG HOY: Peter Holt was a big promoter of Timbercorp, a dodgy investment scheme that promised to grow money on trees with plantations across the country. The more they invested the more he made so Holt advised many clients to borrow heavily on their houses and invest that money too so increasing his cut.

NAOMI HALPERN, TIMBERCORP INVESTOR: Peter Holt and his associates operated as predators and he would always say, "Your house is safe. It's your biggest asset. I'm not going to do anything to put your homes at risk," and that's exactly what he did.

GREG HOY: A regular on Melbourne's golf courses, what he calls his property and other assets, are all in other names beyond reach of his victims. Was your bankruptcy a sham bankruptcy?

PETER HOLT: You can go now. No.

GREG HOY: According to solicitor Mark Walter of Slater and Gordon who's preparing to launch a series of class actions against financial planners, sham bankruptcies are a national phenomenon.

MARK WALTER, SOLICITOR, SLATER AND GORDON: Planners are closing down, liquidating and re-emerging under a different name and corralling the losses that they've - that arise out of the bad advice they've given in old entities and it's a very significant issue.

GREG HOY: From Timbercorp to Great Southern, Storm Financial and many others, the past decade saw a debt-fuelled and financial planner-driven investment frenzy that ended in financial ruin for more than 100,000 Australians.

LUKE VOGEL, STORM INVESTOR: I know of people that actually took their own lives. I know of people that essentially went into catatonic states because they just couldn't cope, they didn't seek help early enough. People who have lost their houses, living in sheds.

GREG HOY: It was cases like these that caused the Labor Government to introduce the Future of Financial Advice reforms known as FOFA to end conflicted payments to financial planners and force them to act in their clients' best interest.

Later, however, the new Abbott Government declared that the FOFA reforms would be wound back to again allow financial planners to be paid for talking up financial products. As requested by the banks who now control some 75 per cent of all financial planning in Australia.

STEPHEN MUNCHENBERG, CEO, AUSTRALIAN BANKING ASSN: There are broadly about making sure that staff in banks are able to recommend - not recommend - sorry I'll have to rephrase that because it's actually legally incorrect. Please don't
use that. Staff in branches are able to provide general information about products and that they have an incentive to provide general information about products.

NAOMI HALPERN: The Government is now trying to dilute the FOFA reforms and this is under pressure from the four major banks and of course they want them diluted so that financial advisers will push their products.

GREG HOY: The Government used its numbers on a Senate committee which last night gave the green light to the FOFA windback, despite warnings this could lead to a return of conflicted advice and rogue financial planners.

Compounding these concerns, the regulator, ASIC, the watchdog for financial planners, just had its funding slashed in the Budget by $120 million and more than 200 staff.

IAN RAMSAY, PROF, UNIV OF MELBOURNE: If in fact, as a combination of reduced resources and strong protections being wound back, we see more failures, we see poor financial advice continue to be given that has significant consequences, sometimes impoverishing the receivers of that financial advice then I think ASIC's inevitably going to be suffering increased criticism and quite ironically I suspect some of that criticism will come from politicians.

PETER COLLINS, CHAIR, INDUSTRY SUPER NETWORK: People really need to understand what's going on here. If you take $120 million out of the Budget of the regulator, their ability to investigate, to provide the right sort of supervision, to ensure that safeguards are being kept, if those things go, it's going to mean that people are going to lose their savings.

Today marked the deadline for Peter Holt's Timbercorp victims and others to either repay the ANZ bank or face losing their homes.

MEREDITH BYRNE: The situation is critical, is crucial. You know people are going to lose their homes. There's 300 of us that are going to lose our homes.

GREG HOY: The ANZ says it will show some tolerance to those who pay late but the banks are not letting investors off the hook.

STEPHEN MUNCHENBERG: There's always risk associated with investments and you know where there are situations where customers have got into difficulty, we will often work through some sort of settlement with those customers as well.

GREG HOY: Peter Holt's victims and hundreds of others have been offered a 15 per cent discount on debts by the ANZ through Timbercorp's liquidators, but only on condition they don't sue financial planners - angering victims.

MEREDITH BYRNE: It smells. It stinks.

IAN BYRNE: Seems like they're pretty tight, seems like they're good buddies.

MEREDITH BYRNE: Collusion, it's got collusion written all over it.

GREG HOY: The Government has told 7:30 it remains committed to changing these reforms.

MARK WALTER: The idea is a great worry. I think the protections are well considered, there was a long process to put them in place and they should stay there.

PETER COLLINS: It's almost the perfect storm. It is something that the Government should think very carefully about and I'm making a genuine pitch to the Government to think about this very carefully.

SARAH FERGUSON: Greg Hoy with that report.