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Monday, 19 March 2012
Page: 3310

Mr EWEN JONES (Herbert) (18:39): To the member for Moreton, you can pay a solicitor for doing nothing: it is called a retainer. Probably, when you were acting as a solicitor no-one bothered with that one with you, mate. I rise to speak on the Corporations Amendment (Future of Financial Advice) Bill 2011 and the Corporations Amendment (Further Future of Financial Advice Measures) Bill 2011. The collapse of Storm Financial during the GFC had a devastating impact on my electorate of Herbert. Any changes to the financial sector that this government make such as contained in this legislation will be of great interest to me and my constituents as we look to make sure that the financial sector is regulated in a way that allows it to grow and helps investors without encouraging practices that affected so many North Queenslanders during the Storm collapse.

One of the main changes in the FoFA bill is to require financial advisers to get approval for ongoing fees. The other major change is to make the Australian Securities and Investments Commission better able to supervise the financial services sector. The FoFA bill introduces an obligation for financial advisers to act in the best interest of the clients, with bans on conflicted remuneration so that advisers do not have a financial incentive to encourage their clients to buy certain products and bans on volume based shelf-space fees from asset managers and asset based fees on borrowed amounts.

While the coalition recognise the need to improve the regulatory framework within which the financial institutions operate, we have serious reservations about the content of these bills. In the midst of the GFC, the Parliamentary Joint Committee on Corporations and Financial Services, chaired by the Hon. Bernie Ripoll, ran an inquiry into the financial services industry, producing a report that included recommendations in late 2009. This Ripoll report had bipartisan support in the House, including for its recommended changes. In fact, 407 submissions were made to that Ripoll inquiry and only one called for the opt-in. The Ripoll inquiry did not call for the opt-in feature.

Now, over two years later, we see the proposed legislation before the House and it does not look much like the recommendations that both parties and much of the industry were in agreement with. Instead, this government have managed to let the committee's findings give way to lobbying from the industry super fund movement. The end result of this will be that the financial sector and their clients are set to suffer. I will give the member for Oxley his dues. He was very vigorous and very aggressive in his pursuit of what happened with Storm Financial. He came to Townsville on a number of occasions. A good friend of mine Max Tomlinson helped him with that inquiry during those times he came to Townsville to get the information that he obtained. I will give the member for Oxley his dues: he was very diligent. The report which had bipartisan support and the work that he put in to achieve that bipartisan support should not go unmentioned in this House.

These bills are far more complex than they need to be. They leave much of the content unclear. They will have an impact on employment within the financial sector. They will create an unfair environment and government-friendly businesses will thrive at the expense of others, and they come at an unreasonable cost—$700 million to implement and a further $350 million per year after that. Changes need to be made to these bills and the coalition will move a series of amendments, as foreshadowed by the member for North Sydney and shadow Treasurer, Mr Hockey. These amendments include the requirement for government to table a regulatory impact statement on the bill, the opt-in requirement to be removed from the FoFA bill, the additional annual fee disclosure requirement to not be applied retrospectively, an improvement in the drafting of the best interest duty, the further refinement of the ban on commissions on risk insurance inside super products and, finally, that the implementation be delayed until July 2013, the point at which the new MySuper product will be introduced.

In Townsville the finance sector is a vitally important one, helping Australians maximise the financial opportunities available to them. It is important that we make financial advice as affordable and reliable as possible and that Australians are able to trust the industry. This goes far beyond the provision of superannuation. The collapse of Storm Financial in Townsville dented the confidence of many North Queenslanders in the industry, even though the model used by Storm was completely different to that of other financial planners.

We must not lose sight of the need for these services to remain affordable. There will be a need for a balance between effective consumer protection and the cost impact of regulation. The Storm business model, in my understanding, required the customer to pay the provider upfront for services to be rendered—that is, their commission was taken in advance of any return on investment. The model worked fine as long as the market continued to grow and you were prepared to continually borrow to keep the model going. The provider carried no real risk They were not getting paid on effort. Rather, they were paid on salesmanship alone, with no commitment to the future. They took no risk if the system failed because they had already been paid—and that is where the Storm Financial system broke down. In Townsville, and throughout North Queensland, there were many, many people who fell for this poor business model and lost their futures. I understand their calls for fairness, but I ask them not to lump every financial planner into the same basket—and I say that to the government as well.

The vast majority of financial planners want to take you by the hand and walk you towards a bright future and a splendid retirement. The Storm model could never be assumed to have that in mind. My concern is that parts of this bill are unnecessarily burdensome on businesses and that this will impact on their ability to provide affordable financial advice. Nobody is denying the need for measured regulation of the financial sector, but it is local businesses and their consumers, like those in Townsville, that will suffer when we go too far. I have spoken to a number of financial advisers in Townsville. To a man and a woman, they are members of the community and often provide much more to that community than they receive. People like Lindsay and Marie Orchard from Financially Yours have built a great business not only by selling great products to clients but by actively seeking out the right product for the right client.

What people in the industry are telling me is that, if you make people pay upfront, younger people may baulk at the cost and defer their entry into superannuation schemes or other retirement financial advice packages, with obvious long-term consequences. The problem you have is that if you say to a 20-year-old, as the member for Moreton was saying, he has to pay upfront and come up with a $2,500 fee—$2,500 to a 20-year-old second-year apprentice is a lot of money—he will say he would rather spend that money down at the Great Northern on a Friday afternoon on beer off the wood. They are not going to jump into these products. That will have long-term consequences.

There is also the issue of people who are, to use the industry term, 'hard to set'. If a man who was overweight, over 30 and had associated health risks from playing 25 years of pretty poor rugby was to present himself to a set-fee agent, the answer he would probably get is that the agent could not find a suitable product—either that or the entry fee would be exorbitant to justify the work needed to find a company willing to take on the additional risk. But when you are a commission agent and get a trailing commission you work for the reward. The client does not particularly care if the agent gets a commission. In fact, I suggest that only a fool would believe that services are provided without a cost. If the cost is carried over a long length of time and is reasonable considering the work done, then I would suggest that people would be more than happy to pay, as has been the case with 99.9 per cent of commission based financial planners.

I am an auctioneer by trade. I charged commission for sales. I got rewarded depending on how good I was. I have done some great jobs and have received great reward. I have also done some absolute shockers and sustained net losses, but that is the name of the game. You cannot expect one-way traffic. You cannot expect to receive benefits without cost. You cannot be completely risk free. As an auctioneer or as a financial planner, you have to fight for the sale in the first place, using your skills as a salesman for the products you offer. All that does is put you in a position to work for your client. It is not simply an opportunity to get paid. That is the problem with this bill. The government wants to exclude people with the ability to sell and make a living.

I believe in commission It sorts out the professionals from the amateurs. In Townsville, we have people in financial planning, such as Deidre Walsh, the entire Haller family, Ross MacLean and others, who have provided these services to generations of Townsville people and North Queenslanders in general. We have people like Louise Previtera and Daniel Watts, who are backing themselves and earning a living to become career financial planners for future generations of North Queensland people. These are young people prepared to have a go and work the hours that are required to develop a business. They believe they can provide the services needed to maintain good clients and assist them to achieve their dreams.

No amount of legislation will stop people rorting the system. This legislation is not about trying to level the playing field. There is no other way of putting it: this legislation is about this government's hatred of small business and success. I can see no other reason to stop someone working 80 hours in the hope of getting someone covered and, in the process, establishing a relationship with the client which will last a long time into the future. This government wants everyone to work a 36-hour week—and if you want more they will stop you.

Nobody is denying that changes need to be made to the financial sector. We know the consequences of not doing something. But this government has once again squandered the support for change of the political and industrial environment by giving in to vested interests and overregulating. I say again: this is going to cost $700 million to implement and a further $350 million per year thereafter. Key changes are needed to this legislation so that it does not hurt financial sector businesses and, in turn, their clients. We know what those changes need to be and we will support this bill if the government makes them.