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Monday, 19 March 2012
Page: 3316

Mr VAN MANEN (Forde) (19:06): Before I get into the substance of my contribution tonight on the Corporations Amendment (Future of Financial Advice) Bill and the Corporations Amendment (Further Future of Financial Advice Measures) Bill, I would like to thank the member for Canberra for her contribution. The two examples that she finished off with are very relevant. The problem with the examples that she has just given us is that none of those examples would be protected by the regulations that are in this legislation.

The first example—and I have seen this firsthand—is an example of product failure. Product failure and bad advice are not necessarily the same thing. The problem with this whole discussion around the FoFA reforms is that they are all targeted at the financial planners, yet a lot of the problems that we have experienced over the past three or four years are failures of product. They are not failures of the advice necessarily—in some cases they are but not in all cases. The issues with people's superannuation today are a result of the GFC. They are not a result of poor planning advice per se.

Why, in this legislation, are we attacking people who are providing professional, long-term quality advice to the majority of their clients? There are people who have done the wrong thing, I have no argument with that. Superannuation today is underperforming because of global financial markets. It is also underperforming—and there was a report about it this morning—because the Australian share market has underperformed the US share market over the past four years. How much of that can we sheet back home to a loss of confidence in the Australian economy generally through poor government management, waste and excess? That is having far more effect on the value of people's superannuation funds than the advice that they are receiving. This is not the first time I have touched on this issue. As those here know well, I have a background in banking and financial services prior to entering this place. The vast majority of financial planners today are providing high-quality, professional advice to their clients. But, when you read these bills, you would think there was a bunch of crooks out there.

The second example that the member for Canberra gave was in dealing with a major financial institution. The fact is that these bills are not going to improve that situation; they are actually going to make that situation worse. This regulation is going to directly assist the big financial planning firms, most of which are now owned and run by the banks. The bills are also going to assist the industry super fund network, and there is plenty of stuff in these bills that comes directly from their single contribution to the Ripoll inquiry. The small financial planning practices that provide high-quality, independent professional advice are the ones that are going to go out of business. The very issue that the member for Canberra spoke about is not going to get better; it is going to get worse.

These bills emanate from the Ripoll inquiry, which was entered into as a result of the failure of Storm Financial, the failure of Trio Capital and the failure of Westpoint. Let us have a look at those three failures. Storm Financial was a failure of strategy as a result of the global financial crisis. It was a fee-for-service business. They did not charge commissions. So again this is a regulation that bears no resemblance to what has actually happened. It is arguable that Trio Capital was a case of fraudulent activity in a couple of its funds. This bill does not deal with fraudulent activity. With Westpoint, there was a failure of product due to changes in market circumstances. Again, this legislation does not deal with issues of product failure. It deals with failed products by saying that, because advisers put together a strategy and the product failed, they are bad advisers. That is not the case at all.

I fully support the argument that it is important that we have an appropriate regulatory framework to protect individuals, families and businesses. I think that is an eminently sensible path to pursue. Equally, that regulatory framework must balance consumer protection whilst ensuring affordability for all involved. Our Australian financial services industry, and the regulatory regime that currently underpins it, is recognised as one of the best in the world. There is no doubt this is largely because Australia's financial services reforms, legislated a decade or so ago, have provided a solid regulatory foundation for our financial services industry.

The member for Canberra touched on the fact that financial planners had not been removed from the industry for a variety of reasons and, therefore, we need to give ASIC more power. ASIC has more than enough power. The problem is that ASIC is not enforcing the rules that are already there. This is not the first time I have touched on this issue in this House. So why are we giving the regulators more power when they do not even enforce the rules that are already there? There are plenty of examples of bad advice over the years where those advisers have not been removed from the industry and it has been well known throughout the industry. So why has ASIC not acted in those circumstances?

Nevertheless, there is always room for improvement. However, improvement does not mean additional regulation for the sake of making change, particularly when it adds to the complexity of the regulation that is already there and that can quite adequately do the job. The last thing we need to do is to make things more complex and costly for consumers supporting this industry as a result of poorly planned or poorly motivated legislation. There is a tendency these days for this government to wrap things up in red tape, forcing an increase in costs to both businesses and consumers and leaving them feeling as though they have been ripped off when they should be feeling as if they have benefited. A lot can be learnt from the collapses of Storm Financial, Westpoint, Trio Capital and Opes Prime. We certainly need to review the lessons that can be learnt from that, but we do not need to throw the baby out with the bathwater. The Ripoll inquiry did a great job and made a number of very well considered and reasonable reform recommendations. The centrepiece of the inquiry's report was a recommendation to introduce a fiduciary duty for financial planners, requiring them to place their clients' interests ahead of their own. The report's recommendations provided a blueprint that the government could have adopted with bipartisan support. I could quite safely say that, even without this bit of regulation, any reputable financial planner would always have the view that their clients' interests came ahead of their own. In my experience, that is by far the majority of the financial planning industry. The industry has no issue with that part of the report. It accepts it and accepts that it needs to lift the standard and become more professional in a number of areas.

The committee was of the general view that, in situations where investors lose their entire savings because of poor financial advice, there was some problem with enforcing existing regulations, but it was the enforcement of the regulations, which I touched on before, rather than there being a regulatory inadequacy. So it comes back to why the regulators are not enforcing the regulations that are already there. Where financial advisers are operating outside regulatory parameters, the full weight of the law should be applied and they should be dealt with as a result; they should be removed from the industry. As a previous financial adviser I would like to see those people removed from the industry because we want to see it regarded as a profession and a professional industry.

Instead of implementing the recommendations made by the Ripoll inquiry, the government has allowed its Future of Financial Advice reform package to be hijacked by vested interests. Over the past two years, there has been a series of completely unexpected changes to the proposed regulatory arrangements under FoFA, even right up until the last couple of weeks. Invariably, this has been done without proper appreciation or assessment of the costs involved which, as the member for Herbert quite rightly pointed out, are $700 million to implement and some $350 million per annum to maintain.

It is important that these financial advice reforms are properly considered so that we do not create a situation where the big players in the industry gain strength and power at the expense of the small to medium-sized financial planning businesses that, by and large, provide the majority of the independent, high-quality financial planning advice to the Australian community. It is not the big banks, not the big financial institutions and not the industry super fund network that are providing independent advice. They are motivated by sales targets, bonuses and other things, and quite rightly this legislation seeks to cut those things out. It is the small financial planning practices that are built up over 20 or 30 years that are the true professionals and pioneers in this industry.

To that extent, I would like to touch on an email that I received from a person who has been in the industry since 1971, and it is one of the many inquiries I have received in my office. He touches on the matter of conflicted advice. Conflicted advice is where financial planning advice is provided through banks, insurance companies, fund managers and industry super funds. This financial adviser believes that advice provided by these financial institutions is not always in the best interests of the client. He also stated that it is clearly noticeable that, since the FoFA regulations were drafted, there is increased uncertainty about the changing face of the industry and how advice is given.

At this point, I will use a very personal example on the effect of these proposed regulations and the ongoing debate over the last couple of years about the future of this industry. A financial planner who was in the same dealer group that I was when I was doing financial planning found out, three days before the sale and restructure of his business were to occur, that the bank had pulled the funding because of the uncertainty about these regulations. The end result was that this gentleman committed suicide. That is what these regulations and this uncertainty have done to some people in the financial planning industry. I think the government should hang its head in shame.

The adviser who sent me this email went on to say that many of the small non-conflicted licensees are now being purchased by large institutions because they do not have the capacity anymore to raise finance or to restructure their businesses to comply with these new regulations. Again we come back to the point of the member for Canberra: we finish up with a raft of regulation that takes out the very people who provide the diversity and flexibility of advice that clients will not get from the big players in the industry. What value will that provide to the Australian community? I submit that it will provide none whatsoever. It actually goes totally against what we should be seeking to achieve in this place. We should be looking to encourage small business to grow, develop and provide genuine competition to the big players in the industry, who have their own interests at heart and not necessarily, I dare to say, their clients' best interests.

This financial adviser entered the industry in 1971, when 100 per cent of all businesses providing advice were conflicted and acted as agents for insurance companies. This has changed over the years, with clients wanting a more independent view of their options. The financial adviser is concerned that we are returning to a situation, turning 360 degrees and essentially going backwards, from where we have already come.