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Thursday, 22 March 2012
Page: 4093

Mr HARTSUYKER (Cowper) (10:44): I commend the contribution of the member for Casey on the Corporations Amendment (Future of Financial Advice) Bill 2011 and the Corporations Amendment (Further Future of Financial Advice Measures) Bill 2011. I also rise to make a contribution on these bills. This legislation is just another example of this government being out of touch with an industry which is so important to the Australian economy. Instead of proposing legislative changes that will make the industry more transparent and improve the service provided to clients, the government has tabled changes which could have a devastating impact on the financial services and advice sector. As some of my coalition colleagues have already noted, the future of financial advice bills in their current form will, firstly, create huge layers of additional complexity; secondly, cause increased unemployment within the industry; thirdly, create an unlevel playing field among advice providers by favouring those businesses which are more government friendly; and, fourthly, cost somewhere around $700 million to implement and a further $350 million per year to comply with. They are really huge numbers.

A good government would never seek to impose such extreme changes on such an important sector in our economy, but then again this government has a very strong record of wreaking as much damage as possible on Australian businesses and the millions of people that they employ. We all know that manufacturers and small businesses will be hit hard by the carbon tax. We all know our miners will soon be subjected to a mining tax, and here today we are discussing legislation which will hit the financial services sector hard. It is important to note that this legislation has been introduced at a time when there is a low level of personal and investor confidence in the Australian economy. It is the failings of this government that have led to a low level of confidence. This government has made a difficult situation worse through economic mismanagement and punitive legislation. The Australian business community is crying out for certainty from their national government. Australian consumers are seeking stability. They are seeking job security, yet at every turn they have a government which is undermining the confidence of investors, and that is flowing through to all sectors of the economy.

It is with this in mind that I raise my concerns about the proposed changes to the industry that provides financial advice to Australians. The industry exists to assist Australians better manage their financial risks and maximise their financial returns. An appropriately robust regulatory framework must be in place, as financial services providers deal with other people's money on a day-to-day basis. The industry is especially important in my electorate of Cowper, where a number of constituents are either in or approaching retirement and need reliable and transparent financial advice. Decisions made on the recommendations of professionals in this industry will mean large variations in their standard of living, particularly in retirement years.

As we look back on the global financial crisis, I recognise that the financial services industry generally performed well, although I shall discuss some of the exceptions later. Some of this success can be linked to the reforms which were legislated by the Howard government in 2001. That said, like other industries, the financial services industry is constantly changing, and regulations surrounding it need to reflect that change.

It is not hard to support the general principle of having more transparency in this important industry, especially when there is a large information asymmetry between the providers of financial advice and their clients. But, as with most changes this government implements, the devil is in the detail—and what a devil it is. Changes should not be made simply for the sake of change. In seeking to make regulatory change, the government should be focusing on doing things better and not in a more complex and more expensive way. These changes are coming from a government that promised a 'one in, one out' policy—one regulation drawn up and one taken away. Let us look at their record. How has the 'one in, one out' policy gone? I am afraid it is not a very good scorecard, because we have had 16,000 new regulations and less than 100 repealed. With this record, I have very little confidence that these changes will ease the regulatory burden on the financial advice industry.

During the financial crisis there were a number of high-profile collapses in financial service providers across Australia, with the notable examples of Westpoint, Storm Financial and Trio. With the hindsight of these collapses, it is important to assess what went wrong and what could be changed in order to minimise the risk of and hopefully prevent future collapses. Every member in this place will be aware of the devastation that occurred in many families as they suffered and, in some cases, lost their homes when they were advised to use those homes as security for the purchase of investments.

So, in February 2009, the parliament asked the Parliamentary Joint Committee on Corporations and Financial Services to conduct a comprehensive inquiry into Australian financial products and services. That inquiry, referred to as the Ripoll inquiry, reported back in November 2009 and made a number of sensible recommendations to reform the industry. The main recommendation was to introduce a fiduciary duty for financial advisers requiring them to place their clients' interests ahead of their own. The recommendations provided a blueprint that the government could have adopted with bipartisan support. It was noted in the Ripoll inquiry in 2009:

… the committee is of the general view that situations where investors lose their entire savings because of poor financial advice are more often a problem of enforcing existing regulations—

and I stress that: enforcing existing regulations—

rather than being due to regulatory inadequacy. Where financial advisers are operating outside regulatory parameters, the consequences of those actions should not necessarily be attributed to the content of the regulations.

Unfortunately, this was not considered in this reform package, and it has been hijacked by this government succumbing to vested interests. Reforms that are important to the financial advice industry have been delayed by over two years while this government made various changes without consideration of the costs involved or of other consequences.

I now want to raise specific concerns that the coalition have with these regulations. The bills fail the government's own standards, and certainly they represent another broken election promise. As previously mentioned, this government came to office with a promise to reduce regulation and red tape, which is a good aim for government. In fact, the coalition have a deregulation task force that has been specifically established to reduce the regulatory burden on business. A regulatory impact statement is a tool that government has available to review the proposed legislation so that it can assess it for unintended consequences. This will also give a clear picture of the costs for the increased red tape that might be borne by businesses and consumers. 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 FoFA on businesses and consumers or to assess the costs and benefits of the proposed changes. In an industry as complex as financial services and relied upon by so many, this is not acceptable, especially with the contentious parts of the proposed FoFA reforms.

The drafting and tabling of this legislation epitomises how this government tends to manage major reform. Instead of investing the time and the resources to get the detail right, it leaves everything to the last minute and then produces legislation that fails to address the key issues. Such poor management of the legislation has now led the government to try and rush it through the parliament. It is an absolute disgrace that this legislation will not even be considered by the Senate before May, with only six weeks before the proposed start date. What type of government would seek to manage such a reform when there is simply not enough time for the changes to be implemented by the financial services industry?

Given that the MySuper start date is proposed for 1 July 2013, it simply makes sense to implement FoFA and MySuper at the same time. Not only would this give industry sufficient time to make the significant changes that are required; it would also allow participants to make the required changes to their IT systems for both reforms at the same time. It is also well known that a large number of people approach their advisers for financial advice at the end of the financial year. The advisers that are attempting to implement these huge changes will at the same time be coping with their busiest time of the year. Well considered reforms of the financial services industry would consider the conditions of the industry and not thrust change upon them when they are least able to implement it.

The changes proposed by the government are also draconian because they are retrospective. These changes will add an additional annual fee disclosure statement over and above the current regular statements provided by financial service product providers to their clients. As I have previously said, I welcome changes that increase transparency in the industry; however, this measure was not in the Ripoll inquiry and was only included by the government at the last minute. It has been estimated by the Financial Services Council that the implementation of the fee disclosure requirements will cost approximately $53 per client for new clients and $98 per existing client. The additional costs borne by retrospective fee disclosure will add absolutely no additional consumer protection benefits. Yet the additional cost will either have to come from the financial adviser or by way of reduced returns to the consumer.

The government made a commitment during the consultation period that the additional annual fee disclosure requirements would apply prospectively only. This is another example of the Gillard government promising one thing only to renege on that promise when it comes to the implementation. Not everyone would want to go to a financial adviser to receive a full financial plan. Many want to receive advice on only a specific need that they have, be it a specific type of insurance or savings product. Scalable advice is the concept of focusing advice on areas specifically identified by the client. The provision of scalable advice would allow many people to access advice more frequently for specific matters. The changes would allow the provision of scalable advice where the request for such limited or scaled advice is instigated by the client. This would ensure that clients are able to access affordable and appropriate financial advice as and when it is required and not when the client is able to afford a full financial plan.

I welcome the amendments that the coalition is proposing. They are sensible amendments that include: the government would be required by parliament to table a regulatory impact statement on the FoFA changes; the changes be assessed as compliant by the government Office of Best Practice Regulation; the opt-in be removed from FoFA; the retrospective application of the additional annual fee disclosure requirements be removed; the drafting of the best interest duty be improved; a ban of commissions on risk insurance inside super be further refined; and the implementation of FoFA to be delayed until 1 July 2013 to align it with the MySuper.

The rushed nature of this legislation certainly is of concern. But the overwhelming concern for most Australians with this new legislation is that they have no faith in this government's ability to deliver change. They have seen the government bungle reform at every turn, they have seen the government bungle programs. The Australian people have lost faith in this government. When you are looking at an area as complex as the FoFA reforms, as detailed as the FoFA reforms, how can the Australian people have faith in a government that could not put pink batt in roofs, and could not build school halls without massive cost overruns? How could the Australian people have faith in a government that is incapable of implementing the simplest program? How could they have faith in this government implementing changes as complex as those that are proposed under FoFA? We see Australians very concerned about the implications of the carbon tax for the same reasons. They have seen the government's failure in program implementation. They can see the complexity of the carbon tax, as massive as it is, and the massive burden that the carbon tax will place on the Australian economy and on Australian business. They do not trust this government to implement matters of such complexity.

So I say this to the government: take note of the amendments prepared by the coalition. The coalition has a track record when in government of implementing sound policy. The coalition has a track record in government of ensuring that government is conducted on a competent basis. The coalition can be trusted with government whereas the current government is certainly under a cloud of distrust with regard to the Australian people. The current government certainly is not considered by the Australian people capable of implementing complex reforms such as those proposed in these bills.