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Thursday, 22 March 2012
Page: 4096

Mr SHORTEN (Maribyrnong—Minister for Financial Services and Superannuation and Minister for Employment and Workplace Relations) (11:00): I would like to thank all the members who have contributed to this important debate. Financial advice is an important step in the wealth management industry in our community. Therefore I value the participation of all members on this legislative package, which represents the most comprehensive set of reforms relating to financial advice in the last decade. This debate has been about the Corporations Amendment (Future of Financial Advice) Bill 2011 and the Corporations Amendment (Further Future of Financial Advice Measures) Bill 2011.

I shall address some of the specific issues that have been raised by members, but first I would like to make some brief remarks about the measures contained in the bills. These two bills implement the government's future of financial advice reforms, the government's response to the Parliamentary Joint Committee on Corporations and Financial Services inquiry into financial products and services in Australia. This inquiry was commissioned in the wake of the high-profile collapses of Storm Financial and Opes Prime. In combination, these bills contain a number of vital measures to restore trust and confidence in the financial advice sector.

Firstly, the bill sets in place arrangements requiring financial advisers to obtain their retail clients' agreement in order to charge them ongoing fees for financial advice. That is the opt-in requirement. This measure promotes the active renewal by the client to ongoing fees for advice with the opportunity to consider whether they are receiving value for money. This very basic requirement is that advisers must obtain their clients' agreement to renew at least once every two years as well as giving clients a fee disclosure statement at least once every 12 months. If the client does not respond to the renewal notice, they are assumed to have terminated the advice relationship and no further fees can be charged by the adviser. That said, if advisers charge on a per piece of advice basis rather than on an ongoing basis then the opt-in requirement will not apply to them. Overall, we want financial advice to focus on the client and what is in the client's best interest. Advisers should be in regular contact with their clients if they are charging them regular fees and I know many financial advisers already are.

In addition, today I can announce that the government will be moving an amendment that offers financial advisers an alternative to the opt-in requirement. This amendment will allow ASIC to provide class order relief from the opt-in requirement to licensees and representatives who are signatories to an ASIC approved professional code of conduct by 1 July 2015. Importantly, such an ASIC approved code would need to include practices and conduct requirements that obviate the need for the opt-in requirement. This amendment ensures that the opt-in requirement is linked in legislation to the class order relief for licensees and representatives.

Further, under this proposal, the government will introduce legislation into parliament by 1 July 2013 that will enshrine the term 'financial planner' or 'financial adviser' in law. I am grateful to the members for New England and Lyne in developing these propositions. The government will conduct consultation with organisations, such as the Financial Planners Association and Choice, to ensure that these measures are implemented in the most effective way possible.

Returning to the measures in the bill, the second measure enhances the capacity of ASIC to supervise the financial services industry and boosts its ability to protect investors by restricting or removing unscrupulous operators from the industry. The changes will implement the PJC recommendations in this area and will strengthen ASIC's administrative powers, as they apply to licensees and representatives, to strengthen the gatekeeping function of the licensing regime and extend ASIC's powers to remove unsatisfactory persons from the industry.

Third, the bills impose a statutory best interest duty on financial advisers. This will be a legislative requirement to ensure that financial advisers are focused on what is best for their clients. While this will ultimately lead to better advice in many cases, it is about regulating conflicts. It is not about regulating for the best investment return. As I have said previously in the House, the best interest duty does not require that advisers give the best advice. It does not require perfection in statements of advice by applying the benefit of hindsight. The duty strikes a balance between certainty and flexibility for the financial adviser. The duty requires the provider of the advice to take steps that would be reasonably regarded as being in the best interests of the client given the client's relevant circumstances. For most advisers, this is business as usual. For some advisers, who perhaps have not always put their clients' interests first or are otherwise driven by conflicts, the duty will require them to adapt their practices. The government makes no apology for legislating to change behaviour in any industry to ensure Australian consumers are better off and can retire more comfortably.

Finally, the bill implements a key aspect of the government's response to the Ripoll report—a ban on the receipt of conflicted remuneration by financial advisers including product commissions. It is so important that ordinary mums and dads can engage a financial adviser without having to worry about whether the adviser is a professional or really just a product salesman. These measures ensure that advisers are working for the consumer, not the product provider. In short, advisers will not be able to receive remuneration from product issuers or anyone else which could reasonably be expected to influence financial advice provided to a retail client. On previous occasions I have congratulated many in the industry that have already moved away from product commissions towards a fee-for-service model. These industry leaders will be well-placed to embrace the new opportunities that the reforms present.

The government recognises the significance of these reforms for the financial services industry. I have already announced—to reassure the member for Cowper—smoother application arrangements to assist people to transition into the post-FoFA world.

Honourable members interjecting —

Mr SHORTEN: We remain optimistic. Under these arrangements, application of the reforms will not be mandatory until 1 July 2013. The government will introduce amendments to give effect to this in the winter sittings.

This brings me to some of the specific issues raised by members. There has been a lot of comment about the fact that opt-in was never recommended by the original Ripoll inquiry. That is true, but it was recommended by another inquiry; and that is the Cooper review of superannuation. It was recommendation 1.12 on page 26 of the final report of the Cooper review. It said:

Members of MySuper products should only be provided with advice about superannuation (other than intra-fund advice) under arrangements that require the member to renew the advice service each year on a renewal notice from the adviser.

There has also been a lot of comment that these reforms will cost jobs. These claims about job losses have not been substantiated and have been rebutted and dismissed as 'silly' by senior officials of our national Department of Treasury. I believe the greatest threat to financial services jobs is the coalition, which voted against the increase in superannuation. Our government is lifting superannuation from nine to 12 per cent and adding hundreds of billions of dollars to the pool of funds to be managed by the wealth management industry. With more money to manage, this will create more jobs for people to manage the money. This is good for jobs in financial advice, life insurance, funds management and fund administration. The government is also opening up new markets for financial advice by making it easier to provide limited or scaled advice. This will make it easier for the industry to provide advice to the 60 to 80 per cent of Australians who currently do not take financial advice.

There has certainly been a lot of strong leadership by the government, the industry and consumer movement to get to this point today. Firstly, I would like to acknowledge the hard work and determination of my ministerial predecessors. I would also like to acknowledge the leadership displayed by the Financial Planning Association of Australia and its CEO, Mr Mark Rantall. Whilst he has never supported opt-in, he recognises that this latest proposition will ultimately improve the professionalism of the industry. I also acknowledge the work of Choice and Jenni Mack. I acknowledge the work of the Industry Super Network, with Ms Robbie Campo and Mr David Whiteley. I indeed appreciate the contributions from the large retail and financial institutions who provided me with constant advice and allowed us, in our latest set of amendments, to update to reflect the pragmatic knowledge of industry.

In conclusion, advice—that is, any advice, whether from an engineer, a solicitor or a doctor—can be good advice only if you have trust and confidence in it. If people do not have trust or confidence that it is quality advice and cannot trust that the advice is in their interests, it will always be difficult to convince them that they need financial advice, which I believe Australians do. It will certainly be very hard to convince people that they should pay for advice if there is a cloud over the merits or the motivations of the advice that you are receiving from a financial planner. I know many financial planners—they are dedicated and hardworking. Many financial planners have already arrived at the point that this legislation is taking us too. I also believe, however, that ordinary Australians should be able to expect that a licensed financial planner will be able to provide them with the advice of a certain quality and, most importantly, that they can trust the adviser is working in their interests.

The need for people to get the help they need to manage their financial affairs and to ensure that they have adequate requirement savings is simply too important, particularly in the context of an ageing population concerned about making sure they have an adequate income in retirement. It is for this reason: if we are going to create a compulsory stream of wealth in Australia and compulsory savings of superannuation, we must ensure that the financial transactions in the back office are provided in the most efficient way and the best interests of consumers. These reforms will enhance the quality of and access to professional and impartial financial planning advice.

The DEPUTY SPEAKER ( Mr Windsor ): The immediate question is that the amendment be agreed to.

Ordered that this bill be reported to the House with an unresolved question.