Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document
 Download Current HansardDownload Current Hansard    View Or Save XMLView/Save XML

Previous Fragment    Next Fragment
Wednesday, 21 March 2012
Page: 3878

Mrs GRIGGS (Solomon) (12:05): 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. These bills seek to introduce a framework for financial advisers to ensure they provide Australians with accessible and affordable financial services and advice. The purpose of these bills is to require those persons who are providing personal financial advice to retail clients to act in the best interests of their clients and to give priority to their clients' interests.

In addition, the bill applies existing regulatory mechanisms under the Corporations Act in a more direct manner to individual advisers as well as to licensees. Furthermore, the bill seeks to amend the Corporations Act to enact a ban on the payment and receipt of certain remuneration by those persons providing financial advice, where a potential to influence that advice exists resulting from certain financial products.

There are two bills making amendments to the Corporations Act to implement the FoFA reforms announced by the government in 2010. The first is the Corporations Amendment (FoFA) Bill 2011, which was introduced into the parliament in October 2011. Back 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 following a number of high-profile corporate collapses, such as Storm Financial, Trio and Opes Prime.

The first bill seeks to improve the disclosure requirements in respect of fees and services connected with the provision of ongoing financial advice. Additionally the bill seeks to strengthen the powers of ASIC pertaining to financial advisers. Furthermore, this bill seeks to put in place a new obligation on financial advisers, which is that they are to act in the best interests of their retail clients and to put a future ban on conflicted remuneration structures.

The Parliamentary Joint Committee on Corporations and Financial Services reported on these bills on 29 February 2012. In a dissenting report, coalition members of the committee discovered that Labor's FoFA proposals will unnecessarily increase red tape and the cost of financial advice and will reduce consumer choice and competition if passed in their current form. Coalition members of the parliamentary joint committee concluded that the FoFA bill in its current form is unnecessarily complex and unclear.

The financial and advice industry is the provider of valued products in terms of a service which helps Australians to manage their financial health and wellbeing. Financial advisers assist by helping Australians through the mire of financial risk and seek to maximise financial opportunities. In reality, they deal with other people's money, which is why any changes in the financial and advice industry must be supported by an appropriately robust regulatory framework. However, we the parliament must be mindful of the need for change—change to improve the existing landscape, not change which makes industry more complex and costly for all involved. The financial advice industry is in the Northern Territory no less than anywhere else in this wide brown land. More and more, the average Territorian is required to seek out the services of this sector, which are necessary to manage and obtain the very best long-term advantage for the management of their own futures. Home loans, insurance and super are all basic commodities in this day and age, which most of us just assume are provided with our best interests at heart. I am by no means full bottle on the products I use. I rely upon services of the financial services sector to steer me in the right direction and keep me on the correct path. I have a background in business and am familiar with financial systems. Sadly, I have learnt the hard way about conflicted remuneration structures. If, with some level of business acumen, I have difficulty, then how is the average person expected to understand without the assistance of exponents within the financial services industry?

The review undertaken by the Parliamentary Joint Committee on Corporations and Financial Services, the Ripoll inquiry, made a raft of well-considered and reasonable reform recommendations, providing a blueprint for the government to move forward. However, over the ensuing two years the value of these recommendations has been usurped and clear direction has been lost. As a result, we find the bills currently being debated today a piecemeal offering and, unless amended, untenable legislation which would seek to increase costs and red tape for both business and the consumer.

It is disappointing that such delays have occurred, particularly for an industry that has such an important function to perform within our society. This legislation has the potential to reduce consumer choice and competition if approved in its current form. The coalition cannot support the FoFA bills in their current form. Therefore the coalition will be moving a series of amendments with the express purpose of addressing some of the current flaws. Our initiatives include a recommendation that the parliament be resolute on the preparation of a proper regulatory impact statement that complies with the government's own best practice regulation requirements. The RIS must be compliant with the government's Office of Best Practice Regulation and be tabled in the parliament before the legislation could be further considered.

The coalition would also recommend removing the government's opt-in proposal. This addition is outside the recommendations of the Ripoll inquiry and proposes to impose a mandatory requirement for all consumers to re-sign contracts with their financial advisers on a regular basis—a measure that will have the likely result of significantly increasing red tape and costs for both planners and consumers.

The coalition is also recommending an amendment to the current draft of the bill relating to the best interest duty, to improve clarity and certainty about its application. Further, inclusion of this measure in the Corporations Act is supported, but this must occur following the correct drafting necessary to remove any confusion and ensure understanding.

Proposed section 961B(2) of the Corporations Amendment (Further Future of Financial Advice Measures) Bill 2011 defines a set of comprehensive steps designed to provide guidance to advisers, yet its subclause (2)(g) allows for any other steps that would reasonably be regarded as being in the best interests of the client. We believe that, if other steps exist, then they should be included in the legislation, not left as a point of confusion or misinterpretation. Without change, this amendment creates uncertainty—uncertainty that will result in test cases before the courts. The coalition also recommends the removal of the retrospective fee disclosure statements. There was no reference to this in the Ripoll inquiry that recommends the introduction of an additional annual fee over and above the current regular statements already provided by the financial service providers to their clients. The coalition concludes that in this instance retrospective fee disclosure adds no additional consumer protection benefit and will introduce further increased costs, ultimately costs that will be passed onto the consumer.

It is estimated by the Financial Services Council that the implementation cost will be around $700 million; the council has suggested that the cost per client for fee disclosure would be halved if it involved only new clients and summary information. Inevitably, any costs associated with implementation of any amendments will be passed on to consumers. The current piecemeal approach is yet another example of the very poor consultation process engaged in by this government. What started out in such a positive manner has devolved to a point where, unless further amendments are made, this suite of proposed changes cannot be supported.

In terms of superannuation, the coalition recommends that, until further refinements are made, a ban of commissions on risk insurance inside super should be in place. Coalition committee members support the banning of conflicted remuneration structures—for example, product commissions within the financial services industry— and we praise the industry for taking a proactive stance to abolish such conflicted remuneration structures. However, it is our stance that commissions paid on advised risk insurance, be they group policies or individual policies, inside or outside superannuation, are conflicted remuneration structures. Banning commissions in this instance has the potential to increase costs for consumers, remove choice and leave many people worse off—especially small business people who self-manage their super.

We the coalition further recommend the implementation of FoFA be delayed from its current due date of 1 July 2012 to 1 July 2013. The existing time frame of now four months is manifestly inappropriate and untenable for industry. Projecting the commencement date of any changes to 1 July 2013 or at very least legislating an introductory time frame to give industry the opportunity to implement change over that comparable time frame is paramount. This date also aligns change with the proposed MySuper. It would make sense to implement FoFA and MySuper simultaneously. FoFA involves significant and expensive changes that would result in large changes to IT systems and adviser training. Rushing the implementation and putting pressure on the industry to act will result in mistakes and inefficiency, which longer term will result in extra costs that are ultimately borne by the customer. We therefore commend to the government that to overcome the potential difficulties with adhering to a manifestly inadequate time frame, this bill, once amended, should not commence until 1 July 2013.

Like many of my colleagues, I have received correspondence and calls from constituents who are practitioners within the financial advisory sector over the past few weeks. The calls from each and every one have been the same. This legislation has fundamental support in terms of intent; that is, to improve the level of transparency within this sector and to broaden access to financial services; however, those in the industry that have contacted me do not support this bill in its current form and without critical amendments. I have been reminded, as a result of these contacts, that the Prime Minister is on the record as saying a key priority for the government is to slash red tape. Need I say any more? We know she does not have a good track record with keeping her promises. This bill, however, will see added complexities, paperwork and red tape for the sector, ultimately resulting in increased cost which will be passed on to the consumer.

In conclusion, the coalition agrees to move amendments to the Corporations Amendment (Future of Financial Advice) Bill 2011 and the Corporations Amendment (Further Future of Financial Advice) Bill 2011 consistent with the 16 recommendations made in the dissenting report of the coalition members of the Parliamentary Joint Committee on Corporations and Financial Services. We will oppose the Corporations Amendment (Future of Financial Advice) Bill 2011 and the Corporations Amendment (Further Future of Financial Advice Measures) Bill 2011 if these amendments are not carried.