Bernie Ripoll (Oxley, Australian Labor Party, Shadow Minister Assisting the Leader for Small Business) Share this | Hansard source

I always appreciate the opportunity to speak about the Future of Financial Advice more broadly, and I particularly appreciate the opportunity to speak on this particular amendment, the so-called Corporations Amendment (Streamlining of the Future of Financial Advice) Bill of 2014. What this bill will, unfortunately, do is significantly weaken the Future of Financial Advice reforms, which were put in place by the former Labor government. They were significant and important reforms that dealt directly with restoring a culture of faith and trust in the financial services sector, consumer confidence and consumer protection. They were a very important stepping stone and building block for what can be for Australia part of a financial services hub in the Asia-Pacific and part of a very important and growing services based industry and jobs creator in the country.

But, unfortunately, this bill is just another example of how unfair and out of touch this Liberal government is. It is the Liberal government that has created uncertainty, unfairness and fear, for both consumers and the financial services sector, and for small businesses that operate within it. This bill destroys a range of consumer protection measures in financial advice and is very much retrograde.

There has been a long process around the introduction of this bill, not because of careful consideration or consultation or stakeholder involvement but just because it has been shambolic. The government have lost or sidelined ministers in relation to this bill. They have not been able to manage themselves or manage the process of changes to FoFA. They have struggled with maintaining a consistent position. They have struggled for a comprehensible and even understandable position in the Senate. They have cut deals left, right and centre just to get something through the Senate and are now bringing this complex and already out-of-date bill into this House.

The fact that fewer than 10 members opposite want to actually speak on this bill shows the level of concern in the community around what the government is doing. It also shows the concern of the rest of the coalition—apart from the 10 who plan to speak—about being associated with these changes. I can assure the parliament and people listening that there is a great deal of community concern, for very good reason, about weakening consumer protection in this area. Very unfortunately—and very much lagging behind the FoFA reforms that Labor put in—we continue to see the exposure of bad behaviour. So, before we examine the specific changes in this bill, I think it is important to go through and remind the House of what is actually being changed by this amendment.

Labor's FOFA reforms were introduced in the wake of significant collapses. To name a few—let's say for argument's sake the straw that broke the camel's back—there were the collapses of Storm Financial and others. Storm alone was 14½ thousand clients who either lost all of their life savings with no opportunity to regain those life savings or lost most of their life savings and superannuation. There were many others in the subsequent parliamentary inquiry into financial advice products and services that ensued and the really good bipartisan report, which led to the opening. That was the first step in saying there is a real problem out there in the community. It has certainly been identified by Labor, the Liberal National party, people in the House and Senate, and the community. It was incumbent on the government of the day—a Labor government—to do something about this, and we did.

Labor's FOFA reforms were introduced and were the most significant reforms in financial services for a generation. They included several measures designed specifically to protect investors and consumers, help the industry professionals and help the industry lift a standard which they themselves desperately want, need and should have the opportunity to do. Even though there will be some resistance and change is always difficult—I understand change is difficult—Labor went through a thorough, inclusive process with the community and with stakeholders. Over a five-year period it delayed a hard start to some of the more significant and technically difficult or challenging parts of future of financial advice reforms and allowed for a soft start for 12 months. I think we demonstrated in government our willingness to work with the sector to understand what the sector needed, wanted and deserved. We worked very hard and made many compromises but made sure that the key elements—the core of what FOFA was about—were protected.

It revolved very much around a client's best interests. One of the important elements around that was the opt-in provision. The term may have been demonised by some, particularly in the Liberal Party, who took the opportunity to take the voices of a minor few and demonise what opt-in means, but for any ordinary person opt-in requires an adviser to get your permission for them to continue to take money out of your account for advice they are providing into the future. That is a normal part of life and an expectation we all have as consumers. If somebody is going to take money out of my account, I would like at least the option every once in a while to be reminded of it and agree—opt in—that I want to continue that relationship with my adviser because they are actually communicating with me in some particular way. Once every two years is not a big ask for somebody to opt back in and say, 'I really like what you're doing for me and I think that, yes, you can continue to take money out of my account.'

What is not fair and what consumers do not want is somebody to take money out of their account for a service they are not providing. None of us want that. If the Liberal Party want that then they are living in a very parallel universe. Annual disclosure was the subject of FSR reforms and a whole range of other things that have gone through this House in the past, and disclosure is absolutely important and essential, but let's not misunderstand or misrepresent disclosure, because it is not the solution to quality advice. Often what has happened in the most recent past is that disclosure has become a problem in itself. You can disclose so much and provide documents that are so lengthy that what happens in practice is no-one reads them. As we know from the sector and from everyone involved, it is a trust relationship. You trust your adviser. If your adviser says all these complex things and then tells you what you ought to do in the end, what most people do is say, 'Okay; if you say so.' Then they sign the 80-page documents and go through the rest of it. No-one reads it. It is unfortunate, but that is life. So proper annual disclosure of what you get for what you pay for and what it actually contains is an important part of that and really in the end is no more burden on small business or the financial services sector than what they already do—the disclosure they already provide. It is about continuing the importance of that relationship between a client and adviser.

At the top of that pile—best interests, obligations and a range of things—was the conflict of remuneration. There is no question that commission based selling of products—not advice—played an enormous role in the destructive, poor behaviour of some in the financial services sector, which led to a whole range of collapses and losses. There were catastrophic impacts on people's life savings. You have to remember what we are talking about here. I know there will be some Liberals who will want to shout at me and accuse all sorts of things, but you have to remember who we are talking about. We are talking about mostly ordinary Australians—mums and dads—who have worked their whole lives, saved judiciously and come to a point of retirement. When they are most vulnerable, to have a catastrophic event in your life which means you lose your life savings means you cannot rebuild. That is something this parliament always ought to be concerned about and always ought to be doing something about to protect those innocent people. If we do not do it, there is nobody else.

They end up on a big heap of people who come to our offices—and I am sure ministers on the other side now and when they were in opposition have sat in many meetings with real people crying real tears of devastation for their family because they have lost their life savings not because they made a mistake, not because they were greedy, not because they wanted more than they were entitled to but simply because someone took advantage of them. Somebody sold them a product or products which they should not have been in and placed them in a financial position so devastating that they cannot rebuild. They cannot be compensated. There is nothing that is left for us as parliamentarians to do to help them other than to have a modest safety net called the aged pension system. While I think that is a great system and one of the best in the world, it is not a solution to these problems. But FOFA is. It is not 'the' solution; I do not know that you can ever completely carve out all bad behaviour, but I think you can go a long way to doing it. I think there is lots of evidence. In fact, there are insurmountable mountains of evidence that demonstrate what the course of action should be, how it should apply and what in the end will be of great benefit to the financial services sector itself, to small business and to the way that we receive quality advice rather than being flogged a product. I think all of these things are really at the core.

I am happy to listen to criticisms from the other side and all sorts of accusations, shouting and the usual stuff that is designed to deflect away from the real, central point of what this is all about: that ordinary Australian couple and their most vulnerable years at retirement, when they are at their riskiest point in life, let alone if they are in their 40s or 50s.

During the reform process, over many years, there was extensive and very intensive industry and public consultation clearly identifying a path to achieve growth, protect consumers and restore trust. To some extent that was already achieved by FoFA. Changing the culture over the past 20 years is not easy, but you can work toward that. I understand changing culture and behaviour is really difficult. It is almost impossible to write it down in a way that makes sense, but certainly FoFA did a lot to go down that path of lifting standards and professionalising.

I know something really clearly: there has been a change in the financial services sector. The average age of financial advisers is coming down; their qualifications are going up; and their ethical and moral outlooks toward relationships with their clients are improving, and continue to do so. In large part, the financial services sector is filled with really good, honest, hard-working people who actually deliver appropriate quality advice. I would say that they still deliver that advice for too high a price, but we are working on pricing and cost issues, acting in the client's best interests and a range of things. And I think that is getting much, much better.

I raise the cost and pricing issue because we all understand, and the financial services sector understands, that only 23 per cent of Australians actually pay for financial advice. In a utopian world I would like that to be 50 per cent. That would significantly grow employment and provide much needed professional good-quality advice for consumers, for older people and for everyone who should be getting it. In fact, rather than the average age being 50-plus before people engage with their super, their financial circumstances and independence in retirement, it would be great if people started when they are 20 or when they started work, and realised that the little steps that they take early on can make an enormous difference.

Labor very firmly believes that the overwhelming majority of financial advisers are responsible and that they do the right thing by their clients. Unfortunately, as you might expect in this industry where there are billions of dollars of fees available to be gouged out of people's accounts, and quick and easy money to be made, there are going to be a few bad apples, and they are the ones that we need to target. We need to have really strong, effective regulation and consumer protection to ensure that their clients do not bear the burden. That is what this parliament does not have the guts to do. That is what we need to do in here. We need to be courageous and to make sure that we pull those people in, and not fear the financial services sector. We should not fear the outcomes of this, because it is about protecting consumers and their best interests.

The government's changes that have already gone through the Senate—in a shambolic process and with a fear about actually bringing it to the House and having a public debate—are removing the essential catch-all and best-interest provisions, which adds loopholes for some advisers. Believe me, the first thing that those who want to do the wrong thing will do is look for the out. In anything that is regulated, some will look for the out. They will think: 'Where are the loopholes? Where are the holes? How can we get around this?'

It is always hard for any government—whether it us or the Liberals in government—because there will always be those who will try to deliberately navigate their way around good policy, good laws and good regulation, and we have to be very careful. But scrapping the opt-in provision will allow advisers to continue to charge fees—that is the reality—sometimes without having done anything and without having actively worked on a client's file, in some cases for many, many years. Some will not even know they are drawing fees—it is so automated. Fees are moving between accounts and unfortunately the poor old consumers bear the cost but receive nothing in exchange for enduring that cost.

The annual disclosure provision will be amended so that advisers only have to provide annual disclosures to clients who commenced after 1 July last year—the start date of FoFA. What about all the others? If it is fair for one group, why is it not fair for another? This is an arbitrary start date, where we will only give this stuff that we all acknowledge is really important to people who start a new contract from this point on. Then, of course, the real gaming of this is that nobody will ever start a new contract because the way that you get around it is to make sure that the contract is always ongoing and linked to previous advice. In effect, unless you are a 20-year-old seeking advice for the very first time in your life—which is highly unlikely—you are not caught by this at all.

Lifting the ban on conflicted remuneration has got to be completely nonsensical. The ban on conflicted remuneration will only apply to commissions on general advice. Other forms of conflicted remuneration will be allowed and included as part of a balanced scorecard approach for both general and personal advice. It reintroduces banned commissions on both the general and personal. Again, you can see that the door has been not just opened a little bit but smashed open. This will be the new business model. This will be the new operation for those in the sector who wish to do the wrong thing, or those who look at how they can make more money out of people's accounts.

All the government's language in terms of the FoFA changes is about certainty for the sector. That is all the government has been talking about. I have barely ever heard them mention the consumer. I have barely ever heard them acknowledging the fact that there is a lot of difficult and complex work that needs to be done in this area. The changes that are before us are not about some sort of minor or technical reforms as have often been referred to. They are a complete unwinding of FoFA. It will be FoFA in name only. When you strip away the core of all the elements you do not have anything left. The government—the Liberals—always talk about supporting the principles of FoFA but they do not accept any of the hard work that goes with those reforms.

The lowering of standards and the delay towards professionalising is just a massive step backwards for the entire sector, particularly for consumers. It is a net-net loss for consumers because unfortunately we will see—I hope not—more issues being exposed and perhaps new bad behaviour that we have not yet seen. And that is sad. But that bad behaviour will be as a result of these changes, because these changes will allow that to happen. I am almost certain there would be at least someone out there already contemplating how they might be able to make best use of the new government's changes.

The best-interest duty was, and should remain, a key element of the original FoFA reforms aimed at improving the quality of the financial advice. It provided that an adviser must act in the best interests of their clients. It is hard to imagine that the law did not provide this; that an adviser could act in their own best interests ahead of their client's best interests. So, as the client, you would pay them but they were entitled, quite legitimately under law, to not act in your best interests—and not even tell you—and act in their own best interests. We did not think that was suitable. We did not think that was appropriate. I do not think anyone would. So, we made those changes. Unfortunately, with the way the changes have now been brought forward, some of that will come back in. That is unfortunate and sad.

During evidence given to the Senate inquiry to this bill, Mr Paul Drum of CPA Australia said the best interests duty is the cornerstone of the FoFA reforms, with the ability to drive a cultural change within the financial services industry.

The government through this bill is seeking to remove paragraph (g) in section 961B(2) of the safe harbour provisions—provisions that were put in place to actually provide a safe place for advisers more than consumers—known as the catch-all of the best interests duty as well as section 961E; gone. This government has decided none of that is necessary: just do whatever you like.

There have also been significant community concerns about the removal of the catch-all provision, particularly from the Council on the Ageing who said:

If this last step were to be removed the other six steps become a 'tick a box' checklist and weaken the requirement for advisors to reflect in an overall sense on the advice they are giving and whether it would as a whole be considered in the client's best interest. The inclusion of paragraph (g) provides an extra degree of security for consumers that the advisor is acting for them.

Anyone who carefully reads the FoFA laws as they stood would understand this is exactly what those provisions did and to unwind them in some clever little deal that the Liberal government has worked out, I think, is just an absolute shame.

The best interest duty is driving cultural change without a doubt in the industry, and the removal of 961B(g) and 961E will reduce compliance perhaps—albeit, I am not sure exactly how, because I have looked very closely at this and how that whole process works. What it does do with absolute certainty is reduce best interest duty to a mere tick a box. You turn up with a sheet of paper. You tick the box. You sign it, and it is done, regardless of what actually took place. That again is the tragedy. This is nothing to do with removing red tape or some regulatory burden; it is to do more with the government just doing the bidding of some sectional interest within the financial services, and that is sad.

The key objective of the original FoFA reforms was to facilitate access for retail clients to financial product advice, including scaled advice—I think that is important. I think we ought to have the ability to scale advice up: start small and, as your circumstances in life change and move upwards—that is, personal advice as limited in scope—but that should not be a mechanism for abuse or to introduce some sort of sinister system where that becomes the method by which all advice is provided or to get out of doing the right thing. So Labor agrees with the potential of scaled advice to increase quality and reduce costs—no doubt about that—but what the bill does in its changes is allow the provision of advice that does not fully take into account the relevant circumstances of the client and, in the end, is not in the client's best interests. It is not that everyone will do this but, unfortunately, it leaves the door open for this to happen. This cannot be good public policy. This cannot be good for consumers, because there will be some who abuse that system where the door is left open.

An ASIC shadow shopping survey showed that in several instances particular topics were excluded from the scope of the advice to the potential benefit or convenience of the adviser and to the significant detriment of the client—that is the regulator saying that on some really good research they have done. In effect, this means that the relationship between the adviser who, as the professional, should know everything they are doing and talking about and the client who potentially knows nothing in that area can be abused. The adviser can say, 'Well, we'll just do it this way,' minimising their responsibility or their best interest duties. All this bill does is exacerbate that problem. It does not improve it—that is for certain. There is no question about that. If you were to stand on the middle line and say, 'Which way will I fall?, do this bill and the changes contained in it help or hinder? They absolutely hinder—there is no question about that.

Industry Super Australia said:

… this mechanism would be able to be used by a client and adviser to agree that only the products of a particular provider would be considered in the advice.

It is not hard to see how this insidious change would then have the potential to be more about flogging a product—selling you something, making you pay for it—rather than actually providing any good advice.

The banning of conflicted remuneration, as I said earlier, was a very important step in improving consumer protection. With some minor exemptions from general advice and personal advice, it was a significant factor in reforming the culture and public perception—that faith-trust perception—in financial advice. This bill, unfortunately, seeks to lift that ban. It is going to allow conflicted remuneration—it is not called conflicted remuneration for nothing—in prescribed circumstances for general advice and redefines what is to be considered conflicted remuneration for personal advice. So not only does it re-allow it but, where it would have been banned or continued to be banned, you redefine it—basically, you allow it anywhere you like, because you do it through a new mechanism, a new business model. Again, you do not have to be an expert in this area to read through this quite quickly.

If I tendered some evidence and said a whole range of people say a whole range of things, you need only look at this gentlemen in particular: Alan Jones, not noted for his support of the Labor Party in any circumstances right, wrong or otherwise, in March this year simply blurted it out and said it as he saw it:

I am not happy with what is being proposed here by the Abbott government. There are some times when we are dealing with people's money that certain protections are needed.

He goes on to say:

I am no fan of the Labor Party—

big surprise there—

but I think on this issue, their regulation is correct.

I reckon if we can get Alan Jones across the line, there ain't too many left that we should not get across the line on this issue in particular. Just simply looking at it, after five years of extensive work on this, I think we have got it close to right. I would not be so arrogant as to say that we got it right—perhaps the Liberals might want to say that when they get up to speak on these matters—but I think we got pretty close.

These concerns have been echoed time and time again by groups such as the Council on the Ageing, National Seniors, Choice, Industry Super Australia and many, many others. Again, this is not just the Labor Party saying these things. Changing conflicted remuneration will rip billions of dollars away from ordinary investors and straight back into the pockets—to be blunt—of the big banks who, with more vertical integration models and the provision of financial advice, stand to make a lot of money. I do not object to banks making good healthy profits—and I would not even go down the path as to suggest what they might be. That is a good thing. It shows a lot of confidence in our economy, in Australia and that our banking system is sound. But I also think that we should not let them get away with gouging money from ordinary people's accounts or them unfairly or unduly in some particular way profiteering from ordinary people's life savings. Whether it is fees and charges, commissions or other things, it is the responsibility of this parliament to actually provide that proper regulation. I am still keen to hear the yells and screams from the Liberal Party about regulation—'Regulation! It's all bad!' This ludicrous, simplistic, idiotic, nonsensical diatribe that we constantly hear from the Liberals about red tape and regulation. 'Airworthiness certificates? Who needs them? Just more red tape!'

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