Bert Van Manen (Forde, Liberal Party) Share this | Hansard source

I would just like to make some brief comments in relation to the contribution from the member for Charlton. I would like to remind the member for Charlton that his closing comments were, to be kind, completely disingenuous, because these FoFA reforms will do nothing to stop investor losses in the event of another global financial crisis. In fact, if ASIC had actually done its job—it is a bit like the situation that we have recently seen with the CBA and Macquarie Group—we probably would not be discussing the Storm Financial issues.

The other issues around failures were in relation to a failure of product. I think it is worthwhile to enlighten those opposite about the process to get a product on an approved product list of an adviser. An adviser cannot just recommend any product out there in the marketplace. It needs to be researched by a research house. It then goes to the dealer group and to its investment committee for it to consider whether the product goes on the approved product list. Then, once it is on the approved product list, the adviser can recommend it to a client if it is appropriate. But in this whole situation all we have ever done is talk about the advisers. What about talking about the dealer groups or the research houses and the failure of their processes to pick up these products in the first place?

It is also instructive to note that, in the Cooper review, there were some 17 recommendations around trustee governance issues, of which the industry super funds are the primary culprits. Yet, those opposite, when they were in government, sought to do nothing in relation to fixing up trustee governance in the industry super funds. I wonder why that is, member for Charlton. You have not spoken on that, and the protection of the interests of members of industry super funds. Have a look at some of the stuff that they are doing to their clients in rolling over super funds without any consideration of their insurance requirements and other needs of those industry super fund members. So, member for Charlton, do not be too proud of what the former government did not do.

In reality, some of these changes with respect to FoFA, aided and abetted by those of the industry super funds, are purely a rent-seeking exercise. It is, at the end of the day, a battle between the industry super funds and the banks to gain control of a portion of the compulsory acquisition from Australian salaries of the SG charge. In particular, the union-managed industry super funds have lobbied hard and sought to dirty up advisers at every opportunity. They have sought to achieve a crackdown on avenues of financial advice outside the superannuation system. It is important to remember that the financial advice industry is not just about superannuation; it is about investments, wealth creation, debt reduction, life insurance and income protection. There is a whole suite of issues that professional financial advisers provide advice to clients on.

I am proud to stand up here and support the changes to the Corporations Amendment (Streamlining of Future of Financial Advice) Bill 2014 that the government has sought to introduce to reduce the red-tape and regulatory burden on that industry and, by extension, to start to reduce some of the costs to clients who require that advice. The government's improvements are designed to deliver more affordable access to high-quality financial advice.

Those opposite have succeeded in spreading a wonderful misinformation campaign about the government's improvements to FoFA—thanks to the encouragement, as I said before, of the union-dominated industry super funds, who have been coordinating that very campaign. I want to reiterate—and this is critically important—that the government's FoFA improvements do not water down consumer protections, despite what those opposite continue to say. Consistent with our commitments before the last election, the statutory requirement for financial advisers to act in the best interests of their clients remains in place, as does the ban on conflicted remuneration, including in relation to general advice which would conflict that advice to drive product sales.

We took these changes to the last election. As we promised to do before the last election—in effect, we first announced this policy position back in March 2012—we have removed the requirement for an investor to keep re-signing contracts with their advisers on a regular basis. We have simplified and streamlined the additional annual fee disclosure requirements. We have sought to improve the operation of the best-interest duty and provide certainty around the provision and availability of scaled advice.

I think that the availability of scaled advice is a key issue, because there are people who go to advisers who want advice on a particular aspect of their circumstances. I know from talking to my local advisers that some 10 per cent of the people that come to see them will not proceed with advice because of the cost—somewhere, currently, between $2,500 and $4,000 for a full financial plan. So the availability of scaled advice is going to make it much cheaper for those people to go and see a professional adviser at a cost that is commensurate with what they can afford.

These measures are expected to reduce costs across the financial advice industry of approximately $190 million a year. That will flow through to savings benefits for clients, as I said earlier. We have also dealt with a number of mistakes and unintended consequences which were the result of sloppy drafting by the previous government. Now, to all of us in this place that is no surprise. Fixing Labor's grandfathering arrangements, which had an effect in lessening competition by effectively forcing planners to stay with the existing licensees, is but one example of where we have had to make changes.

We do not resile from the fact that we need a robust and efficient regulatory system. But it must be competitively neutral so that people saving for their retirement, whether through an independent financial planner, through a financial planner with a major bank or through an industry super fund, have consistency of regulation and access to advice. We can manage those financial risks somewhat through life by receiving affordable, high-quality advice. But we need to remember—and I think this is critically important—that this is about the quality of the advice. But neither the adviser nor the dealer group can control the returns or the activities of the share market and global markets. There will always be risk in any advice that is given—product advice particularly.

Another important part of this is the strategic advice. We need to look at those two issues separately. We need quality, strategic advice to underpin any product advice that is then provided to a client. There is no way, through any legislation in this House or in any other place, that we can guarantee returns to clients and guarantee that there will never be any failures in the event of another global financial crisis. Those opposite, who claim that that could possibly be the case, are misleading Australian consumers.

To return to the substance of the bill: specifically, the government has agreed to make further improvements to our financial advice laws. We have made it very clear that the adviser is required to act in the best interests of their clients and to prioritise their clients' interests ahead of their own, consistent with the requirements in the Corporations Act under subsections 961B and 961J. Many good professional advisers have been doing that in their practices for many years. Many of these people have been in the industry for 20, 30 or 40 years.

The changes also clearly state that any fees are to be disclosed and that the adviser will provide a fee disclosure statement annually if the client enters into or has entered into an ongoing fee arrangement after 1 July 2013. We will also ensure that a client has the right to return financial products under a 14-day cooling off period in accordance with the requirements currently provided under division 5 of part 7.9 of the Corporations Act. Also, the client has the right to change his or her instructions to their adviser if, for example, they experience a change in their circumstances. Any instructions to alter or review it must be in writing signed by the client and acknowledged by the adviser. There will be a requirement in these regulations that on the statement of advice the financial adviser provides an explicit statement that he or she genuinely believes that the advice provided to the client is in the client's best interest, given the client's relevant circumstances. There will also a specific requirement enshrined in these regulations that the statement of advice is to be signed by both the adviser and the client. In my experience, most reputable financial advisers have been doing that for a long time. These changes will be implemented through regulation and as required in the amendments to actual legislation currently before the parliament.

This government has been working in consultation with relevant stakeholders throughout the industry to establish and enhance a public register of financial advisers, including employee advisers, which includes a record of each adviser's credentials and status in the industry.

In closing, I think it is worthwhile just to go through some of the claims being made by those opposite and to clarify those—to clear up the fact that what they are actually enunciating is incorrect. They make the claim, supported by the industry super funds, that this allows conflicted remuneration to be earned by staff giving general financial advice. This claim is wrong. Our improvements to FoFA do not bring back commissions or any other conflicted remuneration from product sales based on general advice. The exact opposite is in fact the case. Our regulations explicitly prohibit payment made solely for financial product of a class in relation to which general advice was given and which has been issued or sold to the client, and any recurring payment made because the person has been given general advice.

They also make the claim that commissions on execution services will be allowed. This claim is also wrong. Execution-only provisions do not reintroduce commissions. Anti-avoidance provisions work to prevent collusion between advisers trying to gain the provisions to obtain conflicted remunerations. They make the further claim that it will allow the banks to pay commissions on all basic banking products. Again, this claim is plain wrong. Basic banking products are already exempt under the FoFA laws introduced by the former Labor government. The government's amendments will simply include consumer credit insurance products, given that these products are also regarded as basic banking products.

They make the claim that it will allow banks to pay commission based bonuses to their planners by balanced scorecards. This claim is also wrong. The balance scorecard arrangements were envisaged under the FOFA laws introduced by the former Labor government, as per their second reading speech and explanatory memorandum. This government's proposed regulations simply provide clarity that these payments can be made. And, importantly, they make the claim about extending grandfathering so that commissions can be traded. The government's amendments make improvements to the FOFA grandfathering provisions to address unintended consequences and to facilitate competition in the financial advice industry. The former government had previously acknowledged several times that this needed to be done.

As I said at the outset, these changes to FOFA will make financial advice easier and simpler for advisers to provide to clients. They will clarify inconsistencies created by the former government in its desire to do the bidding of the industry super funds, and they will allow the professional financial planners in the industry to get on and do what they do best—that is, provide professional advice to Australian consumers.

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