Monday, 25 June 2012
Corporations Amendment (Future of Financial Advice) Bill 2012; Consideration of Senate Message
That the amendments be agreed to.
The Corporations Amendment (Future of Financial Advice) Bill 2012 contains a number of vital measures to restore trust and confidence in the financial advice sector, including implementing an advisor-charging regime where advisers are required to obtain their clients agreement to charge ongoing fees, annual disclosure of ongoing fees, a statutory duty to act in the best of the client, and a ban on conflicted remuneration and enhancements to ASIC's capacity to supervise the financial services industry and boost its ability to protect investors.
The government recognises the significance of this legislation for the financial services industry. Amendments to the legislation passed by the Senate will provide more flexible application arrangements for the future of financial advice reforms. Under these amendments, mandatory application of the reforms will occur from 1 July 2013, but entities will have the ability to voluntarily elect to comply from 1 July 2012. The amendments replace the previous application arrangements whereby the reforms were mandatory from 1 July 2012. The amendments go further than those of the opposition and provide more flexibility by giving early industry movers the opportunity to opt in to the reforms.
Amendments (1) to (7) make changes that will ensure the requirements relating to ongoing fee arrangements and fee disclosure statements apply from the date specified in a notice lodged by the financial services licensee with the Australian Securities and Investments Commission. If the licensee does not lodge a notice the requirements will apply from 1 July 2013. Amendment (8) implements the transition arrangements for those who elect to comply with the reforms from a date during the transition period, being 1 July 2012, until 30 June 2013. Amendment (8) sets out the requirement to lodge notice of this election with the Australian Securities and Investments Commission and when notice of this election must be provided to certain clients.
In terms of the amendments to the Corporations Amendment (Further Future of Financial Advice Measures), which I will move shortly, amendment (1) sets out when a notice must be provided to clients impacted by the licensee's election to comply with the reforms from a date during the transition period. Amendments (2) to (10) make changes that will ensure the requirements relating to the best-interest obligations and the ban on conflicted remuneration. Volume based shelf-space fees and asset based fees on borrowed amounts apply from the date specified in the notice lodged by the financial services licensee with the Australian Securities and Investments Commission. If the licensee does not lodge a notice, the requirements will apply from 1 July 2013.
In essence, the government has listened to the concerns from the business and financial planning committee that they need more time to prepare for these changes. The government introduced amendments in the Senate to revise the application arrangements for the reforms. The reforms will still commence from 1 July 2012 but compliance will be voluntary until 1 July 2013, when they will become enforceable against all industry participants. The more flexible timetable balances the needs of industry and consumers, as it gives early industry movers the opportunity to provide commission-free products from 1 July 2012. The amendments will, however, allow licensees to opt in to the reforms early if they are ready to do so before 1 July 2013. The revised implementation arrangements will lower industry implementation costs as they will allow the FoFA and Stronger Super reforms to be synchronised. I commend the amendments to the House.
The coalition's position has not changed since it previously considered this package of legislation. We are disappointed that our series of detailed amendments last time have not been adopted by the government.
Our amendments, firstly, sought to delay the implementation of the legislation until 1 July 2013. We thought we nearly had the government's agreement on our proposal for that. Instead they have gone down their own path in the Senate. Secondly, we sought to remove opt-in arrangements. Thirdly, we sought to make annual fee disclosures prospective rather than retrospective. Fourthly, we wanted to ensure that anti-avoidance provisions only applied prospectively. Fifthly, we wanted to ensure that commissions are not paid on life risk insurance inside MySuper products or within superannuation if the cover is automatic. Sixthly, we sought to ensure that superannuation funds retain the ability to offer intrafund advice.
Seventh, we wanted to provide a clear definition of a 'funds manager' to ensure that fees are not caught in the ban on volume based shelf-space fees and to permit rebates from fund managers to product providers and retain consumer scale benefits discounts. Eighth, we wanted to allow scaleable advice. Ninth, we wanted to instil a robust best-interest duty recommendation to enhance and improve consumer protections. Tenth, we wanted to provide express exemption on general, over-the-counter advice. Eleventh, we wanted to amend an unintended consequence to ensure that there is a causal link between the payment for and provision of financial advice. Twelfth, we wanted to ensure that a financial advisory business can be sold to employees of the business without the sale proceeds being caught in conflicted remuneration provisions within the legislation. And lastly, my lucky number, 13: we wanted to ensure that counterproductive geographical limits were removed from the legislation. These, you would agree, Madam Deputy Speaker, are all sensible amendments. They are all wise, they are all carefully considered—and they have all been rejected by the government in its wisdom. The coalition are of the opinion that we are unable to support this legislation in its current form, without passage of our substantive amendments.
I note that the government have chosen to move an amendment in the Senate on the start date of this legislation. The government have done this because they did not have the legislation ready when the legislation was before the House in March and despite the fact that the coalition moved an amendment which would have had the same effect as the government's amendment. We put forward amendments in the House of Representatives; the government rejected them here and then made one of those same amendments in the Senate, and they are now saying, 'What a great idea.' I urge the Assistant Treasurer and Minister for Employment and Workplace Relations, Financial Services and Superannuation, who is the minister at the table: pick up the other 12 proposed coalition amendments. It is not too late, Bill. Forget what the Treasurer thinks. He is the same Treasurer who was out there this morning saying that the claim about the denial of water to schoolkids was in fact a great big lie. I would not believe anything that the Treasurer says, especially on this legislation. Do not take his advice on FOFA.
The government's amendment to the start date for the legislation proposes a soft start date of 1 July 2012 with a hard start date of 1 July 2013. We view this as a poor outcome for both consumers and advisers. It will create enormous confusion and uncertainty, like everything else this government do. It is absurd to expect people to be in a position to implement radical changes to their existing business practices, including significant and costly systems changes, in—how many days are there until 1 July?
Mr Shorten interjecting—
There you go! Even if people did want to comply with the FOFA requirements from 1 July 2012, it would be impossible to do so in practice. There are no regulations in place, we have no indication as to when the necessary regulations will be made, ASIC is unlikely to issue guidance notes on many aspects of FOFA until the end of 2012 at the very earliest (Extension of time granted)and the code of conduct required for the government's latest version of opt-in will not be in place until sometime in 2013. How can people be expected to comply with regulations, ASIC guidance notes and a code of conduct which will not be in existence on 1 July 2012 or for some time after that? What is worse, given the retrospective nature of parts of this legislation, compliance becomes even more difficult. Once again the Labor government and the minister at the table have acted far too slowly to implement some very major changes, and they have been caught short.
Mr Shorten interjecting—
No, keep going—keep going. They should simply admit that they have bungled the introduction of FOFA and run out of time to implement the changes by 1 July 2012.
For the next 12 months there will also be a complete lack of certainty for consumers, as there will not be a level playing field for the provision of financial advice. It will be practically impossible for consumers to know which adviser is complying with the old rules and which adviser has already moved to the new requirements. A single start date, with an appropriate lead-in time to implement the necessary changes, would provide certainty for consumers and financial advisers. Sadly, as with so many of the FOFA changes, the government have created more confusion and more uncertainty rather than fixed a problem—that is, not providing an appropriate state date in the first place—of their own making. The best way to remove this uncertainty would have been for the government to support the sensible coalition amendment to provide one clear and unambiguous start date of 1 July 2013, together with the other 12 coalition amendments.
I know that the heart of the Minister for Employment and Workplace Relations, Financial Services and Superannuation is in the right place; the problem is that his head is not in the right place. Sadly, this additional legislation means more red tape for financial advisers and the financial services industry. Like so much of what this government do, this legislation is mired in complexity and mired in the confusion of a government who do not understand the impact of what they are doing, even if it is a thing as simple as handing out water bottles to the 100,000 kids who come to Parliament House each year.
The FOFA reforms are complex, but why can't this government get anything right? It is simple; it is not hard. You need to consult and engage with industry, and, once you have consulted and engaged with industry, you take on board their concerns about the red tape and the complexity and give them fair warning about the change that will occur rather than giving them a soft start date and a hard start date and leaving it to decisions which are going to be made in a handful of days before the new financial year. All of this has a cost. That is what the government just do not understand.
The member for Chisholm has previously been very engaged in the financial services industry. If the member for Chisholm were to speak on this legislation, she would be absolutely appalled at the complexity of it. In fact, I think that the member for Chisholm used to be a member of the Finance Sector Union. I would have thought that the Finance Sector Union would be appalled at the complexity associated with this legislation. The member for Chisholm, if she were able to speak on this legislation, would be truly appalled at the complexity and at the—
I was suggesting that, as any fair-minded person who has had any real-life experience in the financial services industry, or who, as in my case, has been a lawyer to the financial services industry, would know, when you have regulation change—when you have ASIC guidance notes changed and when you change codes of conduct—it just adds to the complexity and cost of financial services. This is an industry that now accounts for over 10 per cent of GDP, and it cannot afford poor regulation.
I am pleased to rise to speak in relation to the amendments made in the Senate to the Corporations Amendment (Future of Financial Advice) Bill 2012 and the Corporations Amendment (Further Future of Financial Advice Measures) Bill 2012. Throughout the consultation process with the financial services sector in the lead-up to this legislation being introduced into the House, it was clear that there was considerable disquiet within the financial services sector about the very substantial degree of work required to be undertaken to comply with the detailed and onerous requirements in this legislative package.
There are two issues which are quite distinct. One issue is the merits of the amendments. It is not really appropriate to be discussing the merits of the substantive legislative scheme which is being enacted here today. But the other and distinct issue which it absolutely is appropriate to discuss—because it emerges very directly from the terms of the amendments which have been moved in the Senate and which the House is now considering—is the practicalities of implementation of the very complex legislative and regulatory scheme set out in the future of financial advice bills. The scope and complexity of the changes to information technology systems which will be required to be made by the financial services sector in respect of accounts held by many millions of Australians in many different kinds of products—in many cases products which have been on foot for 10 or 20 or 30 years and the statements for which are provided using legacy IT systems which will need to be reopened and amended to give effect to this policy scheme—are enormous. That has been the constant theme of those who appeared before the parliamentary committee which was considering this bill, and that has been the constant theme of those in the financial services sector who have been to speak to many people in this place over recent months.
The government presents to us the amendments which have come back from the Senate as offering the solution to this problem. We are told that relief has been granted and it will no longer be necessary for participants in the financial services sector to achieve compliance with this detailed scheme, with effect from 1 July 2012. Instead, strict compliance has been deferred until 1 July 2013. But on even the most cursory analysis the method which has been adopted to achieve this outcome is ludicrously and unnecessarily complex. What is proposed in the amendments which have come back to the House from the Senate is that the obligations under the law will be in place from 1 July 2012 but there will be relief granted from compliance with those obligations until 1 July 2013, unless of course an entity which is subject to those laws lodges a notice between 1 July 2012 and 30 June 2013 indicating that it now regards itself as being subject to compliance with these laws. It is difficult to conceive of a more complex, confusing, opaque method of dealing with a fairly straightforward problem.
Why is this being done? It is being done for one simple reason. It is being done for political reasons. It is being done because the minister at the table wants to be able to say, 'This package of reforms will take effect from 1 July 2012.' That is his sole and only motivation in coming up with this ludicrously complex scheme so that he, on the one hand, can say, 'I have delivered an outcome and this adds to my glittering and already extensive curriculum vitae.'
Regrettably, costs will be incurred by many millions of Australians and by many financial institutions in complying with this unnecessarily complex set of arrangements. There will be deep confusion on the part of Australians who are provided with products by the financial services sector because they will not know, without making detailed further inquiry, what their rights are and what the obligations of the provider are. This is a messy, unsatisfactory compromise and it should be rejected.
In terms of the government amendments to the Corporations Amendment (Future of Financial Advice) Bill 2012 and the comments made by the opposition, I just have a few points to set the record straight. The opposition failed to amend the FOFA bills. The amendments they proposed included to remove the opt-in arrangements entirely. That failed because the opt-in requirement was recommended with respect to superannuation advice provided to MySuper members by the Cooper super system review. It stayed in because it is a good idea. The amendment of the opposition concerning the removal of the disclosure arrangements for existing clients failed because the disclosure arrangements for existing clients are not retrospective. They only apply from the date of commencement.
The proposition that the opposition will vote against delaying the compulsory compliance date until 1 July 2013 is ludicrous because it would deny the industry the opportunity to comply with the laws on a voluntary basis during the transition period, yet they will not support a completion date by 1 July 2013. The opposition proposes removing the requirement that advisers take any step in circumstances that could be reasonably regarded as in the best interests of the clients. Our concern is that the opposition amendment, if it successful, would allow a tick-a-box approach to compliance with the best interest duty rather than a genuine consideration of what is in the best interests of retail customers.
But the opposition has made some further points in their contributions on the amendments proposed by the government—that is, the idea that people are not ready for change. We accept that for some organisations in financial planning it will take up until 1 July 2013. These are complex reforms. But many organisations in the financial planning world are already ready. Many of them advise me that they are FOFA ready. The Financial Planning Association of Australia advises me that they believe that a lot of their members are already ready. Indeed, if that does not satisfy the opposition and allay their concerns, I would draw attention to the fact that there are plenty of commission-free products coming on the market right now in anticipation of our FOFA changes. The opposition also made some references in opposing our amendment by saying that what we were doing was not good for consumers. How do they then explain away Choice supporting what we have done in the future of financial advice reforms? In other words, members of the House, through the Deputy Speaker, a whole lot of people in financial wealth management, in consumer groups and even the Financial Sector Union have supported our FOFA reforms. The final observation I have to add to this debate is that on one hand the opposition say that the changes are being rushed and are complex. Yet on the other hand, if the opposition when they were in government back in 2001 had done what we had done, then arguably some of the problems we have seen arise out of Trio and other financial service areas would not have occurred. To me the question is not, 'Are we taking this too quickly?' to me the question is, 'Why didn't this occur 11 years ago?'
As I have previously touched on in the debate around this bill, one of my biggest concerns with this proposed, massive new amount of regulation for the financial services industry is that, in effect, it is not going to deal with the issue of poor advice to clients. It deals predominantly with issues to do with fee disclosure, risk insurance inside superannuation funds and intrafund advice. It is an enormous amount of regulation that, according to the industry, is going to cost some $700 million to implement for $350 million per annum to comply. In the scope of this legislation of seeking to reduce the cost to consumers, the actual affect is probably that it is going to increase it.
It does not deal with the underlying issue that the Cooper review and other reviews of the financial services industry have touched on, and that is the matter of advice. The industry already has significant amounts of regulation and one of the key components in that regulation is the know-your-client rule. One of my arguments for some time has been the effect of lack of enforcement of existing regulations on planners doing the wrong thing in the industry, which has led to some of the issues we are facing and discussing today. Equally it is also a failure of product. None of this legislation deals with the product providers that have failed to look after the interests of the investors. It is always the advisors, the easy targets, that are subject to this increasing and onerous regulation. Not only is it creating concern for them personally but also it is creating enormous difficulties and problems in their businesses.
As the member for North Sydney has pointed out, the coalition has proposed a number of amendments which have not even been touched on by the government.
Things that add to the complexity are matters such as opt-in, providing a clear definition of what a funds manager is and ensuring that the fees are not caught up in the ban on volume based shelf space, allowing scalable advice, instilling a robust best interest duty recommendation and enhanced improved consumer protections. If you looked at the know-your-client rule, applied that properly across the financial planning industry and actually enforced it, we would not need much of this onerous new regulation.
We acknowledge that it is important to have a sound and robust financial planning industry that is transparent in what advisers charge their clients. They are managing the wealth or future wealth of Australian citizens. Particularly with respect to superannuation, the amount of wealth invested is going to continue to grow significantly over the years to come. Adding complexity, regulation and cost to the system is not going to achieve those outcomes. Far better outcomes could be achieved through improving training—
Madam Deputy Speaker, the unhelpful interjection is along the lines of unhelpful regulation and impost on the financial planning industry. As a member of the coalition, and as I have previously stated in this chamber, I will be voting against this legislation. (Time expired)
I am pleased to rise to speak to this bill because in many respects it symbolises many of the problems that are incumbent with this government. The issue is that the bill and the amendments incorporate an approach to regulation on the financial services sector that is entirely inconsistent with the best interests of Australian consumers. The minister at the table would make out that this is all about providing a better framework, more transparency and better regulation. He has Choice on board, he has the FPA on board and maybe the FSC. The reality is that you cannot escape the fundamental connection between the amount of regulation and the compliance costs associated with that. From that you also cannot escape the fact that increased compliance costs mean increased costs to consumers.
The extraordinary thing about the minister at the table is that this is all about him having a tick-a-box. The tick-a-box the minister is after on this occasion is the chance to stand up before the Australian people and say, 'Look what I delivered. Look what I have done. Aren't I a great visionary when it comes to financial services regulation,' as part of his tick-a-box approach in getting to the highest office in the land. But the reality is that this is not good for consumers and it is not supported by financial planners that I talk to in my electorate, as well as those more broadly when it comes to personal interactions that I have. I bring to the debate a childhood with a father who was a financial planner for 30 years—in fact, one of the best financial planners at AMP, the fifth biggest in the country. That was during an era when there was not this raft of regulation that has existed prior to this point but now is being exacerbated in wholesale terms by this government. There is one fundamental thing that this minister and this government cannot escape, and that is that nothing—no amount of regulation—can deal with the fact that some people make bad choices. No amount of regulation can deal with the fact that there will always, unfortunately, be some bad financial planners, and the reality is that those that make poor choices, like those that are bad financial planners, can never be stopped by regulation. It is analogous to road rules: you can have all the road rules you want, but at the end of the day people make bad choices and people will break the law.
So the question is one of balance: what is the appropriate level of balance in a marketplace so that we can ensure that there is civil order and a framework in place that provides optimum outcomes for consumers, but not so much so that we tip the critical mass of regulation too far. What the legislation before the chamber today does is take it too far, and the net impact of all of this is that Australian consumers will simply not go to financial planners in numbers as large as they have historically because it will simply be too expensive for them. That is my concern as someone who believes in smaller government, believes that the market should reign supreme and believes that consumers ultimately need to take responsibility for how they manage their money. This government has done more to send Australians to the poorhouse and impoverish a number of small business Australians than any government preceding it, as far as I am concerned, with some of its reckless policies.
Mr Shorten interjecting—
Madam Deputy Speaker, on a point of order: I did not want to interrupt, because he has made some points, but he is more lost than Burke and Wills now. Can we get back to relevance?
The rationale of the government's approach to this bill is that it is going to protect Australians from making imprudent financial decisions or being led astray by financial planners. My point is that Australians have needed protection from this government more than from just about anything, so it goes very directly to the rationale, because there have been many Australians who have lost their life savings who have been involved in, for example, roof insulation businesses that have been destroyed by this government. So that absolutely goes to the rationale of this bill.
The reality is that good governance is about getting the balance right. These amendments and the legislation before the House do not get the balance right; they take it too far. Fewer Australians will, in fact, solicit the expert financial advice that they need, and the reality is that a great gulf has widened between those involved in financial planning and those involved in other industries where people often put their life savings, such as real estate.
Given that the House is presently in the consideration in detail phase, this obviously presents an opportunity for the minister to explain to the House the merits of the amendments which were made in the Senate and why it is that he is putting to the House that the House ought to adopt these amendments. I note in passing that it is therefore entirely inappropriate for the minister to be asking the member for Forde or anybody else, 'How are you voting?' It reveals a disturbing lack of understanding of the procedure that we are presently going through, because the procedure we are going through is for the minister to explain the merits of the amendments to the House so that the House can then make an assessment.
But let me turn to the specific question which I raised in my previous contribution and which was sadly overlooked in the magnificent collection of non sequiturs with which the minister entertained the House some time ago. The question that I would like an answer from the minister on is a very specific one. I want to understand the rationale for the legislative strategy which has been adopted in proposing the addition of proposed sections 966, 967 and 968. These proposed sections give effect to the legislative scheme under which there will be the operation of the substantial provisions of both of these bills when they pass into being acts—
On the assumption that they pass into being acts. But the proposed sections which I have just mentioned, together with the effect of the amended proposed section 962D, will have the effect that the provisions are not operative with effect from 1 July 2012; they only become operative with effect from 1 July 2013, unless a relevant party lodges a notice saying, in effect, 'We accept the operation of these provisions.' The question I am seeking to get some clarification about from the minister in this consideration in detail phase is: what is the rationale for this legislative scheme? If it is accepted by the minister, as I understand it is, that there is time involved in financial institutions going through the detailed planning work and the detailed information technology implementation work to be able to comply with these new provisions—the minister earlier said that it may well take some of these organisations up until 30 June 2013—and if it is accepted that time will be required by a number of participants in the marketplace then what is unclear is what benefit is served by the minister's complex two-track approach, with the soft start date from 1 July 2012. What is the substantive benefit which is served, other than the immediate specific benefit to the minister of being able to say to the world, 'Look, my package of reforms has taken effect'?
The assessment this House has to make is to weigh up the costs and benefits associated with the amendments which it is presently considering. And it is clear that the cost includes confusion on the part of citizens, and particularly consumers, who are trying to work out the set of obligations which the financial services institution or adviser with which they are dealing is subject to. There is confusion which will be faced by consumers and there will be extra cost and complexity because of this two-tier approach. But what we do not know is the benefit to the broader Australian community, excepting, as I think we all do in this chamber—I think it is uncontentious—that it has career benefits for the minister. But what are the broader policy benefits? That is really the question which the House should be informed of, and that is the question I specifically put to the minister.