Wednesday, 20 June 2012
Corporations Amendment (Future of Financial Advice) Bill 2012, Corporations Amendment (Further Future of Financial Advice Measures) Bill 2012; Second Reading
I rise to speak on the Corporations Amendment (Future of Financial Advice) Bill 2012 and the Corporations Amendment (Further Future of Financial Advice Measures) Bill 2012. The coalition will not be supporting the Future of Financial Advice bills in their current form. As has been outlined by other speakers, this legislation could have been significantly improved if the government had accepted a series of amendments that will be moved by the coalition. Certainly with those amendments there would be a strong case for this legislation to be worth supporting.
The FoFA package of legislation in its current form suffers from a number of deficiencies. It is certainly unnecessarily complex and, in large parts, very unclear. It is expected to increase levels of unemployment in the sector and it legislates to enshrine, regrettably, an unlevel playing field amongst advice providers, inappropriately favouring a government-friendly business model. Most importantly, it is likely to cost about $700 million to implement and a further $350 million per annum to comply with, according to conservative industry estimates.
As I have indicated, as it currently stands, this legislation will lead to increased costs and, most importantly, will reduce choice for Australians seeking financial advice, and in that category are many older Australians, for whom I have a particular interest in my shadow Ageing portfolio. As I have indicated, the coalition will be moving a series of amendments, the most important of which are as follows: that the government be required by parliament to table a regulatory impact statement on FoFA, assessed as compliant by the government's Office of Best Practice Regulation; that the opt-in provisions be removed from FoFA; that the retrospective application of the additional annual fee disclosure requirements also be removed from the legislation; that the drafting of the best interest duty provisions be improved; that the ban on commissions on risk insurance inside superannuation be further refined; and that the implementation of the FoFA legislation be delayed until 1 July 2013 to align it with MySuper.
These recommendations were part of the amendments suggested by coalition members of the Parliamentary Joint Committee on Corporations and Financial Services. Crossbench senators should seriously consider these amendments and support them. These are important and sensible coalition amendments and, if they are not supported by the government, the coalition, if it is successful at the next federal election, will fix both bills by implementing these amendments. In particular we would completely remove the opt-in provisions, simplify and streamline the additional annual fee disclosure requirements, improve the best interest duty, provide certainty around the provision and accessibility of scaled advice and refine the ban on commissions on risk insurance inside superannuation.
These bills, of course, received examination by the economics committee, and I would like to go to their report of March 2012 to pick up some of the points and some of the concerns raised, particularly in the dissenting report by coalition senators. In making their comments, coalition senators recognised that the financial services and advice industry provides an important service in helping Australians with their financial health and wellbeing, and, as I indicated earlier, many of those are older Australians. Of course, financial advisers help Australians to better manage their financial risks and maximise their financial opportunities. They are dealing with other people's money, and that is why it is important that the regulatory framework that regulates their activities not only is an effective one but also balances the need for effective consumer protection with the need to ensure that the financial advice and the financial services that are provided are of high quality and that that high-quality advice remains accessible, remains available and also remains affordable. Certainly when you look at the financial reforms and particularly the financial reforms that were legislated by the coalition when we were in government in 2001, they did provide a solid regulatory foundation for our financial services industry. I think that that solid foundation and framework stood us in good stead in relation to the global financial crisis. But, as coalition senators indicated, there is always room for improvement.
Any change that should be considered is not about making things more complex; it is about making things better. Therefore, in any change—and this is really where the concern from the coalition side is in relation to these proposed changes—we need to avoid more regulation or avoid regulation overreach, as coalition senators indicated in their dissenting report, where this leads to increased red tape and in turn results in increased costs for business and consumers without in the end affording them any greater consumer protection.
As we know, in the wake of the global financial crisis there were a number of high-profile collapses of financial service providers across Australia, such as Storm Financial, Trio and Westpoint. After those collapses it is very important to look at what went wrong, and I will come to some of those issues, in particular in relation to Trio, where I want to highlight in particular the work that is currently being done by the victims of financial fraud. Many of those who suffered are from the Illawarra, which is where my electorate office is, and I have had representations from those people. In the Illawarra it certainly led to a lot of very sad stories in relation to the consequences of those investments and the financial collapse. It may be said that this legislation could have avoided the Trio collapse, but, as Senator Cormann and other senators have indicated, it would not have done so.
Can I now look at February 2009, when this parliament asked the Parliamentary Joint Committee on Corporations and Financial Services to conduct a comprehensive inquiry into Australian financial products. That inquiry has become known as the Ripoll inquiry, after its chair, Bernie—
One is French; one's antecedents are from another area of Europe. There is always rivalry there, Senator Conroy! That inquiry made a number of very important recommendations. I will come to those in a moment, but I want to highlight, to go back to the previous point I made, that it makes particular reference to the Trio collapse, which raised distinct and—as the committee executive summary notes—in some ways more troubling issues than those raised as a consequence of the Storm and Westpoint collapses. Trio in itself involved fraud. As I have indicated, nearly 6,000 Australians, many of whom are in the Illawarra, invested in Trio and suffered as a consequence of that.
The Ripoll inquiry made 14 recommendations. Certainly the coalition supports those recommendations. If you look at some of those—and I will not delve into many of them—one of those recommendations goes to encouraging greater partnerships between regulators and experts in the private sector. It recommends that the Australian Taxation Office include clear, understandable, large-print warnings on its website that self-managed superannuation funds trustees are not covered in the event of theft and fraud and make sure that greater warnings are there. Those recommendations set out a whole range of other things in relation to compliance plans, regulatory arrangements relating to custodians, roles of ASIC, funding, involvement of the Australian Federal Police and cooperation with ASIC and APRA to pursue criminal investigations—and, as I said, a range of different matters which that committee dealt with very, very comprehensively. As the coalition senators indicated, the centrepiece of the Ripoll inquiry report was the recommendation to introduce a fiduciary duty for financial advisers requiring them to place their clients' interests ahead of their own.
The report's recommendations, as coalition senators have indicated, provide a blueprint that the government could have adopted in a bipartisan way to make important improvements to the regulatory framework of our financial services, and that certainly has been a position that the coalition has wanted and has advocated. Instead of implementing very sensible and widely supported recommendations—or those recommendations of the Ripoll inquiry—regrettably, the government, as coalition senators indicated, allowed its Future of Financial Advice reform package to be 'hijacked by vested interests, creating more than two years of unnecessary regulatory uncertainty and upheaval in our financial services industry'.
The concern is that the government's decision to make the processes around FoFA in the past two years leaves, to say the least, much to be desired. There were constant—and, as coalition senators indicated, at times completely unexpected—changes to the proposed regulatory arrangements under FoFA, which did very little to properly appreciate or assess the costs involved and of course any unintended consequences or other implications, which have now led to this legislation.
The important reforms that were recommended by the Ripoll inquiry have been delayed for more than two years while the government pressed ahead with a number of additional measures, contentious as they have been, such as the costly Industry Super Network initiated proposal that would force Australians to re-sign contracts with their financial advisers to a timetable imposed by the government and not chosen by consumers—the so-called 'opt-in' proposal.
In the time available to me, I will make some general observations. Financial services are a very important sector. Financial services help us all to make better decisions, but it is very important that, in ensuring that financial advice is available to the broader community—and, as I have indicated, most especially to older Australians, who are increasingly finding it difficult to manage their financial pressures, particularly with the increasing cost-of-living pressures—as we have indicated, there is always room for improvement.
Let me go to some of the specifics of this legislation and some concerns and criticisms that the coalition have. Firstly, the bills do not meet the government's own standards. In pursuing any regulatory changes it is important that the government must itself rigorously assess, as I have said, increasing costs and red tape for both business and consumers. And it is incumbent on the government to conduct a proper regulatory impact assessment to a standard which is at least consistent with its own practice regulation requirements. According to the government's own Office of Best Practice Regulation, the government did not have adequate information before it to assess the impact of the FoFA package on business and consumers or to assess the costs/benefits of the proposed changes. Of course, this is highly unsatisfactory, given the complexity of this legislation and the costs associated with these bills, particularly the more contentious parts of the proposed changes.
There is also an unrealistic implementation time frame. The current time frame of 1 July 2012 is completely unrealistic, given the proposed commencement date being imminent. As I have indicated earlier, and other speakers have indicated, it would have made sense to have implemented this package at the same time as MySuper was implemented.
Also, there are components of this package which require significant changes to the same financial service provider IT systems. It is in many ways symptomatic of the chaotic approach that this government has adopted in this area, as we have seen in so many other areas. And it is that lack of practical business understanding—understanding the practicalities of business realities, in that it is seeking to impose two different implementation dates involving significant and very expensive changes in relatively quick succession. For this reason, the coalition believes that these bills, if amended, should not commence until 1 July next year.
Another contentious issue is the opt-in provisions. They impose a mandatory requirement on consumers to re-sign contracts with their financial advisers on a regular basis. This will mean a significant increase in red tape and costs, not just for the planners but most importantly for the consumers. It would certainly put us right up there leading the world in terms of financial services red tape. Opt-in, most importantly, was not one of the recommendations of the Ripoll inquiry. In this context it is very important to remember that Industry Super Network provided the only submission to the original Ripoll inquiry arguing in favour of opt-in—so one really questions why this opt-in provision has been pushed.
In conclusion, as I said, the coalition will not be supporting these bills— (Time expired)
What a wonderful speech by Senator Fierravanti-Wells! It is a pity there was not someone in the chamber from the government side to listen to that. In fact, talking about that, I note that there does not seem to be a quorum in the chamber. Mr Deputy President, I draw your attention to the state of the chamber. (Quorum formed)Thank you, Mr Deputy President. I am pleased that all the Labor senators came in to hear my speech; it is well worth listening to. This is a truncated debate, and I know that a lot of my colleagues want to speak on this, so I will be briefer than I would normally be. Perhaps I could start off by talking about the truncated debate because of the guillotine imposed by the Labor Party and the Greens. I will start off with a quote:
What is more, the Labor Party is going to support the whole of this legislation when the guillotine falls in about an hour from now.
I might just interpose by saying 'an hour from now' is much more time for debate than the Labor Party and the Greens have given for many of the pieces of legislation that are being guillotined through this parliament. The quote continued:
This is a tawdry exercise in taking democracy out of this place—
this place being the Senate chamber. And who said that? The then Leader of the Australian Greens, Senator Bob Brown. He was railing against the guillotining of any legislation. I might ask Senator Ludlam, when he makes his contribution to these bills: why is it that when the Howard government apparently had a guillotine in place it was 'a tawdry exercise in taking democracy out of this place', and yet nowadays the Greens support the Labor Party in guillotining 36 bills in this fortnight of sitting?
Madam Acting Deputy President, can I just dwell on that for a moment: 36 bills are being guillotined by the Greens political party and the Australian Labor Party in the next two weeks. In the whole three years of the last term of the Howard government, how many bills were guillotined? Thirty-six. So the Labor Party and the Greens political party are guillotining, in this fortnight, more bills than the Howard government guillotined in three years—at a time, I might add, when the Howard government had control, entirely, of this chamber. So what hypocrisy from the Greens, that they would in those days label this guillotining as a 'tawdry exercise in taking democracy out of this place' but nowadays, because the Greens and the Labor Party are one and the same, it seems okay.
I do want to move on to the bills, which I do have an interest in—mainly because they sort of had their origins in the Storm Financial collapse. It is with some embarrassment that I have to say that the Storm Financial fiasco originated in the city of Townsville, in North Queensland, where I have my office. It became an entity which, in the end, took a lot of people's money, and put a lot of people I know personally in a very difficult financial situation, because of the lack of proper regulation, and proper enforcement of the existing regulations in the financial services industry. It was as a result of that fiasco with Storm Financial that these bills, the Corporations Amendment (Future of Financial Advice) Bill 2012 and the Corporations Amendment (Further Future of Financial Advice Measures) Bill 2012, are before us today.
As a result of the Storm Financial crisis, the Ripoll inquiry was set up by this parliament to investigate all aspects of financial advice in the investment and retirement investment fields. This committee, comprising obviously members of all parties in the parliament, deliberated and brought forward a series of recommendations. While I did not agree wholeheartedly with every single one of the recommendations, by and large the recommendations were appropriate and I would have hoped they might have gone from recommendations into legislation. But this government with its typical arrogance and with its typical lack of understanding of what really is best—an understanding which should have been there if they had properly looked at the whole report—have brought in a bill which again, as with most of its legislation, is off the mark. The coalition will be attempting today to fix obvious errors in this bill with amendments. But should those amendments not be supported then, as our leader in this debate, Senator Cormann, has said, we will be opposing the bill. So I do urge the Greens and the Labor Party to actually adopt the amendments.
I am pleased to say I note that just yesterday—after this debate had started, and this is typical of the way the Labor Party runs this chamber and it is the same as the way they run the government—the government brought in some amendments— and I do note this was after the debate had started—late last night. I am pleased that one of those amendments, however, is an adoption, an acceptance, by the government of one of the amendments that Senator Cormann was going to move, and that was the proposal by the coalition to at least start this bad legislation at the latest by 1 July 2013, rather than, as the Labor Party had originally proposed, by 1 July 2012. What the Labor Party wanted us to do was to debate this bill today so it could being introduced in 14 days time. One wonders why a country is in such a mess that we have this sort of legislation being dealt with today to start in 14 days time. I am pleased that the coalition's amendment has been accepted and so it will now been delayed with a final date of 1 July 2013.
But that is obviously why we have these guillotines in place. As of yesterday morning the Labor Party brings in that resolution, with the support of the Australian Greens political party, to guillotine 36 bills—and this was one of them, and you can understand why they wanted to deal with this bill in record short time today, because as it stood this time yesterday morning it was to start in 14 days time. That is just incredible! So one does wonder, although I do not think most Australians do wonder anymore and they shake their heads in shame and embarrassment at the way this country is being governed, and the way this bill has been dealt with in the chamber is typical of that mismanagement.
The package of bills in its current form is, I submit, unnecessarily complex and in large part quite unclear. It is expected to increase unemployment. It is legislating to enshrine what we see and what the industry sees as an unlevel playing field amongst advice providers. It seems to me that it inappropriately favours a government-friendly business model. It is likely to cost about $700 million to implement and a further $350 million per annum to comply with—and they are conservative estimates given by industry at various inquiries that have been held. As people in this chamber would know, for the Labor Party with a $700 million cost who cares? It is a drop in the ocean to them. I would venture to say I suspect that, unlike most financial advisers who are their own bosses and who are small businessmen, nobody in the Labor Party, particularly in this chamber, has ever had to worry about making money or making losses or spending someone else's money.
Most of the Labor Party senators in this chamber—although there is one exception perhaps—have always worked for the trade union movement or the Australian Labor Party or for other politicians. None of them have had ever had their own businesses and their own houses on the line. So when they just spend $700 million it does not matter to any of the ministers in this government, as they do not know what it is like to waste $700 million. They do not have to pay for it and their pay cheques will come in at the end of the month, as they have always done with most of the ministers in this government. So it is just burdening these small businessman who are financial advisers with a $700 million cost upfront and $350 million per annum and it is only a drop in the ocean. To Labor Party ministers it is only a drop in the ocean. When you can convert a Howard government $60 billion surplus into a current Gillard government deficit of almost $150 billion, and increasing rapidly to over $200 billion, you can understand that Labor Party politicians just treat debt as pigs treat lying in the mud: they relish it. They think debt is pretty good. They do not seem to understand, because none of them have ever been in business, that if you borrow money, sometime the lender is going to want their money back, so it will have to be paid back. You do not need an economics degree to understand that. Of course, the lenders only give it to you because it is their business. They actually charge you a cost for lending you the $200 billion that the Labor Party has racked up. That is called interest. As all of us know—as any of us who have any understanding of business would know—with the interest that we are going to pay on the Labor Party's $200 billion debt we could have another new hospital in Townsville or we could actually fix the Bruce Highway between Brisbane and Cape York. That is just with the interest that the Labor Party is causing the Australian taxpayers to pay.
Senator Conroy interjecting—
Senator Conroy is prattling away in the chamber. The greatest financial mismanagement this country has ever seen is the $55 billion of wasted investment in the National Broadband Network. But, Australians, do not despair: our good friend Senator Conroy—lovely guy though he is—is in charge. Senator Conroy has never before run any sort of business in Australia, yet he is now in charge of Australia's biggest spending business, a business which he originally told us would make a profit and would be privatised. Senator Conroy, as I have often said and will continue to repeat, neither you nor I will be in this chamber—I suspect not even you will be alive—when the NBN makes a profit and when anyone in the private sector will want to buy it. It will eventually be got rid of at a written down, fire sale price.
The bills before us need improvement. I am delighted that Senator Cormann's amendments insist that the government is required to table a regulatory impact statement as assessed as compliant by the government's Office of Best Practice Regulation. The amendments also propose that the opt-in be removed completely from the legislation, that the retrospective application of additional annual fee disclosure requirements be removed and that the drafting of the best-interest duty will also be improved. We believe and our amendments will try to implement that the ban on commissions on risk insurance inside super should be further refined. Also we are going to move for a delay in the start of this legislation—fortuitously the Labor Party have picked up this amendment.
Many of my colleagues want to debate this truncated legislation, so I will finish in this way. The financial advice industry is a very good one. There have been some rogues, as there are in any business, in any parliament, in any walk of life. By and large financial advisers are a great asset to Australia and offer real help and assistance to many people, particularly to older people who are looking towards retirement and their retirement income. They do a fabulous job. To a certain extent the Labor government have reviled these people, accusing all in the industry of being as bad as the one bad egg in the nest. By and large this industry is made up of good, honest, capable, intelligent and very well educated and learned people. I wish their industry the best. I say to the industry that while this government is trying to continue to penalise you to the cost of $700 million this year and $350 million every following year, a coalition government will understand the worth of the financial advice industry and will be supportive of the industry in the future.
As other senators on this side of the chamber have indicated, the coalition is not able to support the Corporations Amendment (Future of Financial Advice) Bill 2012 and the Corporations Amendment (Further Future of Financial Advice Measures) Bill 2012 in their current form. It is extraordinary that these bills are subject to the guillotine agreed to by the Australian Greens in this chamber. They have been the subject of much discussion and debate among the professionals of the financial services sector and I would have thought merited far more engaged and extended consideration by this chamberthan they are being given by the government. It is profoundly disappointing to see the government treat such an important sector in this dismissive fashion.
This legislation is vital to so many people, not just to people working in the sector but to those who are recipients of advice. In my work across Western Sydney in particular and more broadly concerns have been raised about this legislation. To see it guillotined in the way it is being done this week is profoundly disappointing. We have indicated through our shadow assistant Treasurer, Senator Cormann, that we believe this legislation can be significantly improved if a series of amendments, which we intend to move in this debate, are accepted by the government.
I am not speaking from no background on this issue, although most senators would be aware that the financial services sector is not one in which I have had a professional involvement, but with the support and assistance of Senator Cormann I have made some effort in recent times to meet with financial planners in key centres in Western Sydney, in Parramatta and in Penrith. We held a series of roundtable discussions with participants in the industry. The view of those forums was universal. The financial planners and members of their staff were most concerned that the reforms in their current form would be detrimental to the industry and also to clients of the industry. They were very concerned that the government is pursuing changes that will unnecessarily increase red tape in this industry. We are at great pains—and I know Senator Sinodinos has made a number of comments in relation to this—to look at parts of the economy where we can reduce the impact of red tape on small business, which drives up their costs and therefore drives up costs to consumers. These sorts of changes—for example, forcing consumers to re-signed contracts with their advisers every two years—are examples of going in entirely the wrong direction. In both Penrith and Parramatta, these are the sorts of issues which have been raised with us.
Senator Cormann said after the roundtable discussions that we are very much aware that there needs to be robust regulation protecting consumers, but this government is imposing so much red tape and regulatory burden that it is making financial advice unaffordable and unnecessarily complex. In our view, the package in its current form is legislation that will make life most unclear and unnecessarily complex. It is expected that financial planners will not be able to maintain their current staff levels, and this is not a time at which we need to see people losing their jobs, frankly.
We are also very concerned about this legislation locking in an unlevel playing field amongst advisers that will favour a business model that is more government friendly than private-sector friendly. These are points I know other senators have made, both last night and today. The concerns also extend to the cost of compliance with and implementation of the new requirements of this legislation. The industry estimates on that are quite significant—quite overwhelming, in fact. It seems to me that if you were wanting to impose such significant burdens on an industry then you would think that the Senate would be more minded to discuss the legislation in proper form, not in guillotined form, and that is particularly disappointing.
In our amendments, which I know have also been addressed by Senator Cormann, we will be advancing the case that the government should be required by parliament to table a regulatory impact statement on the FoFA assessed as compliant by the government's Office of Best Practice Regulation, that we will remove the opt-in provisions from this legislation, that we will also move to remove the retrospective application of the additional annual fee disclosure requirement and that we seriously think the best-interest-duty drafting can be improved and will be making some suggestions in that regard. A constructive government that wishes to engage in proper parliamentary debate would, in our view, consider those seriously and undertake to look properly at those amendments. It remains to be seen whether, given the way the guillotine has been imposed on this legislation, that will actually be done. We also are of the view that the ban on commissions on risk insurance inside superannuation should be further refined. As Senator Macdonald and other senators have pointed out, we were very concerned about the timing of the implementation and actively called for an implementation date not of 1 July 2012—in less than a couple of weeks time—but of 1 July 2013, and other senators have indicated the change in that regard.
The sorts of amendments we are advancing in this debate have been carefully considered by the coalition members of the Parliamentary Joint Committee on Corporations and Financial Services, and that is not a consideration they have taken lightly. The government, the Australian Greens and those senators on the crossbenches who are considering this legislation should, I think, be able to have a proper opportunity to give those amendments serious consideration and, one would hope, to support them. In fact, it will be ironic in the extreme if the two fora I held in Western Sydney—in Parramatta and Penrith—with Senator Cormann lasted longer than will the actual consideration of the serious aspects of this legislation, given the nature of the government's approach. I do not think this legislation warrants execution by the guillotine, and I think it is most unfortunate that the choice was for it to be treated like that.
We have also indicated that if the changes we advocate, to which I have referred and which will be put before the chamber, are not supported by the government and the Australian Greens then we will undertake—and I know Senator Cormann has already—to fix the FoFA by implementing these amendments if we are in a position to win government at a future date. In our view it will be an unsustainable proposition for it to continue in its current form if it is adopted in that form by the government and by the Australian Greens in this chamber. Our improvements to the system would include the following measures. We would completely remove the opt-in provision, which I have referred to; we would simplify and streamline the additional annual fee disclosure requirements; we would improve the best-interest-duty aspect; we would redraft to provide greater certainty around the provision and accessibility of scaled advice; and we would refine the ban on commissions on risk insurance inside superannuation. Those are points we are very concerned about. They are exactly the sorts of points that small business owners, financial planners in suburban Sydney—in Western Sydney, in Parramatta and Penrith—raised directly with us. This is feedback from professionals who are working in the area—feedback that they have also received from their clients as they have discussed the development of this legislation.
As I saw in those particular fora, and as I see regularly in organisations like chambers of commerce and in women's organisations in the community—where women who are involved in the financial services sector offer help and support to other women who are working in small businesses, either in start-up or just sustaining themselves in the current economy—the financial services industry provides a very important service. It is about helping Australians to build wealth and to plan for their future. There is no argument from us, for example, that financial planners are dealing with other people's money, and so there is a need for a robust regulatory framework. That is not the case we are arguing here today. The goals should be to protect consumers—which is perfectly appropriate and perfectly reasonable and something that we enthusiastically advocate—and to enable access to high-quality financial services that are both affordable and understandable. Our concern with this legislation is that it will make the whole financial services environment unnecessarily complex and completely unclear. How does that assist consumers? How does that enable financial services professionals to deliver the sort of high-quality service they need? It does not help in any way. It is another effort by this government to cloud a professional environment and to make life harder for the recipients of service and for the deliverers of the service.
We are talking about a financial services industry. The Financial Services Council had a function here in Parliament House just last night, with its chair and CEO, which both Mr Shorten and Senator Cormann attended and at which they both spoke. We know we are talking about an industry that performed quite well given the stress following the GFC. It is an industry that goes to the core of the operation of small business in so many parts of Australia. So when we legislated in 2001, in the period of the Howard government, we provided a solid regulatory foundation for the industry. There is no denying that we are always able to improve in that regard, but what we should be focusing on is making business simpler—not gratuitously more complex and not gratuitously overregulated. We should not be making regulation for its own sake. We should not be trying to make the system more complex and costly without adding anything useful to what is already a robust regulatory framework. That is the concern which has been raised by many of the participants in the industry with whom I have met and to whom I speak.
I heard Senator Macdonald, at the beginning of his remarks today, acknowledging a number of issues concerning the collapse, in the wake of the GFC, of companies such as Storm Financial, Westpoint and so on. It was particularly important for our policymakers to be able to assess what went wrong and what could be done to improve the system. It was therefore timely that parliament, in February 2009, asked the Parliamentary Joint Committee on Corporations and Financial Services to conduct a comprehensive inquiry into Australian financial products and services. I know that, over time, a number of my colleagues here have been members of this very important parliamentary committee. The Ripoll inquiry, as it became known—after its chair, Mr Ripoll—reported back in November 2009 and made a number of prudent recommendations. A number of those have been raised in discussions with professionals in the industry.
The centrepiece of the report was the recommendation to introduce a fiduciary duty for financial planners, requiring them to place the interests of their clients ahead of their own. It also provided a good blueprint, a blueprint the government could well have adopted. If it had done so, it would have had bipartisan support. We are all aware that that is not always the case for reports tabled in this chamber and in the other place. But, for this report, it was the case that it would have had bipartisan support. The key observation of the report was:
The committee is of the general view that situations where investors lose their entire savings because of poor financial advice are more often a problem of enforcing existing regulations, rather than being due to regulatory inadequacy. Where financial advisers are operating outside regulatory parameters, the consequences of those actions should not necessarily be attributed to the content of the regulations.
I think that is an important point for this chamber to note. But, instead of pursuing the recommendations of the Ripoll inquiry report, it seems to us that the government has basically allowed this particular package of legislation to be hijacked by what could only be described as vested interests—and I say that with some disappointment.
Over the past couple of years, the industry have also experienced frequent unexpected changes to the proposed regulatory arrangements under FoFA right up until, literally, the introduction of the current legislation. It has been a very difficult path for them to tread—to try to work out for themselves what the impacts on their own businesses are going to be and what the impacts on their clients are going to be. That sort of uncertainty does nothing whatsoever to support the operation of a business. It makes it hard for the industry to work out what the costs of compliance will be, what the costs of implementation will be and what the impact on the people receiving their services will be. And those changes to the proposed regulatory arrangements have occurred without any proper assessment of the costs involved or any real consideration of the unintended consequences. We have also seen quite important financial advice reforms delayed by up to two years to allow the government to press ahead with the sorts of contentious issues it has decided to pursue.
We have before us today a very important piece of legislation. We have a piece of legislation which impacts upon the business operations of the financial services industry, an industry which employs thousands and thousands of Australians. Just as importantly, and some might even say more importantly, we have a piece of legislation which will impact on the consumers of the financial services industry product—the advice the industry provides. We are not persuaded that the government have done this the correct way. We are not persuaded that the government's legislation responds to the real and legitimate concerns which it should have addressed—they appear to have been diverted by the pursuit of other interests. We are not persuaded that the legislation as it stands will adequately deal with those issues and, to redress that, the coalition will be proposing, as Senator Cormann has flagged, a significant number of amendments.
Most importantly, though, we are not persuaded that this is an appropriate way for this chamber to deal with such important legislation. It is not right that important legislation is subjected to the type of guillotine that the government and the Australian Greens have agreed on to push this and numerous other bills through this chamber in a relatively short period of time, this week and next. The participants in the industry deserve better, their clients deserve better and the Australian people deserve better.
I rise today to also speak on the Corporations Amendment (Future of Financial Advice) Bill 2012 and the Corporations Amendment (Further Future of Financial Advice Measures) Bill 2012, which together represent a flawed package for change in this sector that is likely to lead to increased costs and reduced choice for Australians seeking advice to improve their financial future. Before I get into the details of the bills, I will put a quote to the Senate and make a few comments about it:
The government's new found power has also led to an arrogant disregard for the democratic institutions of our parliament. I talked before about the role of the Senate in tempering executive excess and in holding governments to account. Given the radical path that this government has embarked upon, that function should be more important than ever. Unfortunately, though, the job of the Senate will also become more difficult. The government has shown that it is not interested in maintaining the institutions of the Senate. Just as it wishes to silence student organisations and just as it wants fewer people to vote, so it wishes to silence the Senate. That is why the number of sitting days for 2005 has been slashed. That is why there is talk of changing the procedures of the chamber, introducing stronger time limits, increasing the use of the guillotine and changing the activities of Senate committees. The government's contempt for the Senate is clear. Removing parliamentary impediments to the passage of its legislation is gathering what I think is unhealthy momentum in the government.
Many people might think that the quote I have just read sounds as if it may have come from Senator Eric Abetz or Senator Brandis, or perhaps as if it were Senator Fifield or Senator Macdonald railing against the excesses of this government undermining the democratic institutions of this place. Certainly those senators and others have railed against the government's approach to truncating the Senate's proper scrutiny of legislation that the government is trying to put through. But, no, that quote did not come from any of those senators or indeed any coalition senator—it was delivered by the Leader of the Opposition in the Senate at that time, Senator Chris Evans, in his contribution to the debate on the address-in-reply to the Governor-General's speech on 17 November 2004. It highlights the fact that this government is at best inconsistent in its approach to the examination of legislation and the need for proper scrutiny and transparency and at worst potentially hypocritical.
I now turn to the bills themselves. The coalition will be moving a number of amendments that, if passed, will address most of the flaws in this package and render it worthy of support. The most important of these amendments will require the government to table a regulatory impact statement on the full Future of Financial Advice package—or FoFA—that has been assessed as compliant by the government's Office of Best Practice Regulation. It will remove the opt-in requirements and it will remove the retrospective application of the additional fee disclosure requirements. The amendments will improve the drafting of the best interest duty and they will refine the ban on risk insurance commissions payable within super and delay the implementation of the package until 1 July 2013.
The financial services and advice industry provides an extremely important service for Australians. Financial advisers assist Australians to better manage financial risk and mitigate against unexpected life events and generally increase their wealth and prosperity. Many people who engage financial advisers do so because they acknowledge they have a need for assistance to successfully manage their own financial affairs or they are looking for ways to grow or maximise their wealth. In the process, a significant degree of trust is placed in financial advisers and planners to act in the best interests of their clients. Because of the good faith with which consumers engage financial services providers, the potential for that trust to be breached and the possible dire financial consequences, the coalition supports a robust regulatory framework for the financial services industry to ensure that there is effective consumer protection. There can be no doubt that Australia's strong regulatory framework, legislated during the Howard years, helped the financial services industry get through the global financial crisis, and the events that unfolded as a result, largely unscathed.
However, there is always room for improvement. The report of the Parliamentary Joint Committee on Corporations and Financial Services, which was chaired by Mr Ripoll, a government MP—a committee that maintains a government majority—set out a blueprint that could have received bipartisan support if it had been adopted by Labor. The catalyst for that inquiry was of course the high-profile collapse of a number of financial service providers, particularly Westpoint, Storm Financial and Trio. It was felt, given the extremely severe financial consequences suffered by investors in those schemes, that it was wise to examine the regulatory system applying to financial advisory services to see what went wrong and if regulation could be improved to minimise future risks of similar collapses. The main proposal of the report of the Ripoll inquiry, as it became known, was the need for a fiduciary duty to be placed on advisers that would mean that they were obliged to put their clients' interests ahead of their own. The recommendations of the report were well considered and they were reasonable. But the government decided yet again to corrupt an essentially good idea by incorporating aspects intended to deliver an agenda other than good policy outcomes, an agenda that incorporated the wishes of vested interests, an agenda that has led to a number of unexpected, unexplored and certainly not recommended changes to the FoFA proposals, with many unintended—and possibly intended—consequences for the industry.
This was generally done with little or no consultation, no apparent understanding of the consequences and even a reckless disregard of those consequences. The important positive aspects of this reform package could have been implemented almost two years ago with bipartisan support if the government had chosen to follow the recommendations of the Ripoll report. Instead, these reforms have been delayed and corrupted. These bills as they now stand will place an inordinate amount of regulatory burden and cost on the financial services industry—costs that will flow through to retirees in the form of lower retirement incomes. They have been poorly drafted, with little meaningful consultation and a near total disregard for the impacts the legislation will have on the sector.
As is so typical of this Labor government, these bills will increase red tape, regulation and costs for both businesses and consumers for little or no additional consumer benefit or protection. In fact, the government's approach to this legislation was so bad that, embarrassingly, it failed the government's own Office of Best Practice Regulation testing requirements. That is right—on 8 August 2011 the Office of Best Practice Regulation noted that an adequate RIS was prepared for only part of the proposed FoFA changes. Labor has not conducted a satisfactory regulatory impact statement for the whole package and therefore there is not adequate information to assess the impact of FoFA on business and consumers or to assess the costs and benefits of the proposed changes. This has not stopped the government trying to plough this legislation through the parliament today. It is no wonder that submission after submission to the Senate Economics Legislation Committee that examined these bills, and witness after witness at the inquiry, raised issues about the lack of rigorous analysis of the impact of this legislation as a major concern.
In addition to their failure to conduct an adequate regulatory impact statement, the government also did not see fit to listen to the key stakeholders who urged them to rethink aspects of this disastrous legislation. I have been contacted by a huge number of affected stakeholders who are simply flabbergasted by Labor's approach to this legislation, stating that their concerns have fallen on the deaf ears of a government intent on rushing through this package and determined to ignore those concerns. The first of many concerns I will raise is the immense cost to industry that these bills will impose. John Brogden, from the Financial Services Council of Australia, told the Senate economics committee inquiry that conservative estimations demonstrate that the legislation will initially cost the financial services industry $700 million to implement and $350 million every year thereafter—$700 million of regulatory burden and red tape on one industry in one year, and $350 million every year thereafter.
In the end, who will pay for this regulatory cost? Inevitably, retirees will pay out of their retirement incomes. The government is now highly skilled at drafting industry-destroying pieces of legislation. If a business in Australia is not particularly badly impacted by the great big mining tax or the carbon tax that we would never have under this government, the Gillard Labor government will devise a policy to cripple free enterprise with regulatory burden and cost blow-outs instead. It is little wonder that so many in the financial services industry from my home state of Tasmania have contacted me out of their grave concern that they will be unable to remain in business if the FoFA package is passed. That brings me to my next point, that the legislation will cause a significant number of job losses. Industry participants told the Economics Committee that forecasts project that there will be in excess of 3,000 job losses should this legislation be passed. The committee heard that already individual operators who can see the writing on the wall are closing their doors and seeking shelter under the umbrellas of larger financial services firms who can better absorb some of the administrative burden that is being imposed by FoFA. The closure or failure of small businesses has significant economic impacts, particularly in rural and regional areas of Australia, where, the committee was told, financial services providers are shutting up shop or leaving in droves in response to the FoFA proposal. Naturally, there is a fallout for the communities that these closures leave behind and for the clients that they served. The reality of this legislation is that it will inhibit ordinary Australians—mums and dads, grandparents and retirees and young professionals just starting out—from accessing basic financial advice by making it too difficult and too costly for the average Australian to obtain.
I will return to the practical operational issues that this package will impose on the industry. Another issue raised time and time again throughout the inquiry was the opt-in process, which requires consumers to re-sign contracts with their financial advisers on a regular basis. As drafted, the opt-in requirement will add unnecessary red tape and additional costs. Not only that, it defies basic common sense: there is no precedent for this sort of government red tape in the financial services and advice relationships industry anywhere in the world. That claim was backed up by Treasury, whose officials were unable to point to any examples despite repeated requests to provide such information on many occasions over a long period of time. I recall requesting that at estimates on a number of occasions. Additionally, and not surprisingly, studies of human behaviour have shown that opt-in does not work nearly as well as opt-out. Why would it? If I engage a financial planner and I am not satisfied with their advice then I would quickly seek to terminate the professional relationship and go elsewhere to obtain advice that was more satisfactory to me. But why, if I engage the services of a financial planner and I am satisfied with the services he or she provides, do I need the government to legislate for me to reaffirm that relationship every two years? Why should I not be able to enter freely into a contract that suits me and that does not require me to re-enter it every two years?
My own constituents in Tasmania pointed to the issue of cost in relation to the opt-in requirement. I know of financial advisers in Hobart who have clients in all sorts of far-flung places across the globe, including Defence Force personnel who are serving overseas. The administrative difficulty and cost of contacting these clients simply to reaffirm a professional relationship that both parties are amenable to is not only preposterous, it also jeopardises the financial planner's ability to provide sound advice in the event that clients cannot be located to renew the contract. One adviser in Hobart that I was speaking to has a client in Kazakhstan; he can get in touch with him once a month, at best.
The committee heard evidence expressing concern about the negative consequences which may flow for consumers who do not opt in within the required time frame. There is a strong likelihood that by virtue of nothing but default a client will no longer be considered an 'advice client' if the planner does not receive the client's opt-in renewal notice within the required time period. Clients who fail to understand this may experience significant ramifications at a later date when they attempt to seek compensation from their planner for not advising them of changes to the law, of market movements that may have affected their financial position or of decisions that they needed to make. Similarly, I have heard from many financial planners who tell me that they only hear from some clients when things go wrong, whether it be a death in the family, a severe medical condition or circumstances resulting in an insurance claim. Advisers are concerned that if the opt-in requirement has not been met, they are going to be faced with the unenviable task of informing people who thought they were clients that they actually are not—and at a time when they most need the assistance of their financial adviser.
Coalition senators strongly oppose this push by the government to require people to re-sign contracts with their advisers on a regular basis. It does nothing except further feed the nanny-state agenda of this government. We see no benefit to opt-in and, in fact, can only identify significant issues that are likely to arise, with the high probability that many individuals will fall through the cracks and only realise too late that their financial affairs are not being managed as they thought. With the new best-interest duty in place, appropriate transparency of fees charged and an ongoing capacity for clients of financial advisers to opt out of any advice relationship at any stage, it is clear that there will be adequate consumer protection without the need to impose further regulatory burden and red tape on industry. Interestingly, the only submission to the Ripoll inquiry that did argue for opt-in was that submitted by the Industry Super Network, which represents the union super funds. Its argument was not accepted by the Ripoll inquiry. These opt-in requirements would not have had any impact on preventing the high profile collapse of financial services providers such as WestPoint, Storm or Trio. Opt-in is nothing more than an over-the-top knee-jerk reaction from a government that clearly does not understand the real issues behind these high-profile cases.
The retrospective fee disclosure statements are another operational issue raised by many of the witnesses at the inquiry. The committee received strong evidence that it was the industry's understanding that the government's proposal to impose an additional annual fee disclosure statement would be prospective. But the introduction at the eleventh hour, after more than two years of consultations by the government on FoFA, of a requirement for retrospective annual fee disclosure statements took the industry by surprise when it appeared in the legislation in October last year. The committee was told that this new, late change would double the workload required by industry to implement the changes and would drive up costs and increase red tape even further. The Financial Services Council has calculated that implementation of the fee disclosure requirements will cost approximately $54 per client for new clients and $98 for existing clients—that is, for the retrospective part of it. I have also received representations recently that the practical implementation is not proving as easy as expected, because the information required to be included needs to come from different sources—part of what needs to be on the disclosure statement is in the hands of the advisers and part of it is in the hands of product providers—and the IT costs of getting this to work accurately are much larger than expected; so the cost per client is likely to be larger than that which was originally calculated. It is another example of this government's inability to effectively consult and liaise with industry when drafting legislation.
Yet another concern that industry highlighted at the committee hearings is the provisions that relate to scalable advice. Concerns were raised before the committee that the ambiguous wording of the best-interest provisions in the legislation do not allow for the provision of scaled advice. Scaled advice makes sense. The practice of allowing clients to identify which areas of their financial affairs they need advice for and which areas they do not and then pay their adviser accordingly should not require government intervention or further regulation. But again, just like opt-in requirements, this Labor government thinks it knows better than individual Australians about how to manage their individual financial affairs—which is a bit rich when you look at this government's total inability to manage the finances of the country. Just like the increase in costs, the removal of scalable advice will deter Australians from seeking professional financial advice.
The committee heard from many financial advisers who told of mum and dad clients who only wanted income protection insurance or a life insurance policy but did not necessarily want a root and branch review of every facet of their financial situation. By removing the capacity for financial advisers and their clients to decide on the scope of advice required, the government is removing access to professional financial advice for many Australians who do not need or want, nor have the means to afford, to undertake an extensive review of their financial situation.
Another example of the government's chaotic approach to this legislation is their confusing position on risk insurance inside superannuation. We support the banning of conflicted remuneration structures such as product commissions within the financial services industry and we note that the industry has moved proactively over the last few years to abolish these structures, and we commend them for that decision. But we do not consider the commissions paid on advised risk insurance, be they group policies or individual policies, inside or outside superannuation, are conflicted remuneration structures. Like so many other aspects of this legislation, banning commissions on risk insurance will increase costs and remove choice for consumers. Government and industry super funds may argue that Australians who receive automatic risk insurance within their super fund without accessing any advice should not be required to pay commissions, but Australians who require and seek advice to guarantee adequate risk cover should have the same opportunity to choose the most appropriate remuneration arrangement for them. We already have a problem of underinsurance in Australia and, if anything, the government should be legislating to make it easier to obtain. However, the proposals in the FoFA package will instead increase the upfront cost of taking out risk insurance.
The financial services industry is also concerned about the proposed implementation date of 1 July 2012—less than two weeks away. The coalition believe that these bills, if amended, should at the very least be delayed until 1 July 2013 to coincide with the implementation of MySuper. The committee heard that the implementation of FoFA and MySuper will require significant IT changes and it would be preferable to implement both these changes at the same time. The government has indicated that it will move the implementation date to 2013, but the bills before the Senate still retain the 2012 date.
The best way the government can give effect to its stated intention is to support our amendments. If the government fail to adopt this approach then it will only serve to further demonstrate how completely out of touch they are with their stakeholders. These bills can be fixed with the support of our amendments. If they are fixed, they should be supported; if not, they should be rejected.
I appreciate the opportunity to comment on the Corporations Amendment (Future of Financial Advice) Bill 2012 and the Corporations Amendment (Further Future of Financial Advice Measures) Bill 2012, and make the obvious observation that the financial services sector is one that needs strong legislation, as was recognised back in 2000-01 by the Howard government, which provided a strong regulatory foundation for the sector. But over time there should be room for improvement and room for change. I, for one, at the commencement of this inquiry actually welcomed a process of review and upgrade, particularly in light of events that have occurred since 2001, including the downturn with the global financial crisis. In fact, when I started to closely study the FoFA advice that came through by way of this legislation I was greatly disappointed. Of course, it is no longer in draft form but in final form for consideration by the Senate.
As my colleagues before have indicated, there are elements and amendments to the legislation that should be supported. Unfortunately, as we see the legislation now, there are elements which are unnecessarily complex and areas that are unclear, not just for the financial services sector itself but, most importantly, for those people whom we in this place support and represent—that is, the actual consumers of these services. As we know, with an ageing population, it is becoming ever more important and critical that consumers are very, very clear about what they have before them, what options are available to them and what protections they have.
I was somewhat encouraged in reading some of the quotations of the Leader of the Government in the Senate, Senator Evans, in this place when he said, 'It is our responsibility to provide an alternative view for legislation, to speak out when we think things are wrong and to fight for those people whose interests we represent.' I applaud that and I look forward today for a lengthened opportunity for all of us to debate this legislation through to its conclusion, where I hope we might be able to undo some of the faults and errors of the legislation as it currently stands before us.
As others have said, we know that this legislation in its current form will cause increased unemployment, particularly in the financial services sector. Surely there is nobody in this country who wants to add to unemployment in any sector, including the financial services sector, where of course there are already additions being made to unemployment levels as the banking industry and kindred industries are shedding staff. The last thing we need is to be adding to unemployment.
The point is being made by my colleagues, and I will also make it, that the legislation as it is proposed will enshrine an unlevel playing field amongst providers. This will provide inappropriate levels of support for some sectors, particularly those friendly to government, and it will disadvantage those who are not. In other words, it is anti-competitive and nobody wants to see a lack of competition in the financial services sector because it is competition that is going to drive value for the end consumer, the very people whom we represent. As has been said by my colleague Senator Bushby, estimates have been made within the industry that it will cost some $700 million to implement and, even worse than that, $350 million on an annual ongoing basis to comply with. Those are conservative estimates and I, for one, believe that we need to address them. The coalition will be moving some amendments aimed at improving the legislation. Senator Evans is a great person to stand up and give us guidance for the future, as he did back in 2007, when he said that Labor in government or opposition supports the Senate as a strong house of review, scrutiny and accountability. I am looking forward today in this place to being able to honour, along with my colleagues on both sides of the chamber, those fine points made by Senator Evans that the Senate will be a strong house of review, scrutiny and accountability of this legislation.
There are several areas in which the coalition, through Senator Cormann, will be moving amendments. They relate to a regulatory impact statement on FoFA, assessed as compliant by the government's own Office of Best Practice Regulation. There should be no opposition to being able to undertake that sort of review, which the government itself wants scrutinised through its Office of Best Practice Regulation.
The totally illogical and nanny-state based opt-in on FoFA must be removed. We do not see it in other sectors. We know very well we are insulting people to say to them on an annual basis, 'You must sign a document because every year you must make the decision with your financial services adviser to opt in.' In banking and in any other area of business or social life, it logically follows that, whilst we have trust in the people who are offering us products and services, we continue to use them. Thank God in a free country like ours, where there is alternative opportunity for service and product, if we do not like the service or the product, we opt out. We do not have to wait for somebody to put a piece of paper in front of us on an annual basis. This is ample evidence of a flaw in the legislation as it is currently proposed that must be addressed.
Retrospectivity is something that is an absolute anathema. The retrospective application of the additional annual fee disclosure requirement must be removed. We cannot predict the past; we can only deal with the present and predict and plan for the future. Retrospectivity has no place in this legislation.
We support best-interest duty, but the way in which it is presented in this legislation must be improved upon, and the coalition's amendments will be aimed at doing that. There should be no reason why that is not the subject of robust debate in this place today. If the government can indicate why the best-interest duty as proposed in the legislation is best, let them argue that case. Let us have that robust discussion. The ban of commission on risk insurance inside super must be further refined, and I want to come back to that if I can.
Finally, the implementation of this legislation, currently planned for no fewer than 10 days from today, 1 July 2012, must surely be delayed to 1 July 2013 so that it can be aligned with the government's own legislation relating to MySuper. If amendments are discussed and debated, if there is the opportunity for robust exchange of views across the chamber, we will end up with a better form of legislation. There is no doubt at all that everybody in this chamber should be encouraging financial advisers to help Australians better manage their financial risks, to maximise their financial opportunities and to align their investments and the value of their assets for their best advantage and their families' best advantage into the future.
The goals of the legislation are to be applauded: firstly, to balance effective consumer protection; secondly, to have access to high-quality financial services; and, thirdly, the availability and accessibility of services that are affordable for all members of the community. We all want to see those things and they are well-placed objectives. But in this instance we have seen a failure of the Labor government that is so typical. There has been an inability to genuinely consult with those affected and to listen. Consultation is actually about listening; it is not about telling and then ignoring. We have to ensure that the consultation process is reflected in such a way that we do not add to the red tape burden. So many of us have learnt, as a result of representation from those in the sector, that this is going to add immeasurably to the burden of red tape, and we all know that that adds costs not only to the business but, inevitably, those costs are passed on to the end consumer.
As I said at the beginning of my address, there were a number of high-profile collapses during the global financial crisis. It is entirely appropriate that the government and the industry should examine the cause of those collapses and that we should move, either by industry practice or legislation, or a mixture of both, to minimise the risk of those collapses occurring in the future. That was what the Ripoll inquiry report was all about. The inquiry, led by Mr Bernie Ripoll from the other place, was well supported by everybody who participated and it came up with very reasonable recommendations. The centrepiece of the Ripoll inquiry report was the recommendation to introduce a fiduciary duty for financial advisers, requiring them to place their clients' interests ahead of their own. To me, as a person who gained a profession, as many others have done, I was disappointed that it was seen to be necessary to make a key recommendation that a group of professionals should put the interests of their clients ahead of their own. It led to the question of why that was necessary and whether there had been failure in the past. Nevertheless, that was the key recommendation and it must be supported. A key observation of the Ripoll inquiry in 2009 was:
The committee is of the general view that situations where investors lose their entire savings because of poor financial advice are more often a problem of enforcing existing regulations, rather than being due to regulatory inadequacy. Where financial advisers are operating outside regulatory parameters, the consequences of those actions should not necessarily be attributed to the content of the regulations.
That is a wise statement, but unfortunately this package has been hijacked by vested interests, and the recommendations of the Ripoll inquiry have not found their way into the legislation as it is before us today.
As I indicated earlier, these bills do not meet the government's own standards. According to the Office of Best Practice Regulation, the government did not have adequate information before it to assess the impact of FoFA on business and on consumers or to assess the cost-benefit of the proposed changes. Armed with that knowledge, it becomes almost compulsory for us in this place to deal with this matter in a way that is reasonable, reasoned and can lead to a better outcome.
Senator Conroy, now Minister Conroy, made this statement in this place when speaking to a trade practices bill in 2006:
You do not just need to be here in this chamber to realise how arrogant and out of touch this government has become, with the ramming through of legislation, ridiculously tight deadlines for legislation, changing the sitting pattern all the time and using the guillotine. It is turning this chamber, which for 30 or 40 years has been a chamber of accountability and scrutiny, into a farce.
I look forward today to the opportunity of honouring the sentiments expressed by Senator Conroy. A hope that we will not see this chamber turned into a farce by, to use his words, 'the ramming through of legislation, ridiculously tight deadlines, changing the sitting pattern all the time and using the guillotine'. I applaud Senator Conroy for those sentiments, and I look forward to his support today to ensure that such actions are not repeated.
The implementation time frame is unrealistic. It is now only 10 days before this legislation is due to be imposed upon Australia's financial consumers and the financial services sector. It would make eminent good sense to delay this for 12 months, to implement it at the time that MySuper is being implemented, because both of them are going to have a profound impact on the sector. It is symptomatic, unfortunately, of this current Labor government's chaotic approach and its lack of understanding of practical business realities that it seeks to impose on the sector significant and costly system changes, with two different implementation dates, in relatively quick succession. It would be more logical, more sensible, more cost-effective, for the entire sector and for this parliament, if this were to be delayed for a 12-month period, if we were to get it right, if we were to debate the amendments that are proposed by the coalition and if we were then to go forward in a way in which the sector would understand and implement it and consumers would have their financial impact minimised. That is very important.
The coalition strongly opposes Labor's push to force people to re-sign contracts with their financial advisers on a regular basis. That is the impact of opt-in. I cannot think of any instance in which opt-in would be preferable to opt-out. It is in fact an insult to consumers of financial services. It is an insult to them that they have to expect a document every year from their adviser which says: 'I'm doing a good job. Sign here on the dotted line.' Surely we should empower them. We should say to the sector: 'You must be more competitive. You must be better with your services. You must appeal to the consumer.' The consumer themselves could in that way have a far more definitive role in deciding who is going to provide those services for them.
I referred briefly earlier to the retrospective fee disclosure statements. The Ripoll inquiry made no recommendation at all to introduce an additional annual fee disclosure statement over and above the current regular statements that are already provided by financial services product providers to their clients. If the Ripoll inquiry, well supported by all sides politically, made no recommendation in this area, what is it doing in this legislation? What is the need for it? The opportunity should be available today in this place, when the coalition moves amendments in this area, for the government to explain why it is that retrospective fee disclosure statements have got to be introduced when no recommendation was made by an inquiry led by a member of the government.
The Financial Services Council has estimated that implementation of the fee disclosure requirements would cost approximately $54 per client for new clients and nearly double that figure, nearly $100 per client, retrospectively for existing clients. I ask: to what end; to what gain; who wins out of this retrospectivity; where is the value of that $100 to the existing clients?
It is not evident to me and it is not evident in the explanatory memoranda. Let us learn when the amendments are moved by Senator Cormann so that the government can explain it.
This is a place of accountability, as Senator Evans himself said, supporting the Senate as a strong house of review, scrutiny and accountability. This is the opportunity for this government to be accountable. I refer to the statement of the Prime Minister in August 2010 when she said:
People do want to see us more open, more accountable, more transparent. I am going to be held to higher standards of accountability than any Prime Minister in the modern age .
I challenge the Prime Minister to pick up the telephone to her Leader of Government Business in the Senate or to the duty minister and to say to the duty minister, 'I demand'— (Time expired)
Senator Moore was the guilty one. In January 2009, a meeting was held in Redcliffe, which is just on the outskirts of Brisbane, and I was called to go to that meeting. We had seen the collapse of Storm Financial. I think it is the only time—no, I have been up to Redcliffe since, because I got a message that there was some search on about my explaining when I went to the Sunshine Coast and how much it cost the taxpayer. I have not been to the Sunshine Coast, but that is another issue we will address with Senator Sterle in a question on notice to the FPA later on.
That meeting was held in a hall packed with about 400 people—60, 65, 70 years of age—who did not know where to turn. Storm Financial had collapsed. What had they done through financial advice? They had mortgaged their homes. What they had worked for all their lives, everything, was on the line. What does a couple do at the age of 70 if they are put out of their home and they have nothing left? Live on the pension? Pay the rent? They were devastated. The one guarantee I gave them that night was that I would seek a Senate inquiry into the very issue of the collapse of Storm Financial.
There are two things I see were wrong then: one was the product and the other was the advice. Let us look at the product. What is a margin loan? For the many listening on their radios now and perhaps some around the Senate who are watching TV in their rooms, an example of a margin loan is that a couple might have a house worth $600,000. It is unencumbered because they have paid it off throughout their life and have reared their family. They are lent $300,000, which is 50 per cent of the value of the house, so it is a $600,000 house and they get a $300,000 loan. That $300,000 is then used as a deposit on a $3 million loan to buy shares. So with no income or very little income, perhaps a little bit of money, they get $3 million worth of shares. The bank or financial institution, whether it be Macquarie Margin Lending or whatever, holds those shares as security, and each week or each month that couple is given money from Storm Financial. They could just retire and live the life of Riley with money flowing in every month and have not a problem in the world—but that was until the stock market crashed. When those $3 million of assets become $1.5 million you have got a real problem. If you are the financial institution and for your $3 million loan those assets are now valued at $1.5 million you have got a real problem. So, of course, the banks called them in.
I will now talk about the product. We have regulations for our cars—and I know that you, Mr Acting Deputy President Marshall, being the very mechanically minded sort of chap you are, would know this—and if your car has power steering, as all cars have these days, the regulations in Australia say if the power-steering pump belt breaks you must still be able to steer the vehicle. So these are regulations that we have in Australia for safety reasons. I question the safety reasons when it comes to financial products. I see ASIC as the corporate watchdog seeing that the products being sold out there in the market are not like the car whose brakes may fail due to a lack of safety regulations and standards in Australia so that if you are going down a hill you crash into a tree. We cannot have financial products on the market that, using the analogy I draw, see people crashing into a tree, especially in the later years of their life when, being frank, they are past the best of their working days and they do not have time to rebuild. It is a tragedy when the financial advice and the products are the two problems.
I was glad to be part of that parliamentary joint committee chaired by Mr Bernie Ripoll MP, a well-known bike rider around the place as he is very keen every morning to get out on his bike and ride with many others. The inquiry was about a bad product. Even during our inquiry the then boss of the Commonwealth Bank, Ralph Norris, said that the bank had done wrong and they would correct it, but I do not know if that has been the case and I think those kind words and sentiment put out by Mr Norris at the time have not been followed up with proper settlements. But, hopefully, most of those people are still in their houses. I have actually sat in a bank mediation meeting in Brisbane with a Storm Financial client and her husband, trying to sort things out for them. That was not the only bank mediation meeting I have sat in on in the last 12 months, I can assure you.
So here were these problems with the product and the advice and, as I said, the product was there whereby people could live the life of Riley, just simply retire and put their house up for mortgage—only to find that when the wheels fell off the cart with the stock market in 2008 their security went and they were in real financial trouble and it was all badly mismanaged. Storm Financial said it was up to the banks that were the lenders to notify the clients that a margin call was on, but the lenders said, 'No, it was Storm Financial managing that and it has nothing to do with us.' The buck-passing went on through the inquiry, but the fact was that the stock market crashed in the global financial crisis and thousands of people involved in Storm Financial were in serious difficulty. I think it was about $4.6 billion in total—a hell of a lot of money. So that was the end result.
Have we learned from that? From that inquiry the main recommendation was that financial advisers have the interests of their clients first and foremost as their fiduciary duty of care. Well, that is obvious; that is how it should be, but I do not know if it always has been like that. We hear of cases where financial advisers in selling their products were recommending products on which they might make better commission—the products from the bank or institution that they represent—even though the products might not perform as well as others. They were doing that because the particular salesman or saleswoman got the best commission. That is why that recommendation was there in the report, so that they must put the interests of their client first, not put first what is best for the person selling the product. That is obvious, and there are many other recommendations.
As I said, the problem was not only about the advice, with the Storm case, but about the product. The product was bad. It was leveraged too high. It was geared too high. It was just amazing that when the share market went up and the book value of those who invested in it went up they got a call from the bank or from Storm: 'We can lend you another couple of hundred thousand dollars. You can buy more shares. We will gear you up more.' That is what the people did as they followed the advice. Of course, when it all crashed it crashed in a big way, putting tremendous financial pressure on those people. Many of those people are in the later years of their life. They are mainly 65 to 75 years old. Some are even a lot older than that. It was a tragedy.
Given the PJC recommendations, it was a good inquiry. It was a learning experience for me. I will quote from the committee report:
The committee is firmly of the opinion that, for at least a subset of Storm's investment clients—namely, clients on average incomes at or near the end of their working lives—the advice to engage in an aggressive leveraged investment strategy was clearly inappropriate. … Some of Storm's clients did not understand, or fully understand, that by borrowing against the equity they had in their family home they were, effectively, putting their ownership of that home at risk.
The committee worked very hard and came up with very strong recommendations. As I said, the key one was that financial advisers must put their client's interests ahead of their own. The government was asleep at the wheel—again, surprise, surprise! Instead of implementing these very good recommendations, its reform package has been a mish-mash. Over the past couple of years there have been many changes to the proposed regulatory arrangements under FoFA to the point where everyone is confused and uncertain as to what the government's plans actually are.
Let us talk about upfront fees. Take seeking financial advice. I am one of those people who usually learn the hard way. I remember that a couple of years ago I was concerned about the market in considering my little bit of superannuation so I said I would put it on fixed interest. So I got in touch with AGEST, who handle our superannuation, and to me 'fixed interest' was fixed interest in the bank so you eliminated the risk of the market. But I found out only afterwards that 'fixed interest' was actually to do with the bond market and when interest rates went up you lost money, so that would be another experience. Luckily, I did go into the bond market about eight weeks ago with my little bit of super, and we have seen interest rates falling so it is probably the first time in my life that I have picked it right.
If we are going to have upfront fees I hope that does not scare people away from financial advice. We all do our own job. You do not expect people running small businesses, working on machinery, working on farms or working in supermarkets to be experts on where to invest their money when they get a little nest egg set aside. Those people who self-manage retirement funds, who have taken out their superannuation and manage their own money, need good, strong advice; otherwise, it can all turn sour. As I said, this happens too often when people are in their later years. My concern is the upfront fees. If you seek some advice from someone and say, 'I've got $200,000. Where will I invest it?' they can say, 'Hang on. First of all, your fees are $2,500.' You say, 'What?' and they say, 'Yes, it's $2,500 to spend a day with me and draw up your plan et cetera.' I am concerned that people will walk away and say, 'I'm not paying $2,500 to seek some financial advice,' when in fact it could be the best advice they ever get in their lives. That is concerning; however, that is the situation.
There is no doubt that people will leave the financial advice industry. The unemployment stack will grow. I want to bring up a few points for you, Mr Acting Deputy President Marshall, because I know you are very interested in this topic. In meetings I have had with industry stakeholders the biggest concern was the opt-in provision, which is a mandatory requirement on consumers to re-sign contracts with the financial adviser on a regular basis, every couple of years. This will lead to more red tape for financial planners and consumers. Does it surprise anyone that the Labor government is introducing more red tape? That would not shock anyone—people listening on the radio, people watching on television. It would not shock anyone that this government is introducing more red tape.
The coalition supports the introduction of the best-interest duty for financial advisers into the Corporations Act. Unfortunately, this government, as in many of its programs, cannot seem to get the definition correct. We support the banning of conflicted payment structures, such as a product commission, within the financial services industry, but the Ripoll inquiry did not make any recommendation to ban commissions paid for risk insurance products. Banning commissions on risk insurance products will increase costs for consumers, remove choice and leave many people worse off, particularly small business people who self-manage their super. We agree that Australians who receive automatic risk insurance within their super fund without accessing any advice should not be required to pay commissions, but we do believe that those who require and seek advice about risk cover inside or outside the super fund should have the same opportunity to choose the arrangement that is most appropriate for them.
The legislation as it currently stands need a lot of improvement, and the coalition will be moving amendments to make it better for Australians. It is too late for those people who were devastated by the collapse of Storm Financial and others, but we are committed to making it better for all Australians. Amendments will be moved by my colleague Senator Cormann, who I think has done a magnificent job in this sector. He has met with industry, he has been with the stakeholders, he has listened. He has learnt so much and he is all over the subject. No doubt Senator Cormann will be putting forward amendments which will make this legislation better. If it is not made better, no doubt the coalition will not support it. We talk about debating and making legislation better in the Senate. That is what this place is for. I hope the guillotine does not drop on this very important bill. Let me quote something that Senator Chris Evans said. It is a very important quote, I feel. On 14 June 2005 Senator Chris Evans, Leader of the Government in the Senate, said:
... the Senate has both a right and a responsibility to debate and review legislation—this legislation and all other legislation that comes before the parliament. That is what Australians expect from this chamber.
They were the magic words of Senator Evans. I will give quote something else from Senator Evans. On 14 June 2005 he said:
It is our responsibility to provide an alternative view of legislation, to speak out when we think things are wrong and to fight for those people whose interests we represent.
Let us hope that Senator Evans sticks to those words today.
I was reading in the paper how the Prime Minister, Ms Gillard, has been over in Mexico at the G20 giving financial advice. What grounds does she have to advise other countries on how to run their country? Perhaps she should go to the website of the Australian Office of Financial Management and have a look at last Friday's $231.8 billion gross debt that this government has built at a rapid rate of knots. You must be concerned about where it is going to end up. In the budget the government has raised the ceiling to $300 billion. What is this about—mortgaging away our children's future? And here we have the Prime Minister giving economic and financial advice to the G20 in Mexico. How ironic! Have a look at our financial management here as far as managing the money goes, which is the job of this place to do on behalf of the Australian people. There was a $231.8 billion deficit last Friday, growing at a rapid rate of knots.
This is important legislation. It needs to be debated. I hope the Greens look at the amendments that Senator Cormann will present to this chamber, which make this legislation better—a lot better. I will back Senator Cormann's knowledge on this issue way before anyone in the Greens when it comes to financial management and regulation, and I hope the Greens show some common sense when these amendments come before this place so we can make this legislation better for the millions of Australians for a long time ahead. If not, no doubt we will tell Australians what the Greens actually think about making bad legislation better.
I rise to join my colleagues in voicing their concerns about the inadequacies of this legislation, the Corporations Amendment (Future of Financial Advice) Bill 2012. The coalition appreciates that the financial services and advice industry plays a vital role and that in fact many Australians, many families and indeed many small businesses rely on this industry to help them realise their individual aspirations. They rely on this industry to help them look after their financial health and wellbeing.
Financial advisers, dare I say, are integral to assisting and guiding people to avoid pitfalls and to maximising financial opportunity. I know as a former small business owner how helpful this advice can be at times—when you need a second opinion or guidance through the paperwork. Most small business owners and operators do not have the time to do the due diligence and they do not have the time to do the necessary research to look at various options and what is in their fiduciary best interests. Their focus is on keeping the doors open and on supporting the staff and the families that work for them. This industry is of particular import to them.
The financial services reforms legislated in 2001 put in place a solid regulatory foundation for our financial services industry. Of that there can be little doubt. Financial services providers deal with other people's money, making it vital that a robust regulatory framework is in place. The coalition appreciates this and it is why we made those financial services reforms in 2001. We will always support legislation that improves regulation, that makes the industry more simple and cost effective for everyone. The government's legislation in its current form, however, does not achieve that. Our role in this place is to enact legislation that will improve the lives of those that we represent. We are not here to provide more hurdles or to introduce further layers of bureaucracy and more red tape. We are here to cut the red tape and regulatory overreach that hinders Australians in their everyday aspirations, including financial aspirations. We are here to help Australia's financial services industry to achieve a balance between providing consumer protection and providing access to high quality financial services. This government's legislation, in its current form, does not achieve that either.
As colleagues have already outlined, the coalition cannot support this legislation without a series of significant amendments. But this did not have to be the case. Indeed, if the government had accepted the reasonable reform recommendations advised by the Parliamentary Joint Committee on Corporations and Financial Services, then it would have been a very different story here today. Instead, Australians will be weighed down by yet another piece of legislation that yet again makes life more expensive and more complicated. The government should be helping to develop an industry that supports citizens to realise their financial goals, rather than blocking them. But this government have never understood that. Every day since they have been in government, they have made it more difficult and tougher for the average Australian.
The global financial crisis made it clear, here and around the world, that policy makers need to take a closer look at this industry to see what can be done to protect against similar crises in the future. As we know, Australia did fare better than other nations, but financial service providers such as Storm Financial, Trio and Westpoint collapsed. We were all in agreement that a serious review was needed, which is why in February 2009 the parliament asked the Parliamentary Joint Committee on Corporations and Financial Services to conduct an inquiry. The inquiry, as we have heard, was tasked with undertaking a thorough examination of Australian financial products and services, which it did, reporting back nine months later in November 2009, after an exhaustive consultative and comprehensive process.
The recommendations that came out of that inquiry, the Ripoll inquiry, were considered and had the support of the coalition. As I said earlier, if the government had proceeded with legislation enacting those recommendations, there would have been bipartisan support and backing today. The inquiry's report observed that
… situations where investors lose their entire saving because of poor financial advice are more often a problem of enforcing existing regulations, rather than being due to regulatory inadequacy.
The report recommended the introduction of fiduciary duty for financial advisers that required them to place their clients' interests ahead of their own. We did not actually see a demand for more and more layers of red tape and bureaucracy here; rather, the better and more effective implementation of the regulations that currently exist.
That report and the recommendations were received, as I said earlier, by the government back in 2009. Yet here we are, some two years later and the legislation that we have before us does not reflect the recommendations of that report. It begs the question: why is it that we are dealing with this only days before 30 June. What we have before us in the Senate is yet another example of gross government incompetence. The government has let vested interests hijack its Future of Financial Advice package. We have witnessed two years of the government taking what could have been strong and effective legislation and slowly tearing it apart piece by piece. There has been a steady stream of unexpected and unnecessary changes to create the flawed legislation that we have before us today. Right up until the introduction of the legislation, the government was making changes, trashing the legislation and the corresponding improvements to the financial services industry that could have flowed from it. On this side of the Senate, we have watched, I have to say, with absolute dismay. We are completely baffled by the constant changes—changes carried out with no clear appreciation of their costs or their implications.
The legislation in its current form is not for Australians seeking financial advice. I say it is not for them because it will lead to increased costs and reduced choice for people who look to the financial services industry to assist them in reaching their financial goals—and, as we know, that is a lot of people. They are families, small businesses and individuals who are all working hard to build their assets and who are being asked by the government, yet again, to cough up more money and for less choice. This is of huge concern to us on this side of the chamber, particularly at a time when we know that Australians are under significant pressure from the high cost of living pressures that will only be exacerbated after the introduction of the carbon tax on 1 July.
If all this was not enough, it is predicted that increased unemployment will stem from the FoFA package. With this legislation, which is unnecessarily complex, the government is enshrining, yet again, an unlevel playing field among advice providers. It is favouring a government-friendly business model—hardly surprising, given the track record of those on the opposite side. Of course the government favours its friends, as we know. And the public have thrown up their hands in frustration at the government's special treatment of its union buddies. Yes, once again, we are not surprised. Are we disappointed? Absolutely, damn right, we are disappointed, but it is for us to demonstrate that this legislation is not only inappropriate but that the government should come clean and allow amendments to it to be passed. The government should amend the FoFA package rather than pushing ahead with its implementation, which, according to conservative industry estimates, will cost $700 million and an additional $350 million per annum to be complied with.
Although important financial advice reforms have been delayed by more than two years, the government wants to implement this costly legislation on 1 July. Even the government sees that it is a ridiculous time frame, so now we are left with a 'soft' start date on 1 July. It begs the question: what is the definition of—to put it in their words—a 'soft start'? A soft start sounds to me like a perfect recipe for causing huge confusion among both consumers and advisers. The government still expects people to implement some changes stemming from this legislation in just over a week. But how can the government seriously expect people to change their business practices within that time frame? More importantly, how are consumers supposed to know which adviser is complying with which rules, old or new? There will be a so-called 'hard' start date on 1 July 2013—next year. So we have two start dates. We have a soft start date and we have a hard start date. It sounds to me like the first date will be nothing but a false stall date.
The government would be better off conceding that all its delays and changes have made it impossible to stick to the unrealistic time frame of 1 July 2012. The government should be practical, logical and sensible about this. It should take the common sense approach and implement this legislation properly and appropriately in the next financial year but in an amended form. The sensible approach would be to accept the coalition's amendments and work towards a realistic start date in 12 months time. This would most certainly remove the fear and uncertainty associated with this legislation, giving consumers and financial advisers the breathing space to understand and better prepare for the implementation of the necessary changes. As we know, that would be the sensible approach, the common sense approach, but we know that it is not the way that this government goes. We know that, time after time, it has not been their course of action.
Regrettably, the government prefers a chaotic antibusiness approach. This is engrained in absolutely everything it does and in every policy decision it makes. Another example of the government's antibusiness approach is evidenced in its failure to conduct an appropriate regulatory impact assessment of these bills. When instigating regulatory changes, it is of paramount importance that a government thoroughly assess the resulting costs and red tape for both businesses and consumers. Not only is this assessment process of paramount importance but it is consistent with the government's own best practice regulation requirements.
The government's own Office of Best Practice Regulation found that the government had inadequate information to assess the impact of these FoFA bills on both businesses and consumers—which, I have to say, hardly inspires confidence. If the government does not understand how FoFA will impact on costs and red tape, how on earth are the financial services industry and its clients expected to? The fact that the government is creating uncertainty and unnecessary headaches for the financial service providers should ring a very loud bell. The government had the opportunity here—and, in fact, still has the opportunity—to improve this and take on board the coalition amendments.
These are the amendments recommended by the coalition members of the Parliamentary Joint Committee on Corporations and Financial Services, the most important amendments including a requirement by parliament that the government table a regulatory impact statement on FoFA, assessed as compliant by the government's Office of Best Practice Regulation. I cannot stress enough the importance of the government's legislation complying with its own best practice. Why have an Office of Best Practice Regulation if the government does not look to its expertise to carefully assess legislation such as this? It just flies in the face of all common sense; it is beyond belief. The implementation of this should be delayed. A delay would not just allow financial service providers and their clients the time needed for implementation but also provide a great deal of surety for consumers as well. A delay would mean that the major changes associated with FoFA would align with the major changes to MySuper. Both MySuper and FoFA require significant changes to the same financial service provider IT systems.
The government is also wrapping up the financial services industry in more red tape with its mandatory requirement that consumers re-sign contracts with their financial advisers on a regular basis. The requirement is not one of the initial inquiry recommendations, and the government cannot give even one example of another country that imposes such a requirement. No other country is being factored in that has done this and demonstrated that it is a good thing today. Yet again we are seeing this government proceed with something that no other nation has considered as an effective and better way to provide regulatory oversight.
The coalition is confident that the best-interests duty, fee transparency and the client's ability to opt out of advice at any stage give adequate protection to clients. We would completely remove the opt-in requirement if returned to government. The coalition would also, as some colleagues have expanded on, simplify and streamline the additional annual fee disclosure requirements and improve the best-interests duty.
The government has missed a real opportunity here to provide clear and effective reform. Sadly, those who work in financial services and their hardworking clients will suffer the most from the government's incompetence and lack of judgment.
I have been following this legislation—the Corporations Amendment (Future of Financial Advice) Bill 2012 and the Corporations Amendment (Further Future of Financial Advice Measures) Bill 2012—with interest, because I spent some years in the financial services industry and have indeed been a financial adviser. So I have a very acute understanding of the benefits of strategic financial advice for Australian consumers and of the importance of that. This is an issue that I think is not understood by far too many people—perhaps even in this place.
But in saying that I will also say that these bills seek to allay some fears or to put forward the notion that the government is actually doing something to protect consumers from themselves or from some sort of rogue. In my view the government clearly has failed to understand that the overwhelming majority of financial advisers do the right thing by their clients. Whilst it may seek to make changes it thinks will be in the interests of consumers, the glaring holes, the lack of response and the lack of consideration of the joint inquiry into financial services—the Ripoll inquiry, which has been referred to recently—plus the overwhelming addition of bureaucratic red tape is ultimately going to disadvantage consumers trying to get timely, affordable and independent financial advice.
The financial services industry has performed very well throughout a number of very trying times—the global financial crisis. Certainly I have to acknowledge that there have been some problems. We have had some schemes that have not worked well. We have had some financial service providers that have clearly done the wrong thing and made presumptions. There have been cases of illegality. There have been cases of fraud and deception. But we have ASIC, we have the corporations regime and we have various other licensing regimes to deal with these failings. If the government is looking to penalise an entire industry for the failings and the rogue actions of only a few, then it would appear that this legislation is going that way. I say it is the wrong approach to take. The Ripoll inquiry, which looked into this bill and made a number of very reasonable recommendations, was about providing a framework for legislative change, a framework the government could have adopted with bipartisan support. Common sense and bipartisan support are not, however, what this government is seeking. This government, in typical Labor fashion, has chosen not to follow the common-sense path and not to look for something that could be supported by both the major parties—and indeed some of the Independents, I am sure. Instead, it has chosen to make things harder, it has chosen to make things more complex and it has been influenced by vested interests.
In striving to improve legislation, we should not be looking to make things more complex; we should be trying to simplify them. Simplifying them not only enables consumers to more readily understand what they are being presented with but allows advisers to provide straightforward advice, knowing that it is compliant, in the best interests of the client, without the fear of having to create a paper trail that goes on forever. Increasing red tape when there are more sensible options on the table does nothing to improve the situation. The FoFA package of bills, as it currently stands, will adversely impact the financial services industry. It will increase costs, it will ultimately reduce choice for Australians, and a number of sections of the legislation will, as I said, increase red tape and make things much more complex for the industry.
There is an expectation within the industry that the FoFA package of bills will increase unemployment and put many financial advisers out of business. In a submission to the parliamentary committee, the managing director of AMP Financial Services, Craig Mellor, forecast that up to 25,000 jobs could be lost in the next few years. The Association of Financial Advisers also predicted job losses of around 30,000 and said:
… FOFA, as it stands, will decimate the financial advice profession.
These people are not merely being harbingers of doom; they are expressing genuine concerns. If we add those concerns to the conservative industry estimate that the cost of implementing these bills is around $700 million and that there are going to be another $350 million worth of compliance costs annually, you have to ask: who is going to benefit from this?
This legislation is going to put up industry costs, and ultimately that increase in costs is going to be passed on to the consumer. It is going to be prohibitive for many consumers to get appropriate advice before making what can be life-changing decisions. That is why the coalition is seeking to improve this legislation. It is not that we are opposed to it; we are just opposed to it in its current form because it is not in the consumers' interests, it is not in the advisers' interests and it is not in the national interest. We cannot support the bills in their current state. I say to the government and to the minister that, if you accept our amendments, we can significantly improve this legislation—which would then be worth supporting.
I remind members of the government of the words of the Minister for Finance and Deregulation, Senator Wong. Back in 2010, she spoke about the Office of Best Practice Regulation:
Well designed regulation is of critical importance to the Australian economy. Good regulation can encourage innovation and minimise compliance costs for business, including small business, and the not-for-profit sector. Poorly designed regulation, however, can cause frustration and impose unnecessary costs on all sectors of the community.
I agree with Senator Wong. It is one of the things we do agree on. Poorly designed regulation can increase compliance costs and cause frustration for members of the community. If Minister Wong and her colleagues truly believed these words, they would support our amendment which would require the government to table a regulatory impact statement on FoFA assessed as compliant by the Office of Best Practice Regulation. They will not do that. They will not live up to their own best practice regulation requirements, which are aimed at avoiding higher costs and avoiding red tape for business.
Why will they not do it? Because they are belligerent in their approach to legislation. They think they know best. They think the industry knows nothing, that the industry has no common sense. This attitude is apparent not just in this package of bills but in a whole raft of areas where this government has refused to listen to the wisdom of those who actually know what they are doing. I do not know how many on the other side of the chamber have worked in this industry. I do not know how many have actually worked in private enterprise at all, quite frankly. We cannot get to the bottom of that, but it may only be a handful of them. Have that handful had any input into this? I would suggest not.
I will summarise some of the many issues attached to these bills in the very brief time I have left. We have said that the package of bills is unnecessarily complex and that in many parts it is unclear. That has been made very clear by members of the industry themselves. As I have mentioned, it is expected to cause an increase in unemployment. We think the legislation actually enshrines an uneven playing field amongst financial advice providers—it inappropriately favours a government-friendly business model. If we took financial advice that was along the same lines as the approach this government takes to managing the nation's finances, this country and every individual within it would be on the way to going broke. The FoFA package of bills is going to increase costs—$700 million to implement it, then $350 million a year.
That is why we want to amend this legislation. We want the opt-in provision to be removed so that people do not have to go back and sign a new contract with their financial adviser every year—they can honour the commitments they have entered into knowing that this is going to be in their best interests. We want the drafting of the best-interests duty to be improved. We want the ban on commissions for risk insurance inside super to be further refined. We could go on and on.
Most importantly, we need to delay the implementation of these reforms until 2013 so that it can align with MySuper. We need to make sure the government's legislation reflects the concerns of the coalition—which are the longstanding concerns of the community and the industry—and implements our amendments. As has been said, the coalition members on the Parliamentary Joint Committee on Corporations and Financial Services agree with many of the recommendations made by the Ripoll inquiry. It is shameful that this government not only ignores a worthwhile inquiry by a joint committee of both houses of parliament but has ignored the recommendations of its own members.
Pursuant to contingent notice of motion, I move:
That so much of standing order 142 be suspended as would prevent further consideration of the bills without limitation of time.
The reason I move this motion and strongly encourage the Australian Greens to give serious consideration to it is that the Senate has not had enough time to debate these Future of Financial Advice bills. The government is obviously desperate to avoid scrutiny by the Senate of this deeply flawed, deeply conflicted, job-destroying FoFA package. Some 63 amendments to the legislation have been circulated—18 amendments from the government itself. The government, with the arrogant process it is imposing—by the look of it with the complicit aiding and abetting of the Greens political party—wants to ram this bad, conflicted, job-destroying piece of legislation through the Senate without the Senate having any opportunity to debate the merits or otherwise of any of the amendments. That is not good enough. We certainly urge the Greens not to make themselves complicit yet again with this bad, dysfunctional and incompetent government as it tries to avoid the scrutiny of the parliament by ramming through bad legislation.
These bills impose significant additional red tape, significant additional complexity and significant additional costs on small business, financial advisers and consumers. These bills reduce choice, reduce competition and reduce the diversity in the financial services industry that consumers across Australia are looking for. The government took more than two years to put this legislation together. There was constant chopping and changing. Every time Minister Shorten tried to pursue the vested interests agenda of his friends in the financial services market, the rest of the industry and consumer groups and others were able to point out the deep flaws in his preferred policy approach. We had his foray into doing the bidding of his friends and then we had the backdown. We had the foray; we had the backdown—one after the other. There has been chopping and changing every step of the way for two years.
The legislation was introduced into the Senate only very recently and we only started debating it last night. There are 63 amendments listed for consideration—and these bills are supposed to come into effect on 1 July 2012, 10 days from now. These bills impose a significant additional burden on the financial services industry—a very important industry for Australia, a very important industry for our economy and a very important industry for those Australians who are working hard to achieve self-funded retirement. This is a set of bills which, according to the government's own explanatory memorandum, will cost 6,800 jobs in the financial services industry and which, according to industry estimates, will cost $700 million to implement and $350 million to $375 million to comply with per annum from there on in. It is a piece of legislation that did not even go through the government's own best practice regulation processes. By not conducting a proper and genuine regulatory impact assessment the government did not comply with its own most basic process requirements.
You would have thought that if any bill required a proper regulatory impact assessment it would be the sort of bill that would cause 6,800 jobs to be lost in the financial services industry; it would be the sort of bill that would impose an additional cost of $700 million to implement; it would be the sort of bill that would impose an additional $375 million worth of compliance costs per annum. But not with this government or this minister. Minister Shorten is pursuing the vested interests agenda of the super industry network. He is throwing process overboard. This arrogant, divided, dysfunctional, incompetent government cannot bear to have these bills properly aired, properly scrutinised, properly debated in the Senate, and the Senate should not stand for that. The Australian Greens should not be aiding and abetting a deeply divided, dysfunctional and incompetent government that is trying to push bad legislation through the parliament.
Even though this legislation is supposed to come into effect on 1 July 2012, the regulations are not finalised, the ASIC guidance on a big part of this legislation apparently will not be finalised until the end of the year and the code of conduct which is going to be important for the operation of this legislation will not be finalised until next year. There is an amendment on the books that says the government will make it a soft start. These are the sorts of things that the Senate should be able to debate, because a soft start will not work—we need to defer implementation until 1 July 2013. (Time expired)