Future of Financial Advice

I rise to speak on the Corporations Amendment (Future of Financial Advice) Bill 2011 and cognate bill. The financial services and advice industry is an essential service of the modern era, protecting and enhancing the financial health and wellbeing of millions of Australians. For people planning their retirement or supporting their children’s future, good financial advice is often on a par with shelter and energy as a basic requirement. In this time of global economic volatility, this service has proved to be even more important to Australians seeking to better manage financial risks at the same time that they seek to maximise those financial opportunities.

Australia, as the member for Forde would be aware, may well be a physical island but it is definitely not a financial island. For instance, the instability in Europe in particular means that investors and financial advisers alike are watching the markets extremely closely so that they can provide that advice. Given that financial service providers effectively deal with other people’s money, it is important that we have an appropriately robust regulatory framework in place to provide effective consumer protection-and we do have so. As we heard from the shadow minister, that is the case. It is because of the work done by the previous coalition government in 2001.

The dual purpose of protection and promotion comes with the need to ensure that financial advice is not only high quality but also readily available, accessible and affordable. We should not lower standards of service; however, it is important not to price it beyond the means of every day Australians-those who are struggling and working towards financial independence. The House should note that most of these investors are not, as the government seems to claim at times, billionaires-those who are so demonised by the government. Most investors are hard-working aspirational Australians. They could be individuals, they could be small to medium business owners from all walks of life and all backgrounds, including as I said those raising their families and needing to invest in safe but productive investments. In so many cases they are simply self-starting small business people not relying on superannuation alone to get them through.

They can see clearly that average superannuation, given the time they entered the workforce, will not be enough to sustain them in later life. Investors are also retiring small business owners who have sold their businesses, be it a cafe, a retail store or a farm. People are prepared to live off those assets in their later life. And it does include that very important group that the government does not value, the self-funded retirees. It is these people who literally save the government millions in pensions and who save and work for their own future. They also need to be considered in this discussion today.

The shadow minister for finance, Senator Cormann, met a group of financial advisers in my electorate when we were discussing the implications of what the government was planning. They are extremely concerned. Like so many other financial advisers in the industry, they act in the best interests of the client. They provide long-term professional services. There may be some who do the wrong thing but what they do know is that trust is critical. Financial advisers in my electorate know that they are in a regional area where clients can vote with their feet any day of the week. If they do not like the quality or level of the advice, if they are not satisfied with it, they can literally walk out the door and find a new financial adviser.

Clients do two things: they walk and they talk-and this is particularly relevant in rural and regional areas. I would say to any financial adviser: word of mouth circulates very quickly in regional communities. Financial advisers in my part of the world are very well aware of this, but they are determined to act in the best interests of their clients. Their clients often become their friends, people they care passionately about. So they want to provide quality, effective and affordable advice, and their service reflects this.

Under this legislation, if one of my constituents fails to complete a renewal notice in the 30-day period, they will now be left without financial advice. That is where they will find themselves. We have heard the shadow minister for small business talk about the fly-in fly-out workers and where they will find themselves. I have over 5,000 of those in my electorate. For these people and others-ordinary people, farmers, people in small business, people living in rural and remote areas and even just very busy individuals-that 30-day period carries extreme implications. For instance, if you happen to do your accounts once a month, where could you be left? For small to medium sized business owners, the 30-day period has some pretty significant implications.

One of the key observations of the Ripoll inquiry in 2009, which the coalition committee members continue to support, 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-

that needs to be stipulated strongly in this House-

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 why I really support the concerns of the opposition.

The legislation in its current form is unnecessarily complex, and this has been articulated quite strongly in this place. In large parts, it is unclear. We have heard that articulated. Nobody knows what is ahead-how it is going to work. It is expected to cause increased unemployment in the sector and is legislating to enshrine an unlevel playing field amongst most advice providers, inappropriately favouring a government friendly business model-the big players. 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.

We have suggested some amendments, and I support those. They are sensible in trying to improve what the government has put before us. We will move that the government be required by parliament to table a regulatory impact statement, something that has not happened. It is just extraordinary that you would introduce a bill of this nature and yet there is no regulatory impact statement.

Mr Van Manen interjecting-

Ms MARINO: As the member for Forde says, it is a breach of the government’s own requirements. It needs to be assessed by the government’s Office of Best Practice Regulation. We will move that the ‘opt in’ be removed. We know the problems with opt in. We will move that the retrospective application of the additional annual fee disclosure requirement also be removed. We have heard from the shadow minister just what this is going to do in practical terms. We will also move that the drafting of the best interest duty be improved, that the ban of commissions on risk insurance inside super be further refined and that the implementation of FOFA be delayed to 1 July 2013 to align it with MySuper.

Should the government not agree to these amendments, I fear that it will be even more apparent that the primary consideration of the Labor government with this legislation is to increase the union management-the industry superannuation funds. Unfortunately it will be apparent that that is the driving force behind the government’s agenda with this legislation. The parliament should note the current debate about openness and accountability in superannuation funds. I think we would all remember who said, ‘Let the sun shine in.’ That is not what we are seeing with this bill and it is certainly not what we are going to see with the failure to provide a regulatory impact statement.

The Financial Services Council, which represents retail super funds, has proposed new policy which requires boards of super funds to appoint an independent chair-they are out there on the front foot-and to have a majority of independent directors defined as those not employed by the company or the fund. These are sensible proposals. The proposals would also require the disclosure of directors fees and wages of senior management and would prevent directors from holding multiple directorships in different super funds-very practical and sensible recommendations.

Retail funds will apply these rules, but I wonder whether industry funds will do the same. Will industry funds apply the same level of accountability and transparency? It may come as a shock to the many union officials supported by industry super funds, but it really should be a minimum standard for accountability, and we will see whether that prevails. I ask the House to note the recent case of the power struggle between the New South Wales and Victorian branches of the Electrical Trades Union. According to the Australian, the Victorian boss of the Electrical Trades Union, Dean Mighell, is suing ETU’s New South Wales head, Bernie Riordan, to reclaim more than $1.8 million in fees Mr Riordan allegedly received while serving on four boards connected with their superannuation funds.

It would appear that Mr Riordan’s ETU annual wage of $133,000 plus super was allegedly supplemented with as much as $264,625 a year in board sitting fees. The dispute allegedly is that according to Mr Mighell the board sitting fees should be funnelled back into the union coffers instead of Mr Riordan’s. That is what is happening with regard to some of the sitting fees, which does raise some questions about the content of the bill before us. We will see what the government genuinely intends.

The Australian financial system, including the value of financial advice, was tested, as we have heard, during the 2008 global financial crisis. In that time of extreme stress, the Australian financial services industry did perform overall very well. Quality advice and timely advice was provided to people at that time. That in no doubt was due in part to Australia’s financial services reforms of 2001 that provided such a solid regulatory foundation for our financial services industry. I believe that was well recognised around the world. Not that we should be resting on this because there is more that can and should be done, and we are seeing the industry getting on the front foot and taking even greater responsibility.

Our focus should be on improving the process not adding more complexity, more cost and more red tape, because this will amount to higher costs. We know that Australia is already overburdened by regulatory red tape and that results in increased costs for both businesses and consumers, and often for little or no additional consumer protection benefit.

As we know, these bills are supposed to be as a result of a number of high-profile collapses. As the member for Forde frequently says, it was not as a result of advice. I know that the reform recommendations from the Ripoll inquiry to introduce a fiduciary duty for financial advisers require them to place their clients’ interests ahead of their own. Whilst the current bill seeks to address this, it does so in a clumsy and heavy-handed manner. Unfortunately, this seems to be a constant theme of this government: to find the wrong answer to whatever question and issue is before the parliament or the government. I note that the Ripoll inquiry observed that the committee was of the general view that a situation where investors lose their entire savings because of poor financial advice is more often a problem of enforcing existing regulations rather than regulatory inadequacy.

This goes back to the heart of the issue: advice and regulation. I repeat: where financial advisers are operating outside regulatory parameters, the consequence of those actions should not necessarily be attributed to the content of the regulation. That was what was said in the Ripoll inquiry. The wider community, including financial advisers, agree with the principle of applying a best interest duty, and if those financial advisers whom I meet in my electorate are not doing so on a consistent basis then their clients can and do walk out of the door and go to an alternative source for that type of advice. (Time expired)