It was most interesting to listen to my colleague the member for Solomon, for whom I have the greatest respect but with whom I disagree entirely in terms of this bill.
She mentioned that our proposals were designed just to regulate, regulate, regulate. In my view, it was designed to protect, protect, protect. And, indeed, protect we needed to do, particularly given the financial tragedies that besmirched so many Australian families as a result of Storm and many other financial disasters over the last decade. I will be talking about one those, which touched the life of my family further on in my speech. As I said, I have the greatest respect for the member for Solomon, but I disagree entirely with everything that she mentioned, particularly about this bill. Our proposals were designed to protect, protect, protect the consumer.
This bill, the Corporations Amendment (Streamlining of Future of Financial Advice) Bill 2014 seeks to significantly weaken the future of financial advice reforms put in place by Labor. In doing so, this bill rips away important and sorely needed consumer protections. Our FOFA reforms are something we are incredibly proud of. These reforms were welcomed by both consumers and industry alike, they were the result of years and years of consultation and they were a significant step forward in the financial services sector. The CPA Australia and the Institute of Chartered Accountants Australia encapsulated the positive reception that the reforms received in their submissions to the Senate inquiry, where they said:
The passage of the FoFA reforms was the result of extensive, wide spread consultation over many years. Its introduction marked a milestone opportunity for the sector to take a greater responsibility and refocus its efforts on providing and promoting quality financial advice in the best interests of the client, free from conflict and in a transparent manner.
'Quality financial advice in the best interests of the client, free from conflict and in a transparent manner'.
In the wake of the collapses of Storm Financial and others, and the subsequent parliamentary inquiry into financial advice, products and services, Labor's FOFA reforms sought to strike a balance by introducing further consumer protections while simultaneously requiring financial advisers to meet higher standards of care and skill. I would not think that was too much to ask. The original twin objectives of FOFA were to rebuild trust and confidence in the industry and to expand the affordability and accessibility of financial advice.
The reforms that Labor introduced were the most significant reforms in financial services for a generation, for 20 years, and included several measures designed to protect investors and help the industry professionalise. They included: the best interest duty, requiring advisers to act in their clients' best interest— not something one would expect would be too difficult for a professional; opt in, requiring advisers to get their clients to opt into receiving ongoing service every two years; annual disclosure, where statements are to be sent to clients annually disclosing fees and details of services performed; conflicted remuneration ban, this was implemented where commissions are paid by financial product providers to financial advisers.
The whole basis for introducing the FOFA reforms was to restore faith in a sector rocked by high profile collapses. It saw enormous tragedy right across the nation for families; it was intergenerational. It was also designed to eliminate a poor culture of product sales over advice and now, with $1.8 trillion of savings, to ensure that Australians are getting advice and service that is in their best interests. During the reform process over many years there was extensive and intensive industry and public consultation that clearly identified a path to achieve growth, protect consumers and to restore trust. That was done through three channels: by changing the culture of the past 20 years, by lifting standards and professionalising, and acting in clients' best interests. When you say this out loud, you would think these were just normal business practices —modern day, professional business practices. The fact that there are so many objections to changing the culture of the past 20 years, lifting standards and professionalising and acting in their client's best interests—why anybody would object to that is beyond me.
Why were these reforms necessary? They were primarily necessary to protect consumers. As I mentioned before, I am going to cite the example of my mother-in-law, my sister-in-law's mother. She was a single mum. She brought up her kids on her own and worked very hard and managed to own her own home on her retirement. When she retired she had some savings; her house was paid off and she was looking forward to going on to the next journey of her life of post-retirement. She went to see a financial adviser. That financial adviser gave her a great deal of advice, none of it good. That financial adviser's advice has resulted in her having to sell her house, losing an enormous amount of money—hundreds of thousands of dollars. She had to go back to work, she is now living in rental accommodation and essentially her future looks very bleak. We are talking here about a woman in her late 60s or early 70s.
That is just one story, but everyone in this chamber would have experiences—either their own personal experiences or the experiences of their constituents— of those who have been the victims of shonky financial advisers. People have been ripped off, have had their life savings ripped off, their houses gone from them —houses they have spent all of their lives paying off, ripped away from them—as they have had to sell them. Their future—their financial future, their retirement future—has been completely obliterated. They are now facing rental accommodation and they are now facing having to return to work—if they can get work at the ripe old age of between 65 and 75. They have got nothing—no nest egg at all, despite a lifetime of hard work—as a result of shonky financial advisers. That is my own story, my family's story, but, as I said, everyone in this chamber would have experiences, through their constituents or personally, of people who have been ripped off by these shonky advisers.
I am not saying that that is the majority of the industry. I know it is not. When I had my own small business, I sought the advice of a number of financial advisers. It was at all times professional, it was at all times valuable, and it was at all times worth the investment. But there are shonky financial advisers out there, and these protections, the protections that Labor proposed, were designed to protect Australians consumers against those less than reputable—evil in my mind—operators.
I want to highlight another story that was brought to my attention through Choice. It is Lyndi's story. I will not read out the full story, but this is her view:
I am shocked that the government is trying to wind back what little protection we have when seeking financial advice.
For me, getting financial advice wasn't about becoming wealthy. It was about having enough to retire on. And it's all gone horribly wrong.
I am a 57-year-old mum with two teen boys. Instead of preparing for retirement, I'm using more than half my wage to pay a debt from a risky financial product an adviser convinced me and my husband was a good investment.
In 2006 a financial adviser offered me and my husband a financial check. She had us complete questionnaires about our monetary goals. I was coerced into changing some answers so she could rate us as aggressive investors. She then presented a scheme where we would be $700,000 in front by 2014. She made it sound foolproof so we borrowed to invest in a share portfolio, a "capital protected" loan for more shares, and a tree plantation (which we have since been advised was very high risk but with excellent commissions for advisers).
My husband and I are both university-educated people but we never really understood what we were doing. Our adviser was obviously very smart and very convincing. We know now we shouldn't have gone ahead with the loan, but we thought our advisor was working in our interests and knew what she was doing.
When the GFC hit, our investments collapsed. We ended up with a debt of $276,000. We're lucky we didn't take our adviser's other suggestion and get a risky margin loan; if we did we would have lost the house as well.
That is just one example. These are people who admit they are university educated—obviously highly educated, confident people—and yet they were the victims of bad advice. I believe that even the most highly educated consumers in this community need protections, which is what Labor's proposals were designed to do: protect, protect, protect.
The government wants to water down those protections. The government has announced changes to the FoFA reforms, including: removing the essential catch-all provision in 'best interest', which adds a loophole for advisers that means 'best interest' will become ineffective; scrapping opt-in, which allows advisers to continue to charge fees, sometimes without having actively worked on a client's while, indefinitely without receiving consent from their client; amending annual disclosure provisions so that advisers now only have to provide annual disclosure to clients who commenced with them after 1 July 2013, which was the start date of FoFA, rather than to all of their clients; and lifting the ban on conflicted remuneration. This ban will only apply to commissions on general advice. Other forms of conflicted remuneration will be allowed, including as part of a balanced scorecard approach for both general and personal advice. This will open the door for a sales push culture of products over advice.
The member for Solomon, my well respected colleague, said that what is being proposed by the government will restore the balance between regulation and protection. I will give you some views from a number of organisations and individuals who beg to differ. Choice, Council on the Ageing, and National Seniors have all been critical of the Abbott government's changes, particularly focussing their criticism on the removal of best interest, opt-in, annual disclosure statements and the return of conflicted remuneration. We heard this today from a number of speakers, but I will reiterate it again: even Alan Jones —who is no fan of Labor, as we know—is critical of the government's changes. He praised Labor's laws on his show on 25 March this year, saying:
I am not happy with what is being proposed here by the Abbott Government, there are some times when we are dealing with people's money that certain protections are needed ... I'm no fan of the Labor party— we know that— but I think on this issue their legislation is correct.
The Financial Planning Association of Australia wrote: … the FPA strongly opposes any possible reintroduction of commissions for financial product advice on superannuation or investment products. There are several risks which are associated with commissions for general advice.
I think this is a point that we need to factor in: one of the aims of Labor's reforms was to re-establish trust and confidence in the industry. Here we have the Financial Planning Association saying:
Thirdly, commission payments have also eroded public confidence in our financial system. Australians will not have the confidence in our financial system as long as providers of products or advice are exposed to perverse incentives such as commissions.
Choice said: … we are concerned about the watering down of the best-interest obligation, the changes to rules about conflicted remuneration, the removal of … opt in … We see these things as pretty basic consumer protections and, indeed, signs of basic good practice in business that any financial adviser should be happy to sign up to.
The Australian Institute of Superannuation Trustees said: Mums and dads expect advice from advisers and they expect sales from sales people. Investors have an understanding of the difference between those two terms.
Industry Super Australia said: Industry Super Australia is concerned that the measures proposed in the bill being considered by this inquiry will significantly dilute key consumer protections in financial advice law and therefore increase the likelihood and impact of future financial advice scandals.
COTA said: We believe the cumulative effect of these changes is to seriously weaken the reforms, giving less consumer protections and ultimately undermining confidence in the financial advice sector.
And Alan Kohler said: Under the cover of streamlining the laws and removing red tape to lower cost, the Government is proposing eight changes to the law that will allow banks to once again use licensed financial advisers to sell investment products while pretending to provide independent advice.
These amendments add up to the comprehensive return of disguising sales as independent advice, which the advisers themselves have been trying to get away from.
There are a lot of people who are rightly angry and disappointed at the actions of the Abbott government in watering down these important reforms: mums and dads, retirees, people who have lost money in the past and many, many thousands of ordinary Australians. Financial products are complex. I do want to see an improvement in financial literacy, but we need a system that is transparent and protects the consumer.