Corporations Legislation Amendment (Future of Financial Advice) Bill 2012
It is a great pleasure to be able to speak on this bill tonight which seeks to amend the Corporations Act 2001 and to ensure greater regulation and reform of the Australian financial planning industry.
Before I go on, I just want to make some comments in regard to the member for Herbert's comments. He seems to think that Labor has a hatred of small business and a disdain for success. I take issue with that because the facts are completely to the contrary. We have just recently announced a small business commissioner, which is a very welcome innovation and was welcomed by COSBOA's Peter Strong here in Canberra just last week. We are also trying to introduce legislation so that we can give small business a tax cut come 1 July, and also a $6,500 instant asset write-off. The beauty of that asset write-off program is that, with this asset writeoff—it is $6,500—you can have as many $6,500 as you want. So, speaking as someone who was in small business in my former life, it will be a huge boon. It will be a huge benefit for small business in terms of going out and updating and refreshing their technology and also in getting more clean energy technology. So it is going to be a very welcome program when it is introduced and very much welcomed by small business. So—with all due respect to the member for Herbert, who does have a small business background as I have had—I do take offence at and take issue with some of the sentiments that he just mentioned.
These two bills, the Corporations Amendment (Future of Financial Advice) Bill 2011 and the Corporations Amendment (Further Future of Financial Advice Measures) Bill 2011, are the culmination of work that began more than three years ago with the Parliamentary Joint Committee on Corporations and Financial Services' inquiry into financial products and services in Australia, and that was chaired by the member for Oxley who, I understand, is the parliamentary secretary for a number of these financial areas now. That inquiry was established in the wake of the global financial crisis and the collapse of financial companies such as Storm Financial and Opes Prime. And, out of that inquiry, the government developed a series of reforms known as the Future of Financial Advice reforms. These reforms complement the Gillard government's commitment to increase the superannuation guarantee from nine per cent to 12 per cent.
Superannuation is something the Gillard government has been working hard to introduce, and I am extremely proud that soon 8.4 million Australian workers will get a very welcome boost to their superannuation savings, thanks to Labor. But it would be somewhat irresponsible to make such a policy commitment without ensuring those increased retirement savings for millions of Australian families are protected now and into the future. That is one of the drivers of, one of the motivations for, this legislation that we are debating here tonight.
This legislation means that more people will be able to access financial advice and know that the advice they are receiving has their best interests at heart. Australians should have faith that the advice they are receiving is of high quality, and they should be able to have confidence in the financial services sector more broadly. I have no doubt that the financial crisis has had an impact on people's perceptions of our financial institutions, particularly when we saw what happened in the US, what happened with the Bank of Scotland and what happened in Europe, but I hope that, through these reforms, we can strengthen our finance industry and even encourage more people to seek out professional advice when it comes to important financial matters such as superannuation.
These amendments will do a number of things to address some key industry concerns. I want to reiterate that the Gillard government has consulted long and hard, not only with the industry but with consumers as well, to ensure that these reforms are robust. We believe these bills are needed to ensure our financial sector is both responsible and strong into the future. I would like to go through some of the reforms that are in these bills that we are seeking to introduce to our financial services industry here tonight.
The first tranche of the legislation focuses on two important reforms. The first is that the bill will require providers of financial advice to obtain client agreement for ongoing advice fees. The second element will enhance the ability of the Australian Securities and Investments Commission to supervise the financial services industry through changes to its licensing and banning powers.
Just going back to that first point: these measures will put in place requirements for financial advisers to obtain their customers' agreement every two years in order to keep charging them ongoing fees for their services. I think it is disappointing that there are some customers paying ongoing fees but receiving very little or no service. Some clients may even be unaware of how much these fees are costing them and may simply be continuing to pay them. This kind of behaviour only encourages distrust in the industry and risks alienating new customers. It is something that needs to change, from the point of view of both financial planners and their customers.
The new measures outlined in this bill will promote the active renewal by the client of ongoing fees for advice, with opportunities for them to consider whether they are receiving value for money. It will also assist to disengage clients from paying ongoing fees that they should not be paying. I hope that, through this change, more people will become aware of what they are paying for and take better charge of their financial situation. That is particularly important for me.
Secondly, the bill enhances the capacity of ASIC to supervise the financial services industry and protect investors. During the member for Oxley's inquiry, ASIC raised concerns as to its ability to protect investors by restricting or removing unscrupulous operators from the industry. The bill will strengthen the gatekeeping function of the licensing regime and extend ASIC's powers to remove unsatisfactory people from the industry. ASIC will be able to refuse or cancel a licence or ban a person where that person is likely to contravene rather than breach the law. ASIC may also remove representatives if they are not competent and of good fame and character, or if they are involved in its licensee's breach of the law.
The second tranche of legislation will build on these two important reforms by focusing on the interests of advisers and their clients. It will introduce a new statutory best-interests duty, requiring financial advisers to act in the best interests of their clients in the provision of personal financial product advice. And it will introduce a ban on commissions from product providers to financial advisers or firms. I have no doubt that the majority of financial advisers want to do the right thing by their clients and want to give them unbiased advice to the best of their ability. The bestinterest duty requires financial planners and advisers to act in the best interests of the client and to give priority to the client in the event of conflict between the interests of the client and the interests of the individual who is providing the advice, or their employer. I therefore think this will be welcomed by many in the finance sector as simply a commonsense approach which merely codifies how they already go about their business—with integrity and professionalism. But for those advisers who do not always put their client's interests ahead of their own, this reform will no doubt be a wake-up call.
It is important that we have a strong financial sector, a sector people can place their trust in. We want more people to place their trust in financial advisers. It is a very important industry. Therefore we need to make it clear to the public that financial advisers are a professional industry, free from vested interests. We can only do that by ensuring that the adviser's only source of income is their client. This will ensure that client can have total confidence in the advice they are receiving.
Also banned is the receipt of other payments or benefits received by financial advisers or firms that could reasonably be expected to influence financial product advice, meaning soft-dollar or non-monetary benefits over $300, with some exceptions around education and professional development. This creates hard obligations in industry codes. There are some additional measures in relation to other forms of remuneration, but I am not going to go into those tonight.
Currently around one in five Australians rely on financial advice. We need to make sure that that advice is affordable and of high quality. I believe these bills seek to do just that, but I also want to make sure that these bills encourage more people to take charge of their own finances. Financial literacy is something I feel very strongly about. I am a huge advocate for the need for more people, particularly women, to take charge of their own finances.
There are some examples I would like to discuss briefly tonight. The first is some recent news from my sisterin-law about her mother, who was a single mum. She brought up her kids on her own and did it pretty tough, like my own mother did. She had all her life savings wiped out. She trusted a financial adviser and now all her savings have been wiped out. She had actually been in quite a comfortable position with her life savings and financial position. But, as a result of a poor investment and very poor advice, she is now in a pretty bleak financial position. She has no house and she is now on the pension. Previously, her future was looking incredibly comfortable as a result of all her hard work in socking money away in these programs recommended by her financial adviser. Now it is all gone. She was living with my sister-in-law for a while, and now she is living in rented property and is doing it tough on the pension.
These sorts of stories are constantly at the back of my mind when I think about this industry. As I said before, the majority of people in this industry are people of integrity and professionalism. There are a handful, though—a small part of the sector—who often do not do the right thing, and these are the people we are encouraging to have this wake-up call.
From my own experience—and I think I have mentioned it in this House before—when I went out in my own business in 2000 there was the difficulty that no-one was paying my super anymore. You have to work out how much super you need for when you retire and how much you need to contribute each year to make sure you have a comfortable retirement. First of all you need to work out how much you need, and then you need to work out how much you need to sock away each year to ensure that you can reach that goal.
I went to see a financial adviser to work out a range of elements of my financials at the time, particularly for a new business, and also to seek advice on what I should be doing with super. It was staggering: this woman obviously was not listening to a word I was saying. I paid a lot of money for her financial advice; from memory it was in excess of $1,500 for this session. She wanted to lock not just my savings but also my working capital finances in these special accounts that were all linked to one bank—and I am not going to mention the bank here. She kept giving me advice on programs I should be following that were not tailored to my needs; they were tailored to the off-the-shelf programs that were provided by this bank and this financial institution. So it was essentially tailored to her commissions and tailored to the products that were offered by the bank—tailored to someone else's needs, not my own.
I found that experience to be completely soul destroying, to be quite honest. In the end I subscribed to Money magazine, and I read a lot on the ACCC websites and just kept abreast of what was going on in terms of financial advice. That was not only incredibly empowering but also a lot cheaper than going out to get advice that did not meet my needs in the first place.
So I am a strong believer in the need for women to take charge of their own financial situation. It is disturbing that at this point in time 60 per cent of Australian women are retiring with no superannuation—none at all. I see many of them come through my office each week when I am not here. Some of the stories are quite bleak and sad. And the average woman who does retire with superannuation does so with less than half that of the average man. Too many women in our community are spending a couple of years living on their superannuation and then they just go on to the pension.
So I hope that, through these changes to the way financial advice is dispensed, our community— particularly the women in our community—will come to have a better understanding of their financial futures. After all, Labor's response to the GFC saved jobs and ensured that Australia avoided a recession. As a result, we delivered a strong economy with low taxes, low unemployment and low interest rates. This legislation will build on that work and make our financial systems even stronger. I commend the bills to the House.