BILLS: Corporations Amendment (Future of Financial Advice) Bill 2011

The coalition has sensible and timely amendments to the Corporations Amendment (Future of Financial Advice) Bill 2011 and the Corporations Amendment (Further Future of Financial Advice Measures) Bill 2011. The shadow Assistant Treasurer and shadow minister for financial services and superannuation, Senator Mathias Cormann, is doing a terrific job on this.

The words in the previous sentence are not mine, although I wholeheartedly agree. They are in a comment from highly regarded Wagga Wagga financial adviser, Australian Financial Services authorised representative and Australian Credit Licence credit representative Gary Langtry. I have known Mr Langtry for many years. He, like me, hails from the Marrar district, and is a straight talker. He will look you in the eye and tell it as it is. It is the best way to be, particularly in his line of work. Clients know where they stand. That is important, crucial, essential. 

Mr Langtry was pleased Senator Cormann was holding the Minister for Financial Services and Superannuation to account on this issue. The bill as it stands 'feeds beautifully into the hands of the union controlled superannuation fund network', Mr Langtry observed. How very true. Mr Langtry sent me a paper compiled by the Association of Financial Advisers on the key recommended amendments and impacts of these bills, which have been described by the association as 'the biggest change to the industry in a generation'. Now that the Parliamentary Joint Committee on Corporations and Financial Services has put in a dissenting report, the association is correctly and understandably railing against the legislation, which includes elements that are anti-consumer, anti-adviser and anti small business. 

Its paper says: 
The key test for FoFA, which the AFA has continued to support, has always been: 
1. improved transparency and
2. increased access to advice. 
Our view is that FoFA, as it is currently drafted, delivers neither. Minister Shorten has stated on a number of occasions that FoFA is a growth strategy for the financial advice industry and also that there is broad industry support for FoFA. In fact the financial services industry has many concerns with the current draft of this legislation, much of which has been recognised and addressed in the Coalition’s dissenting report. 
Why is it that it seems everyone outside of the government can see what the Labor government is doing wrong and how it will affect Commonwealth coffers, businesses, regardless of size, families, farmers and everyday people juggling a household budget, yet those on that side of the chamber seem to be oblivious to it all? There are none so blind as those who will not see. The association's paper is a damning denunciation of the government's proposals. 

It takes up five key issues related to the bills. First, retrospective fee disclosure is a huge cost burden to the financial services industry for information consumers already receive. The Financial Services Council has estimated implementation costs of $700 million. We heard the member for Macarthur just a few moments ago talk of the job losses that the financial services industry would have to endure. We on this side of the House do not want to see any further job losses in any industry, let alone the financial services industry, which plays such an important part in our economy and for small business, which, as the member for Macarthur would also know, is the engine driving our economy. 

Further, the council has suggested the cost per client for fee disclosure will be halved if it only involves new clients and summary information. As with everything when a government introduces overbearing, onerous—and that was a word that the member for Macarthur used well too—and unnecessary legislation, someone has to pay. Invariably the cost is borne by those at the end of the line: the consumer, the customer, the client. Second, the opt-in obligation is an issue of concern because it will add costs of about $120 per client per year. Unintentional failure to opt in could result in a possible risk for consumers, as they could miss out on the receipt of adviser-initiated important advice, according to the association. Access to advice will, according to the association, reduce as advisers reposition their offer up-market. The association argues that it is better to strengthen opt-out provisions. As with so many of Labor's policies, the ones who will suffer most will be clients in the regions, clients in country areas of this great nation of ours. 

Third, proposed section 961B(2)(g) creates uncertainty, and, if enacted, could well eventually need to be tested in the courts. Then we have the question of who pays for the court to decide what is right and what is wrong. Is it the government, aka the taxpayer? Is it the customer, the client, the consumer? Is it the financial adviser? Whichever way, someone is going to lose, and generally the person who loses will be the one who can least afford it, possibly the taxpayer. This uncertainty with respect to the best interest duty could lead, the association says, to a rise in professional indemnity premiums. The association wants to adequately ensure that the ban on conflicted remuneration is not applied retrospectively. 

Fourth, the government has repeatedly pledged that its proposed legislation will not be applied retrospectively, yet the transitional arrangements fundamentally fail to ensure this. We have heard that word 'transition' used so often by the government. They are always transitioning something, and it is a transition from something that is decent and good and working to something that is not decent or good or working. The word is 'transition' or 'transformation'. That is the government's way. It is the Labor way of doing things—no thought whatsoever. Any change to the law should still allow an adviser to sell their business or a book of clients without triggering a retrospective loss of property rights. This will have an adverse effect on the value of advice practices, and again that is so crucial in regional Australia. 

Finally, the association has called for a delay in the start of the legislation until the industry is adequately prepared—1 July 2013 has been mooted. FoFA involves expensive and lasting changes. This will require significant system alterations and adviser training. For these companies, particularly in regional Australia, adviser training is often an expensive and onerous thing. Sometimes they need to go to metropolitan areas, and that involves aeroplane fares, accommodation and people being away from the business at busy times. When these things are brought in, they always hit regional Australia in the neck. Rushed implementation will cause errors and inefficiency, which the industry does not need, given the fact that it is dealing with people's money—in some cases, people's lifetime investments. Given the ongoing legislative uncertainty, 1 July 2012 is an administrative impossibility. But we have seen so many things that the government are rushing through, so many things that they want to get done by 1 July 2012— 

Ms Hall: Absolutely, and you're trying to prevent democracy. 

Mr McCORMACK: Well, I find that your government is all hypocrisy and no democracy, and I am sure a lot of members of the public agree. I will take that interjection. 

The association's demands are not unreasonable. Any reforms in this area must find the right balance between suitable levels of consumer protection and the need to safeguard the ongoing accessibility, affordability and availability of high-quality financial advice. This needs to happen not just in metropolitan areas but also in regional Australia. Labor has failed to accomplish an appropriate balance with FoFA because it did not meet its own internal process requirements around best practice regulation. There is nothing surprising there. The government falls short in so many areas. It probably thinks, 'Why should financial reform be any different to any other policy area?' 

Labor's mismanagement of this legislation was exposed by the damning assessment of the FOFA proposals by the government's own Office of Best Practice Regulation. How utterly embarrassing for this government. This government has been embarrassed so many times in recent weeks and months. The trouble is it is always the voters—the people who are paying this government's way with their hard-earned taxes—who are being caught out, being penalised. These Labor reforms are just another example of that. They are a sad and terrible indictment, given the complexity and associated costs of the proposed changes, especially the highly controversial and contentious aspects of these bills. 

There is no precedent in the world for introducing the sort of additional red tape which will follow the government's opt-in proposal. There is no precedent in the whole wide world. But have we not heard that before? To my mind, it sounds similar to the Clean Energy Bill—the carbon tax—where Australia will set the benchmark and our citizens will be poorer because of it. We hear all the time that it is a carbon pricing mechanism. I beg to differ; it is a tax. The people out there know that it is a tax and Labor in here know it is a tax, but they refuse to call it what it is. It is not carbon pricing; it is a tax. 

The coalition has made 16 recommendations—reasoned, well thought out, industry backed proposals—as to how the current FOFA amendments can be improved and strengthened. The 16 suggestions are consistent with those in the dissenting report of the Parliamentary Joint Committee on Corporations and Financial Services. They make good sense. They will help customers, Mr and Mrs Average, who use financial advisers to help them with their savings and investments in these challenging times. They will help the industry, which plays such an important role in Australian society today. The Labor government just needs to take them on board.

Cristy Houghton