HANSARD
SITTING CALENDAR
SEARCH
LIVE BROADCAST
Hansard Dynamic Member Index
Legislative Council - Fifty-Second Parliament, First Session (52-1)
2011-11-23 Daily Xml
Contents
Pdf Xml

FINANCIAL ADVICE CHANGES

Adjourned debate on motion of Hon. D.W. Ridgway:

That this council notes the future of financial advice proposed by federal minister Bill Shorten.

(Continued from 9 November 2011.)

The Hon. G.A. KANDELAARS (16:44): Members may recall that I was the director of the largest corporate superannuation fund, Telstra Super, for nine years. I do have some reasonable knowledge behind the reforms being proposed by the federal government in relation to the future of financial advice (FOFA). I feel compelled to respond to some of the comments made a fortnight ago by the Hon. David Ridgway, Leader of the Opposition in this place, on the federal government's proposed FOFA reforms.

The Hon. Mr Ridgway proclaimed that the Future of Financial Advice reforms were flawed and biased in favour of industry funds at the expense of small business. These matters warrant firm rebuttal but, before I begin, one has to know what has driven the federal government's FOFA reform. It basically comes down to changing the requirement of financial planners from giving advice based on a reasonable basis for the advice, as is currently the test, to giving advice in the best interests of clients. There is a distinct difference.

Let us cover some of the issues. Firstly, about the proposed ban on conflicted remuneration, the Hon. Mr Ridgway claimed that while he supports the abolition of product commissions, the ban on rebates from platform operators to dealer groups is unnecessary and represents an attack on small business. The ban on conflicted remuneration, including volume payments from platforms to dealer groups, is essential in order to shift the focus of financial advisers and dealer groups back to the consumer.

Financial advisers should only have one master—the consumer. For years, product providers have called the tune because they are the ones paying dealer groups and advisers through volume rebates, sales commissions and other kickbacks, like expensive conferences. An industry that depends for its survival on these types of payments will not be trusted by consumers. This lack of trust is one of the reasons why up to 80 per cent of Australians never use financial advisers.

The Hon. Mr Ridgway cannot argue that volume rebates do not conflict advice in the same way as product commissions. As a general rule, the more business a firm places with a platform, the greater the volume rebate the adviser or the firm receives. This clearly provides an incentive for advisers to place clients into financial products on platforms, even if it is not in the client's best interest. Despite all the legal semantics about whether a platform is a financial product or not, the treatment from FOFA is consistent—any payment from any source will be banned if it influences financial product advice.

This brings me to the next point. Under the current bill before the federal parliament, any payment based on volume will be considered conflicted unless the recipient can show that the receipt of that payment could not reasonably be expected to influence financial advice. In other words, if the Hon. Mr Ridgway implies that payments from platforms to dealer groups do not conflict advice, then FOFA will not ban receipt of such payments.

A lot has been said about opt-in and its cost to small business which I do not intend to repeat here, but I will emphasise that, if you are charging a client an ongoing fee for service and you do not see that client at least every two years, then, yes, opt-in will have an impact on your business. If, as the Hon. Mr Ridgway says, 'set and forget' arrangements are a thing of the past and advisers see their clients often (as often, for example, as they deduct money from their accounts), then opt-in will not be a large impost for advice businesses.

In addition, the changes are prospective. In other words, opt-in will apply to new arrangements and there is considerable flexibility in how it can be implemented, including the use of electronic channels such as email. This ensures that the implementation costs are minimised.

On the issue of bias towards industry funds, finally the Hon. Mr Ridgway made the extraordinary claim that industry consultation that has taken place over the past year or more has been a waste of time because the government has merely adopted the agenda of the Industry Super Network. This is a simplistic, cheap argument and could not be further from the truth.

The Industry Super Network has been an influential stakeholder during the consultation process but they are merely one of the influential stakeholders amongst many. For example, one aspect of the reform is to carve out some basic banking products. Does this mean the government has adopted the agenda of the banks? Other stakeholders that have contributed significantly to the consultation process include the Financial Planning Association, the Australian Bankers Association, the Financial Services Council and the consumer advocate Choice, to name a few. The views of all these stakeholders have helped shape the package in its current form.

It is pretty ridiculous stuff designed to obscure a central question: why doesn't the Liberal Party stand up for consumers? This is particularly disappointing when we look at the impact of the collapse of TRIO on so many South Australians. You would think that South Australian parliamentarians would be determined to take a stand and improve the financial planning industry.

Now the case for FOFA: I would like to conclude my remarks by briefly emphasising the overwhelming positive impact of FOFA reforms. This is in stark contrast to the federal coalition's Financial Sector Reform Act (FSR Act) changes. The FSR Act changes took almost five years to deliver, created red tape along the way and did not create any new market. Worse still, they did not make the hard decisions like banning sales commissions. The FOFA reforms make financial advice more accessible and more affordable so that as many Australians as possible can reap the benefits. By building the trust and confidence of the general public and enhancing the professionalism of the financial advice industry, demand for advice will grow.

Research conducted by ASIC shows that the cost and mistrust prevents many Australians from seeking financial advice. As well, there is a mismatch between the holistic advice actively promoted by the financial advice industry and the type of advice many Australians want. FOFA reforms will create new markets for financial planners, including and enabling the provision of lower cost advice by removing the red tape that has prevented the provision of more affordable forms of advice, particularly piece-by-piece or scaled advice. The reforms are creating a level playing field so that scaled advice can be provided by a range of providers, including superannuation trustees, financial planners and potentially accountants.

Scaled advice will allow financial advisers to grow their existing customer base by offering limited-scope advice for those with less complex needs, such as young people, at an affordable cost. Scaled advice will also be attractive to those people who do not currently have access to financial advice. By providing consumers with the type of advice they need, when they need it, financial advisers will be able to create a relationship with a new customer base, one that may well seek more comprehensive advice as they accumulate more wealth and need more sophisticated advice. Ultimately, the FOFA reforms will encourage more Australians to seek financial advice and open up new revenue streams for financial planners.

In conclusion, reform is always difficult. It may seem that the easier option is to maintain the status quo. However, after the collapse of Storm Financial and Opes Prime, and the losses suffered by many retail investors, it is clear that the regulation of financial planning activities needed to be enhanced.

For the many firms that already service their clients ethically and professionally, I can understand that some consider such reform to be inconvenient. However, it is my strong view that FOFA is a positive force for the good of the industry and will provide a strong foundation for years to come. To this end, I am optimistic about the future and quality of financial advice in Australia.

Debate adjourned on motion of Hon. T.J. Stephens.

PARLIAMENTARY BUSINESS
MEMBERS
GET INVOLVED
ABOUT PARLIAMENT
VISIT
LEGISLATIVE COUNCIL
HOUSE OF ASSEMBLY
CONTACT