The following is a trascript of a speech given to a financial services lunch in Sydney on Monday 5 December 2011 outlining the Opposition’s views on FOFA.
It has been a long process, this whole FOFA process. To think that it’s been two years now since the Ripoll Inquiry which made all sorts of sensible recommendations on how the financial services regulatory framework could be improved, and here we are two years down the track and we’re still having arguments about things that, quite frankly, don’t have anything to do with sensible reform of the financial services industry but were always part of a vested interests agenda, an agenda driven by a particular segment in the financial services market, which quite frankly has hijacked what should have been a very important process for this industry.
Let me start off, as I always start off, to make the point right up front. The Liberal Party and the Coalition more generally, we approach this industry from the clear understanding that you provide a very important service to the community. As financial advisers, as professionals in the financial services industry, you help people with their financial health and well-being, you help people manage their financial risks, you help people maximise their financial opportunities and quite frankly, rather than to make it harder for you to do your job, rather than make it harder for people to access high quality financial advice, there should be more financial advisers and more people taking advantage of financial advice.
Because the better you as an industry are able to educate people across Australia about how better to manage their risk, how better to maximise their financial opportunity, the better it is for all of us. And the better it is, quite frankly, for governments and the Budget bottom line. And looking at the state of the Budget bottom line right now, I think there is a need for significant additional financial advice, perhaps to the people who currently occupy the Treasury bench.
Let me make some observations upfront, and then we might take it to an informal question and answer session. This has been a long process, we are getting to the pointy end of it and of course, what is on the table now, in terms of FOFA, is very different from what the Ripoll Inquiry recommended two years ago. But it’s also very different from what Bill Shorten announced would be the Government’s intentions as recently as April and even August this year.
We do of course now have two pieces of legislation in relation to the future of financial advice changes before the Parliament. They have been sent to a Parliamentary Inquiry – the so-called Joint Statutory Committee on Corporations and Financial Services which will have hearings in January and I certainly encourage the industry as a whole and all of you to take an active interest in how that particular committee goes about its business. Please don’t assume that just because that committee’s chaired by a Labor Member of Parliament, that it’s necessarily just going to tick and flick anything that the Government puts forward.
And let me just pause here for a moment. It is actually great to be at a function where all six associations representing different perspectives in the financial advice and financial services industry are represented. Tony, next time, maybe you just have to get John Brogden along as well and then we’ll really have the team complete.
Clearly, when things go wrong, as they did three or four years ago with the collapse of Storm Financial, it is appropriate for policy makers and the industry to take a step back and reflect on how things can be improved. But of course you have to be very honest and very clear about what it is you are trying to achieve and you have to be very clear about making changes that are there to make things better. Just to increase red tape and make things more complex is obviously not the way to go.
You want to focus on changes that are going to improve consumer protection, if that is required, in a way that is sensible, that is efficient, and that’s not just going to make us the champions of red tape. And in relation to some of the changes that are on the table, you all are aware, of course, that the Government now, for the past two years, has been pursuing this push to force people to re-sign contracts with their adviser on a regular basis. Initially that was a yearly opt-in; now it is opt-in every two years.
Quite frankly, that is a completely unnecessary intrusion by Government in the contractual relationships between clients and their advisers. Ultimately, as long as there is transparency of information around the fees that are being charged; as long as there is a capacity for people to make judgements on whether they can get value out of that relationship and make decisions about whether to continue or discontinue, there’s no role for government to interfere in the middle of that and say, you shall not sign a contract for more than a two-year period and of course, then enforce all of these additional regulatory requirements in relation to all of this.
And incidentally, while I’m talking about the process: we’ve now got two parliamentary committees that will scrutinise the legislation before us. One of them is going to report in February, the other in the middle of March. The starting date is supposed to be 1 July 2012 and Mike, I’ve got something here for you – where’s Mike Taylor from Money Management, I saw him here before. Mike, something for Money Management: The Coalition calls on the Government to Delay the Implementation Date for FOFA. That would make a good headline, I think.
Quite frankly, this whole process has been quite a mess. It’s been going for the last two years since the Ripoll Inquiry reported. It’s been chopping and changing and as recent as a couple of weeks ago, the legislation that was introduced was different from the exposure draft that was put forward in August, significant parts of it were different. There were changes. One day Bill Shorten wants to ban commissions on all risk insurance inside superannuation, then he realised that was actually bad policy and he moved away from that to a certain extent but not enough.
There’s still a whole lot of issues unresolved, there’s a lot of uncertainty still, there’s clearly – anybody in the industry that I talk to says there is no way if legislation is passed by the end of March in relation to FOFA can be seamlessly implemented by the industry come 1 July 2012.
Now I asked Treasury, doing the most recent estimates, whether the intention was still to go along with the 1 July 2012 implementation date and they say yes, it is. But what is Treasury going to say? It has to be Bill Shorten who makes the call. But given the way he has mismanaged the process, given how long it’s taken, given that we’re getting so close to the 1 July implementation deadline I really do call on Bill Shorten to make an announcement very soon that the implementation date for FOFA to be delayed, to facilitate a seamless transition. That would certainly provide some more certainty around how the practical implications of this are going to work out.
Just to clarify again the Coalition position – we are in favour of any measure that improves the transparency and competitiveness in the financial advice industry; we are in favour of anything that will make financial advice more available, more affordable, more accessible. We are not in favour of making change just for change sake. We are not in favour of making change just because David Whiteley from the Industry Super Network thinks it’s a good idea and because he just happens to have the ear of Minister Shorten. We will make a judgement on everything before us on the basis of: is this going to make things better or is it just going to make things more complex and less affordable? Is this something that is going to make advice more available, more accessible, more transparent, more competitive – or is this something that is part of a vested interest agenda that is being pursued by one segment of the market at the expense of others?
In relation to all of this, we will be moving amendments to the future of financial advice legislation, to remove the opt-in requirement. We are still keeping an open mind on the final makeup of the Best Interests Duty, we do support the principle of having a statutory Best Interests Duty enshrined in the Corporations Act, we think that’s sensible. That was actually one of the recommendations out of the Ripoll Inquiry – unlike opt-in, which wasn’t. But we understand there are some details still to be worked through to make sure we get the balance right and to make sure we have a workable Best Interests Duty.
There is still the issue of intra-fund advice which we think really demonstrates – dare I say – hypocrisy, inconsistency certainly within government policy. The Government is saying to advisers – you are charging all these for services you don’t provide; all these people are paying for advice they don’t get. We would question that. But on the other hand, the Government now wants to enshrine in legislation intra-fund advice, which is personal advice, [the cost of] which can be bundled into the admin fee. So we are talking about intra-fund advice; advice that funds can provide to their own members, beyond general advice, personal advice, the cost of that advice to be bundled into the admin fee – ie not being transparent – and of course, the cost of that advice being spread across the whole membership collectively, irrespective of whether or not people access advice. Now, how does that fit with the stated objectives of FOFA? Well, it doesn’t. And these are the sorts of issues we will be pursuing in the context of that legislation.
We will also be focussed on forcing the government to fulfil its election commitment to introduce competition into the default fund market. You’d be aware that at the moment, the process to identify default funds under awards is an anti-competitive closed shop arrangement. It’s going through Fair Work Australia in a way that is not open and not transparent, even the Labor Party recognises that. They promised they would ask the Productivity Commission to design a process to make the selection of the default funds under awards more open and more transparent and more competitive. Bill Shorten has now been the Minister for more than a year and surprise, surprise he has been rather unenthusiastic about fulfilling that particular election commitment. We will certainly be pushing him in relation to that for when that legislation will be available before the Parliament.
On a bit of a sombre note, on previous occasions when we’ve met in forums like this, we’ve always worked on the basis that we’ve got a minority government that can propose in the Parliament whatever they want; unless they could convince a number of independents they would not be able to get any of the legislation through the Parliament. We were always hopeful that we would be able to find one independent who could see the error, to see that opt-in is bad policy.
Now since that time, since we’ve been having these conversations, there’s obviously been a change in the make-up of the Parliament. A member from Queensland must have had some advice from his local financial planner about his retirement arrangements and decided to take up an offer from the Government for a better paying job. And that has changed the dynamic of the Parliament a bit. But we should continue to focus between now and whenever the legislation is tabled in the House of Representatives, we should continue to focus on all the independents and make sure that we explain the policy case against bad bits of FOFA, and explain it to them very clearly.
Maybe I’m being naïve to think that there is any chance that we can achieve any change there, but small business financial advisers in their respective electorates, whether its Andrew Wilkie, Tony Windsor or Rob Oakeshott, clearly have an opportunity to make a real difference there. We need two now rather than one to stop bad legislation from getting up and we need three rather than two in order to get amendments passed.
We will try to move amendments to the FOFA legislation to make it better. If we don’t get the amendments up, we will be opposing the legislation. But our preference would be to get amendments passed by the parliament that would make what is currently a bad piece of legislation better and better to the extent that all of us would see that it is better to have it remain in play.
