21.3.12 Corporations Amendment (Future of Financial Advice) Bill 2011, Corporations Amendment (Further Future of Financial Advice Measures) Bill 2011

Mr HAWKE (Mitchell) (12:36): It is a pleasure to follow the member for Higgins's fine contribution about the flaws in the Corporations Amendment (Future of Financial Advice) Bill facing the chamber today. Fifteen minutes is certainly not enough time to go through the problems that the sector will face with the proposals the government has put forward today. It does, however, follow the precedent set by this government, as the member for Higgins pointed out, of not consulting and embracing the sector which they are seeking to regulate. The government is not listening to their suggestions, not taking account of their concerns and not providing a reasonable framework for the sector to be able to have input to the proposals of government. This is a dangerous way to do legislation. I have spoken about this in this place before. Sector after sector in the economy today is asking, 'Why won't the government speak to us about the legislation that they're proposing?'

Here with these Future of Financial Advice bills we see before us again the sector is saying that they are not satisfied in any way with the legislation, that the time frames are completely unreasonable, that the implementation of it will be unworkable and that it will have serious detrimental effects on the operation of their sector—par for the course, under this government. Whenever this government has the choice between overregulating or letting off more lightly, it overregulates. If the choice is between more complex or less complex, it says, 'Let's be more complex.' The complexity of this particular set of proposals before us is substantial. When smart financial advisers and operators tell us they cannot understand what the proposals mean, how they will operate and whether they will be effective or not, I take it very seriously.

In my electorate of Mitchell, in the Norwest Business Park, I have hundreds of financial service based businesses, mostly small and medium businesses advising small numbers of clients. These are the businesses coming to see me with great concern about how these proposals will not only threaten the viability of their business, potentially putting them out of business, but also favour the big players. It is another theme we see under this government. It is another narrative that is building—favouring big players in every sector, crunching small businesses and crunching the ability of a business to go from a small to a medium to a large business. It is very much what will happen under this legislation, which is complex and, in large part, unclear.

My colleagues have commented on many of the flaws in the proposals, but I would like to point to something that I have spoken about in this place before and that is the concept of financial literacy. Financial advisers have a key role in this domain of increasing and enhancing financial literacy in Australia today. We see from this government continued proposals that undermine the concept of making a person more financially literate and more responsible for their own finances from a younger age right through their lives to an older age following through to superannuation. This bill, which will remove the ability of an adviser to fairly operate, will lead to lower rates of financial literacy. People will seek less advice; people will be underinsured; there will be greater rates of underinsurance. The very things that a government should be seeking to enhance and expand, this bill undermines.

These broad themes are very important for the parliament to understand. That is the feedback we are getting from the sector. That is the feedback I am getting from the businesses in my electorate. We ought to be taking measures to enhance financial literacy and education and that should be a focus of this parliament, not overregulating and overburdening the sector with unnecessarily complex proposals and regulations. We know that these proposals come out of the 2009 Ripoll inquiry and report which followed a series of financial collapses, of which Storm and Westpoint are examples. We know that in 2009 a series of recommendations were made. What I think is a fine dissenting report was put together by the committee's coalition members. Indeed, Senator Sue Boyce, Senator Mathias Cormann, Mr Paul Fletcher and Mr Tony Smith are to be congratulated on what represents a very substantial dissemination of the flaws in the two bills that are before the chamber today.

It is not just a matter of the costs referred to in their report—the $700 million of implementation costs, the $350 million per annum compliance costs—although these increases are of course very substantial. It is the basic nuts and bolts of the proposals that the government has in these bills, including opt-in requirements, that I think are completely unworkable. An opt-in requirement is something that has not been tried in any other major market in the world today.

With the mining tax we have seen an experimental form of taxation that most tax experts said, 'This is a radical experiment, a departure from all normal forms of taxation'. Now once again we have the government experimenting with a radical model of opt in for the financial services sector that nobody is calling for and nobody is recommending. Indeed, it has the potential to lead to some very undesirable outcomes when customers who have not responded and who think they are covered by advice, after the 30-day period will no longer be covered under an opt-in requirement if they do not respond. So I do not see why we would proceed down such a radical and experimental path when there is no call from any major sector for us to be doing such a thing.

When you look at more than the nuts and bolts you will see other problems with these bills. The member for Higgins spoke eloquently about the retrospectivity aspect, requiring in essence all businesses in this space to go back and seek permission for things that they have already done and advice they have already issued. This is a bizarre notion. I have spoken here about the principle of retrospectivity in law where it is not to the benefit of people or industry sectors, and I think that we should not be requiring this sector or these customers to take retrospective action without a very good reason. Once again that principle appears to be missing from what the government is doing to justify this legislation. It goes back to what we have heard throughout this debate, in which the industry sector has said that there will be thousands of job losses from this legislation, that compliance costs will be immense. Why are we not listening to the very sector that we are seeking to make regulations about? Why are we being punitive and heavy-handed? Why, in relation to government legislation and the government's approach, are we using the stick all the time and not the carrot?

I have received a lot of correspondence from businesses in my electorate, from financial sector services around the country and from various associations, including the Association of Financial Advisers. Their comment is very interesting to note, and I want to read it into the record:

Our view is that FOFA, as it is currently drafted, delivers neither improved transparency or increased access to advice. 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 service 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.

That is from the Association of Financial Advisers, so is why Minister Shorten telling the public that he has broad industry support for this legislation when clearly he does not? Even listening just to the small and medium enterprises in the sector in my electorate, it is obvious there are real, justifiable and graphic concerns with the proposals that the government is outlining. They are concerns that should be addressed by the government and not by the constant Orwellian doublespeak from ministers that, 'Oh well, everything is going to be great, businesses will be better off and we have the support of the sector'—which clearly they do not. Another aspect of the FOFA legislation before us that was not recommended by the Ripoll inquiry, but which somehow has got in, is those retrospective fee disclosure statements that I have mentioned. I have a big concern with this because, when we were speaking about what the association and the industry expects, the government said specifically to the sector that they would not introduce retrospective disclosure statement requirements. It was a commitment, a promise, and we have heard much made of this in recent years. Again, this is why the opposition is so vehemently opposed to this legislation as currently drafted. You cannot provide business certainty when you tell the sector that you are not going to do something and then you go ahead and do it anyway, regardless of what you have said that you would do and regardless of what the sector wants.

In relation to retrospective fee disclosure requirements, the government gave their intention: they said they would not do it. It crept into this legislation, and before us today we have retrospective fee disclosure requirements. If you are operating a business in this sector, you do not have that certainty that you need to operate your business. You are facing now, I think, onerous and complex legislative burdens that will not only add to your compliance costs but also undermine the relationship between client and adviser which is so critical in this financial services space.

We have heard from many coalition speakers about that relationship. This is an enterprise that is built largely on trust between the financial adviser and client. The government's overregulation here is seeking to undermine that essential component of the success of these businesses. Why? We hear that there will be thousands of job losses. When you remove the concept of trust from these relationships, it is difficult to see why someone would take financial advice—when they have to continually opt in to a service, when they have to constantly be advised.

No-one is suggesting here that there should not be regulation in this space or that there should not be quality and valuable regulation. In fact the industry itself accepts it. But what we are saying is that this legislation, in the way it is drafted, is not adequate. I do not think it is unreasonable to say that when you see that the government's Office of Best Practice Regulation said that this was not adequate and not up to its own standards of compliance. That is the most damning feature of all. The Office of Best Practice Regulation said that it was concerned about the ability of this legislation to meet the government's own standards and rigorously assess increasing costs and red tape for both business and customers and that the government did not have adequate information before it when it drafted FOFA. That ought to be of concern for the government. They ought to pause there and say: 'We have already delayed the implementation of this legislation to date. We now have unrealistic time frames built into this legislation that the industry say cannot be met.' John Brogden said that it does not matter when the parliament passes this legislation; they cannot under any circumstance meet the 1 July 2012 deadline. The government ought to pause and re-examine this legislation and consider the opposition's amendments which Senator Cormann has put forward, I think very realistically, to improve the quality of this legislation and limit the damage to this vital sector for our economy.

We know that the 1 July 2012 time frame is completely unrealistic, and there is another issue that is related—that is the changes proposed here by the FOFA legislation and MySuper. It would make sense, you would think, when you are talking about businesses in a serious sector like this, to implement such massive technological changes and complex regulatory changes at once, to limit the amount of expenditure that businesses would have to make. It is symptomatic of this government's chaotic approach to legislation and to handling different sectors of the economy that they are seeking to ensure these dates are not together and that these very substantial implementation changes are not going to be done concurrently.

It is completely sensible that the coalition is calling for the implementation date of this legislation to be put forward to 1 July 2013, and we are seeking those amendments genuinely. Listening to the sector, that is only reasonable and rational. The industry cannot meet the deadlines imposed by this legislation, so it ought to be amended and redrafted. But what you tend to get from this government, as we have seen time and time again with its legislative approach, is that it does not matter if a piece of legislation is weak, if it is drafted inadequately or if it does something bad to the sector, it says: 'Let's just push it through parliament and we'll come back months or years later to try to fix it, add an amendment or do something later.' This is the stage at which the government should be listening to the industry. Any small or medium sized financial business in the country today would tell them this legislation is unworkable, complex, chaotic and unnecessary. It will deliver high regulatory costs to their business and limit their ability to provide financial advice to their customers and clients. If the government were serious it would look at these amendments seriously and adopt them. We know that the Minister for Employment and Workplace Relations is not serious about improving transparency and the quality of financial advice in Australia today. We know that he is the minister for unions and is acting in the interests of unions at the expense of small and medium sized enterprises around this country. Thousands of small businesses will tell you they will suffer increased costs and job losses under this retrograde legislation.