Stay up-to-date by signing up to receive Michael’s eNewsletter.Subscribe Now
Future of Financial Advice
It gives me pleasure, I suppose, to speak in relation to the coalition’s FoFA reforms, although it has not been a pleasurable experience listening to members opposite conflate issues and deliberately scare consumers. I have got no doubt that the intentions behind the original FoFA reforms were honourable. They were seeking to deal with situations that had arisen where consumers of financial advice had been poorly treated, whether it be Storm Financial, Westpoint and others, and other speakers have mentioned those in detail. But I think it is dangerous for members opposite, by conflating those issues, to create a false sense of security that FoFA means that no rogue financial advisers in future could do the same thing to consumers again. That is effectively what you were saying, and lots of people have argued—and I think argued very well—that the FoFA reforms that Labor introduced are not foolproof and in the circumstances where you do have financial advisers acting unlawfully, consumers will be at risk.
But the problem with Labor’s FoFA rules is that they have imposed unnecessary red tape, regulation and additional burdens particularly on small financial advisers who cannot meet those requirements. In that sense, the Labor Party, unsurprisingly, was hijacked by the union-dominated industry super funds. We went from a situation where intentions started off pretty well but with poor advice and obviously the vested interests of the unions which control the Labor Party, the FoFA reforms were hijacked and now we see ourselves in a situation where members opposite are, in effect, trying to conflate issues and argue that this is a situation of the big four banks fighting against industry super funds. No, it is not.
Our changes to the FoFA rules seek to enshrine the most basic and important protections for consumers of financial advice without creating circumstances that disenfranchise particularly low-income people or people with low asset bases from being able to access good-quality financial advice. In my electorate of Deakin I have got a number of small financial advisers. I do not have big institutions situated in my electorate. In each of the conversations I have had with the financial advisers in my electorate, there has been concern with Labor’s FoFA rules and actually very enthusiastic applause for the coalition’s changes to the FoFA.
There are two main reasons. The first is that when you run a small financial advising business, often you are advising people with low asset bases, so when you increase the fixed costs that that financial adviser has to meet in relation to each additional client for people with the small asset bases that is a big proportion of the cost that then has to be passed on to that particular customer. Here we have situations where financial advisers have said to me that they will be forced to reorientate their practice to take on more customers with larger asset bases, disenfranchising those people who have had low incomes and may not have the large asset bases that they are seeking financial advice about. Perversely, while members opposite are protesting that these reforms are there to protect these people, they are actually disenfranchising them, because the people that need the best financial advice are those with the lower asset bases. They are the people who need the best advice and, if there are customers out there that cannot any longer afford to obtain good-quality financial advice because the regulatory burdens placed on their financial adviser are so high that they have had to be passed on to them and they can no longer seek that advice, then they are the people that are hurt the most.
Unfortunately, the Labor Party has picked the wrong fight here. We are trying to maintain absolute protections to consumers while at the same time ensuring that financial advisers are able to continue doing the good work that they are doing and that particularly customers who do not have large asset bases are not disenfranchised from getting that financial advice in the first place, because those are the customers who need it the most. So I would suggest that the members opposite should get on board and support the coalition’s FoFA changes.