Senator the Hon Mathias Cormann
Minister for Finance
DAVID LIPSON: There’s growing opposition to the Government’s planned changes to laws governing financial advice, known as FOFA. National Seniors Australia, tradition allies of the Coalition has urged its 200,000 members to lodge objections to the changes. They were put in place after the GFC, and the collapse of Storm Financial to protect you and the consumer of course. But the Government wants to them to be scrapped, to reduce red tape for financial institutions. This was formerly the task of the former Assistant Treasurer, Arthur Sinodinos, who stepped aside this week. Now it’s up to Finance Minister, Senator Mathias Cormann who joins me now from Perth. Thanks for your time today. Will you mirror Senator Sinodinos’ approach or do you want to put your own stamp on these reforms?
MATHIAS CORMANN: David, what we are doing and what Senator Sinodinos was doing, is implement the policies we took to the last election. Labor in government, used the cover of things like the Storm Financial collapse to impose a whole range of changes that went well beyond an attempt to prevent a future collapse of Storm Financial, that essentially were all about providing advantages in a competitive market to a segment of the financial services market particularly close to Labor, namely the industry funds segment. We are not proposing to reintroduce sales commissions for personal advice. We are not proposing to remove the best interest duty as has been suggested. There is a lot of mis-information out there, which is clearly creating concern among people like the National Seniors Association and COTA. What I will be doing in the next few days and weeks is I’ll make sure that everybody is very clear on what we’re actually proposing to do, rather than what Labor is dishonestly and inaccurately suggesting that we’re doing.
DAVID LIPSON: Why is the Government removing protections that were put in place to protect consumers?
MATHIAS CORMANN: I reject that we’re doing that. What we’re doing is we’re restoring some balance. The consumer interest involves having appropriate levels of consumer protection, but also making sure that the consumer can have access, affordable access to high quality advice. So what we’re setting out to do is to ensure that we’ve got the most efficient, the most transparent and the most competitive financial services system available possible, where consumers can access high quality advice, which is not conflicted. But of course we want to ensure that the regulatory framework in place is competitively neutral, not favouring one segment of the market against the other. Because ultimately, consumers will benefit if there is robust competition, not just between individual businesses but also between different business models. Labor sought to impose one business model across the whole of the market.
DAVID LIPSON: I just want to focus on the best interest test. You mentioned it before. This is an area that is important.
MATHIAS CORMANN: It is.
DAVID LIPSON: There are reforms are there not, under your changes to this best interest test. Now just explain it to our viewers. This is an area that would require, under Labor’s laws, the financial advisers to work in the best interest of clients. Now accountants, lawyers, doctors are all required by fiduciary standards to act in the client’s best interest, why not financial advisers?
MATHIAS CORMANN: David, this is where Labor is spreading mis-information. Section 961B of the relevant Future of Financial Advice Act, it provides that advisers need to act in the best interest of their client and we’re keeping that section. In fact, right from the outset, when the Ripoll Inquiry assessed the implications from the Storm Financial collapse, we as the Coalition immediately supported the introduction of a statutory best interest duty, which comes on top of the fiduciary duty under common law that applies to all professionals in these sorts of circumstances in any event. We are not removing this. We think it is very important to prevent a collapse like the one with Storm Financial. It is very important that financial advisers are required to identify all of the facts when it comes to a client’s personal circumstances and that their advice is tailored to their specific circumstances and their specific needs, which is something that didn’t happen with Storm Financial. With Storm Financial people were given very inappropriate product for their particular circumstances. That was completely inappropriate. It was very concerning and it should never be allowed to happen again. We’re not proposing to allow it to happen again. What we are saying, is that where Labor provided a checklist on what financial advisers must to do to satisfy the best interest duty, they added at the bottom of the checklist a catch all provision, an open-ended catch all provision, which said they needed to do anything else that could be considered reasonable. That would have led to significant risk of open-ended litigation. It would have undermined the certainty of how the best interest duty would operate. It was not in the interest of consumers nor their financial advisers. We want to have the best interest duty in place but we want to improve how it operates. We want to make sure that it can operate with certainty for both the clients of financial advisers and financial advisers themselves.
DAVID LIPSON: Well Seniors Australia, as I mentioned at the start of the program, is concerned about this and very much against it, it seems now. One of the big concerns they have is that commissions on general advice seem to be for the benefit of the banking sector and adverse to the interest of consumers. Won’t your changes see more commissions for financial advisers actually come back?
MATHIAS CORMANN: No, we are not introducing and we’re not proposing to reintroduce commissions for personal advice. What we are doing is levelling the playing field. Bill Shorten and Labor when they were last in government made a special deal with industry funds, where they enabled industry funds to provide general advice and limited personal advice under the title of intra-fund advice. Bill Shorten allowed industry funds to charge for that advice. That charge is not disclosed to members. That charge is imposed irrespective of whether a fund member seeks or receives that advice. Furthermore, and Labor, this is the incredible bit, Labor gave industry funds an exemption from the opt-in requirements, the requirements for clients to re-sign with their adviser on a regular basis that apply to everybody else. They gave industry funds an exemption from that. Even further, people can’t opt-out from having to pay for those charges for intra-fund advice that can be charged by industry funds. Now what we’ve said, if you’re a product provider, if you’re a bank, and you’ve got an employee that has got a customer in front of him, of course he should be able to provide general advice to that bank customer. Of course the bank should be able to incentivise its employees to provide that general advice to their customers. There can be no suggestion that somebody who walks into a bank and talks to a bank teller about the bank’s products is somehow in a similar level of risk as when you talk to a Storm Financial about investing your entire retirement savings in something that is completely inappropriate to your circumstances. The Labor Party is deliberately fudging things here. They are deliberately frightening people for political purposes. It is reckless and irresponsible. We will be setting out to ensure that people understand very clearly what we’re actually doing, as opposed to what Labor is telling people we’re doing.
DAVID LIPSON: Okay, well we don’t have too much longer left and I did want to ask you about the loss of Arthur Sinodinos. In particular from the Expenditure Review Committee, ahead of the Budget, which is getting pretty close now. With his role now falling of course on you, it means that now you will get advice from the Department of Finance and the Treasury, where as I understand it in the past that advice would have been split between you and Arthur Sinodinos. Does that create any problems for all of that advice from the two different departments falling on you?
MATHIAS CORMANN: The Treasurer, Joe Hockey receives advice from Treasury, as he has before, as he will now and I will receive advice from the Department of Finance as I have before and as I will now. We will miss Arthur, and we look forward to his speedy return. Let’s be very clear though, the Treasurer and I, together with the Prime Minister and all of the Ministers in the Cabinet have been working for some time on the task of repairing the Budget mess we have inherited from our predecessors. We’re obviously getting closer and closer to the Budget now. Everything is just business as usual. We will continue to work methodically and carefully to repair the Budget mess we have inherited from Labor.
DAVID LIPSON: Finance Minister Mathias Cormann, thanks so much for that.
MATHIAS CORMANN: Always good to be here.