Senator the Hon Mathias Cormann
Minister for Finance
Date: Tuesday, 25 March 2014
KIERAN GILBERT: First this morning the Government’s decision to freeze planned changes to laws on the Future of Financial Advice. I spoke to the Finance Minister, Mathias Cormann a bit earlier this morning. I began by asking him does the freeze on these planned changes reflect that the Government got the process wrong.
MATHIAS CORMANN: Not at all. We are committed to ensure we have the right balance between appropriate levels of consumer protection and ensuring affordable access to high quality advice. What Labor did in government was regulatory overreach. They imposed way too much unnecessary and costly regulation, which ultimately has to be paid for by people saving for their retirement. We are committed to ensuring that people saving for their retirement can have access to high quality advice, which they can trust and have confidence in at the most affordable possible price. So any unnecessary regulation which doesn’t make any difference, which doesn’t improve consumer protections in a way that is proportionate to the additional cost it imposes ought to be reviewed and that is what we said we would do.
KIERAN GILBERT: But the stakeholders, groups from the Council on Aging, Industry Super Australia, many groups have not been convinced. In fact have expressed concerns about your changes.
MATHIAS CORMANN: I’ve got a lot of sympathy for what’s been happening here. This is a highly technical area. It’s an area where somebody who has a vested interest or somebody who has political motivations to cause mischief will find it very easy to cause mischief. So what’s happening now is that there has been a lot of misperception about what the Government is doing. So what I’ve done is I’ve paused the Regulation. The legislation itself will continue to go through the usual process through the Parliament. There’s an inquiry underway, which is due to report in the middle of June. In the meantime, I will set out to ensure that everyone is very clear on what it is that the Government is actually doing to improve the financial advice laws, rather than what some people erroneously perceive that we’re doing.
KIERAN GILBERT: So the Government could have sold the changes better?
MATHIAS CORMANN: This is a highly technical area and it is an area where our opponents will always find it easy to make political mischief. There are some people in the market that have a vested commercial interest to make mischief.
KIERAN GILBERT: Will there be commissions?
MATHIAS CORMANN: No. There are a number of things I want to make absolutely clear. Firstly, we’re not repealing the Future of Financial Advice laws, we’re improving them. Secondly, we’re not getting rid of the Best Interest Duty. We are ensuring that consumers and financial advisers can have certainty about the obligations that financial advisers have to act in the best interests of their clients. Thirdly, we are not re-introducing conflicted remuneration or sales commissions for financial advisers. That is just an absolutely misleading assertion that has been made by the Labor Party and by some commentators.
KIERAN GILBERT: Well some commentators, I want to read to you, this is from Christopher Joye in the Financial Review pointing out that the performance bonuses based on the volume of products they sell to clients receiving personal advice essentially amounts to a commission.
MATHIAS CORMANN: That’s not right. So there’s are a number of points here. Firstly, I would refer people back to Bill Shorten’s second reading speech when he introduced the Future of Financial Advice laws. What he said then was incentive payments for sales volumes that would conflict advice ought to be banned and we agree, but that incentives for volume of sales that do not conflict advice should be permissible and are permissible under the Bill that Bill Shorten put into the Parliament. That is all that we’re saying. If a product provider is able to provide incentive payments to their employees and those incentive payments do not conflict the advice that is provided, that ought to be permissible. Our arrangements in the Bill do exactly that.
KIERAN GILBERT: So you will keep that catch-all requirement for financial planners to be acting in the best interest of their clients. Will you keep that?
MATHIAS CORMANN: Well that is actually a different issue. We are keeping the Best Interest Duty. So the requirement for the adviser to act in the best interest of his or her client remains. The requirement for the adviser to give priority to the interests of the client remains. However, what Labor did, there is a checklist in the legislation of what advisers need to do in order to satisfy the Best Interest Duty. That checklist includes things like, the adviser needs to identify the subject matter, they’ve got to identify all the relevant facts, the objectives, the financial situation, the relevant circumstances of the client, they’ve got to identify whether or not they’re qualified to provide the advice to the client, not to give the advice if they’re not qualified, research all of the relevant products and make judgements based on the relevant circumstances of their clients. All of these things remain. What we have said is that the additional open-ended and vague requirement for advisers to take any other reasonable steps imposes unnecessary uncertainty around how the Best Interest Duty ought to be applied in practice. We think that consumers and advisers deserve certainty around how the Best Interest Duty operates in practice.
KIERAN GILBERT: Just finally, Labor says you would have pushed ahead with this if not for the Senate election next week.
MATHIAS CORMANN: Well that’s a ridiculous proposition... interrupted
KIERAN GILBERT: That this is pushing it back beyond the people going to the polls in WA.
MATHIAS CORMANN: Labour would say that. The truth is, I took responsibility for this in the middle of last week. Since then, I’ve spoken to a lot of the stakeholders. In particular, stakeholders who were very supportive of our policy in the lead up to the last election. It is very apparent that there is some confusion around what it is that we’re proposing to do. I think it is sensible to ensure that I sit down and consult in good faith with all of the stakeholders, in particular those who were strongly supportive of what we were proposing in the lead up to the last election, to make sure that we can clarify any misunderstandings.
KIERAN GILBERT: Senator Cormann, thanks for your time.
MATHIAS CORMANN: Good to talk to you.