Senator the Hon Mathias Cormann
Minister for Finance
Date: Friday, 20 June 2014
CHRIS UHLMANN: The Abbott Government is trying to put an end to the serious doubts that hover over its planned changes to financial advice laws. The rules were strengthened by Labor to try and prevent mum and dad investors being caught in the spectacular collapse of companies like Storm Financial that wiped out billions of dollars of investors money. But as part of the Coalition's drive to cut red tape, it announced changes that many claimed raised two vital consumer protections. First the demand that a planner act in a client's best interest and second the ban on commissions which stopped an adviser simply selling a product for a fee. Today the Government is saying the requirement to act in the best interest of the client will stay but is removing one of the steps financial advisers have to follow to prove that is what they are doing and it will make clear that commissions are banned. The announcements clarify the Government's intentions but probably won't silence its critics. Mathias Cormann is the Finance Minister. Mathias Cormann will your financial advice laws ensure that advisers have to act in the best interests of their clients?
MATHIAS CORMANN: Absolutely. That is the requirement that is in the Corporations Act as we speak and it is a requirement that will continue to be in the Corporations Act after we have made the changes that we are putting forward in order to improve our financial advice laws.
CHRIS UHLMANN: But you are proposing to clarify what you are doing?
MATHIAS CORMANN: What we are saying is in the Corporations Act there is a test that financial advisers may want to rely on in order to demonstrate that they have acted in the best interests of their client. What we are suggesting is that there is a series of very comprehensive steps. There are six steps in total, which impose all sorts of very specific requirements on financial advisers. We think that in the circumstances, that is adequate in order to ensure that financial advisers act in the best interest of their client. What we are saying here is we want there to be certainty for both the adviser and for his or her client on how this particular duty operates so that it is very clear.
CHRIS UHLMANN: You must have been concerned that the laws as you were planning them were open to abuse otherwise you wouldn't be clarifying this.
MATHIAS CORMANN: What I was concerned about earlier this year was the level of vested interest pushing misinformation in order to scare people into believing things that were not true. So what I am setting out with this statement today is to explain very clearly and in some detail what it is that we are doing and what we are not doing.
CHRIS UHLMANN: Why wasn't it clear at the outset, was it bad drafting or bad policy?
MATHIAS CORMANN: This is an area which is very technical in nature. It is very easy for vested interests, vested commercial interests and indeed people with political motivations, to scare people without properly presenting the facts.
CHRIS UHLMANN: So people won't be able to get commissions in the advice that they give?
MATHIAS CORMANN: The best interest duty remains and we also have always supported the ban on commissions and the ban on remuneration which conflicts advice. That will continue and indeed, when Chris Bowen made assertions in the past that somehow we were going to bringing back commissions, none other than the ABC Fact Check accused him of scaremongering and pointed out that what he was asserting was false.
CHRIS UHLMANN: Well leaving aside ABC Fact Check, there were a great many people who were in the financial community who were concerned about the direction in which you were heading and clearly you are changing direction somewhat.
MATHIAS CORMANN: Well we are not changing direction. We have always said that it was not our intention to bring back conflicted remuneration, it was not our intention to bring back commission payments for financial advisers and so what I am doing with my announcement today is putting beyond doubt our policy intention. We are going to make very explicit in both our regulations and our legislation that those who receive payments as a result of providing general advice cannot be receiving upfront or trailing commissions, which are the sorts of payments that people have historically been concerned about.
CHRIS UHLMANN: And if there are loopholes will you be watching this and making sure that you close them?
MATHIAS CORMANN: Well what we have said is that we accept of course that people providing advice, people providing services will receive remuneration for their services. But we want that remuneration to be provided in a way that does not conflict the advice given. Now what we are proposing to do in legislation is to give ourselves regulation making powers to essentially respond quickly to any developments in the market that may or may not happen, to ensure that any remuneration arrangements that are introduced in the market place, if they conflict advice, can be prohibited through regulation. We don't think it will be necessary incidentally.
CHRIS UHLMANN: But why not put those regulations in place now?
MATHIAS CORMANN: Because right now we don't know what those market developments might be. So in the past, historically, the concern has been around upfront and trailing commission payments, which people have said would conflict the advice given. We have explicitly moved today to prohibit those sorts of payments. What people have then said to me in my discussions is 'but you don't know what various players in the market might come up with as a way to work around your particular provisions'...interrupted
CHRIS UHLMANN: As they always seem to.
MATHIAS CORMANN: So what we have said is okay, we don't believe that there will be the problem that you say there will be, but in order to make sure we have got the tools available to us to respond to any undesirable development, we are giving ourselves the regulation making power to prohibit any conflicted remuneration arrangement that might appear in the future.
CHRIS UHLMANN: But surely, given the fact that we have seen in the past, experience tells us that people lost $6 billion since 2006 through dodgy financial advice, surely you would err on the side of caution.
MATHIAS CORMANN: Well we do err on the side of caution and the first point I would make is that the Australian financial services and products have performed very well globally in the context of the GFC. If you compare us to the situation around the world, we have performed very well. But there have been issues and the issues are being addressed both by obviously the industry itself moving to lift professional, ethical and educational standards, but also by us improving regulatory requirements. But whenever you impose new regulation, you need to make sure that the additional cost is justified by an additional consumer protection benefit and Labor's changes in government went too far, imposed too many additional costs without a proportionate consumer protection benefit.
CHRIS UHLMANN: And that's the Finance Minister, Mathias Cormann.