Senator the Hon Mathias Cormann
Minister for Finance
Date: Tuesday, 30 September 2014
ALAN JONES: Mathias Cormann is the Finance Minister in the Abbott Government and he seems to me to have two big issues on his plate at the moment. One is this amended legislation in relation to financial planners that you are writing to me about. The second is the privatisation of Medibank Private.
Just on the financial planners issue, you will recall I have discussed this in a lot of detail only as a result of what you have been writing to me about. And I made the point that a woman say 55 years of age, may have lost her last surviving parent but that parent owned a home at Strathfield. So that was left to her, she sells it and gets $900,000 for it. What does she do with $900,000? She doesn't know. Someone tells her, see a financial planner. She doesn't know that this could be some ninkumpoop who has a certificate that he achieved in four days or less. That there are 18,000 of these in the business of financial planning.
I made the point that the then Senate Committee Chairman, now no longer in the Federal Parliament, Senator Mark Bishop said of the Commonwealth Financial planners, who sent some clients broke, thousands of them, quote: "these actions were facilitated by reckless sales based culture and a negligent management who ignored or disregarded non compliance and unlawful activity as a long as profits were made". Senator Bishop, no longer a Senator said: "The CBA's compliance regime failed which not only allowed unscrupulous advisers to continue operating but also saw the promotion of one adviser, thus exposing unsuspecting clients to further losses." Now as I said, Senator Bishop didn't mess around, he said quote "the evidence the Committee has received is so shocking and the credibility of both ASIC and the Commonwealth Bank is so compromised that a Royal Commission is warranted", Senate Committee. The Abbott Government has taken no notice of any of this.
A thousand Commonwealth Bank clients, many of them retirees, elderly, unsuspecting, vulnerable, lost millions and millions of dollars when they were deceived into putting their savings at the high risk, high margin funds by cowboy Commonwealth Bank financial advisers who couldn't care less about their clients. The advisers were seeking to maximise their own commissions for signing clients to Commonwealth Bank products.
I spoke to an outstanding young sportsman at the weekend, his bank told him they didn't want his business, and he is on big money. They didn't want his business because he refused to buy their products, they virtually sacked him as a client, we don't want you.
Now I have said many times that the Gillard Government had very, very, very little to recommend it. But they did introduce legislation to address this issue whereby to put it simply, the bank teller would have to say to you when they were signing you up for a bank product that they were receiving a bonus or a commission every time they sold the product. Now people's life savings were decimated because they accepted the word of the bank's financial planners, they were lied to. When they lost their money they were told it was all about the Global Financial Crisis, it wasn't at all.
As I mentioned a couple of weeks ago, a Parliamentary inquiry in Melbourne heard about all of this, they lost their money because of fraud. Tony Smith who used to work for Peter Costello is now a Federal MP asked ASIC at a Parliamentary inquiry in Melbourne what you had to do to be banned for life as a financial planner. He was referring to the three year ban slapped on a financial adviser Peter Holt for providing inappropriate advice to retail clients. Three year ban he got. The accusation was quote "the inappropriate advice was influenced by the payment of high commissions" unquote. ASIC was asked then well when is a financial adviser banned for three years, seven years or for life? And this adviser Peter Holt did not declare to the customer the risks of switching the client's superannuation into high risk bank products. A Parliamentary inquiry asked ASIC why were you so lenient on the bloke? Why wasn't he banned for life?
I mentioned recently that Anthony Klan, a journalist for The Australian newspaper proved that you can qualify for a diploma for financial planning with four days work. Four days, quote, unquote training, you can then give unfettered tax advice. Wide-ranging and unlimited tax advice to any punter. Now this is unbelievable to all the people out there in struggle-street. And I find it even more unbelievable that the Abbott Government is doing nothing about it. On the contrary, they are introducing legislation or regulation to overturn that of the Gillard Government which at least tried to tighten the screws on the cowboys. And as I understand it, that legislation was supported when the Coalition was in Opposition. But the legislation or regulation allows financial planners to quote "provide any taxation advice on the mere condition that they sign up as members of one of the financial planning associations." That can't be right.
Mathias Cormann I understand is hoping to introduce this legislation/regulation into the Senate this week and Clive Palmer who never attends the Parliament, I bet he has never read the Bill, says he will vote for it. This is my definition of a mess. The Minister is on the line, Minister good morning.
MATHIAS CORMANN: Good morning Alan. Good morning to your listeners.
ALAN JONES: Thank you for your time, I am grateful for this because people are worried and writing to me but as John McEnroe, the tennis player would say you can't be serious can you that someone can provide any taxation advice on the condition that they sign up as a member of one of the financial planning associations.
MATHIAS CORMANN: Alan that is just not correct. Financial planners cannot provide any taxation advice just by being a member of one of those organisations. There are severe limitations to the sort of advice a financial planner can provide in the tax field and it has to be directly related to very simple advice in relation to superannuation related matters for example. There are severe restrictions...interrupted
ALAN JONES: But hang on, a financial planner, a bloke goes and Anthony Klan went and became a financial planner in four days.
MATHIAS CORMANN: I think they are different aspects to what you are talking about. So a financial planner does provide advice to people on how they can manage financial risks through life, how they can best save for their retirement, but tax advice is quite separate...interrupted
ALAN JONES: No, but haven't we got to define what a financial planner is first? Should there be a financial planner, a bloke with a shingle up outside his door when like Anthony Klan has done four year quote, unquote, four days training, quote, unquote training.
MATHIAS CORMANN: There are a range of different issues here. So firstly, we all agree that we need to continue to lift professional, ethical and educational standards across the financial advice profession...interrupted
ALAN JONES: But you're not doing that.
MATHIAS CORMANN: We are doing that actually.
ALAN JONES: No, you're not. You've got the cart before the horse, Mathias. You're going to allow financial planners to continue to do their work with less restrictions on them than Gillard imposed.
MATHIAS CORMANN: That is not quite right. What we said back in 2012 when the Gillard Government introduced their Future of Financial Advice changes, we said we supported the important consumer protections that mattered to consumers such as the ban on conflicted remuneration and the requirement for advisers to act in the best interests of their clients, but we did not support some of the unnecessary and costly red tape, which has pushed up the cost of advice for consumers savings for their retirement such as for example the requirement to keep re-signing contracts on a regular basis. The only people that pushed for that at the time were union dominated industry funds. It was essentially a commercially vested interest driven push by union dominated industry funds and we said this is actually not helping consumers, it is making access to advice less affordable for consumers. We said all the way through, since 2012, in the lead up to the last election that if elected we would get rid of it and that is what we are doing.
ALAN JONES: You've been heavied, look Mathias, listen, I have been around a long time Mathias, a lot longer than you. You been heavied by banks and everybody else and they call it red tape. At the end of the day people listening to me are making a judgment about whether you are looking after them or the banks or the products that they sell. That's where they are judging. I am listening to this bloke Mathias Cormann, whose side is he on? Because I walk into the bank and the bank advises me: "you've got this money in this superannuation fund, you take it out of there and we have got this product." What obligation, tell me now clearly, what obligation is there on the bloke behind the desk, where he sat me behind, a very fancy little desk with a pen and all the rest of it there and he has told me that: "I have got a product for you that's better than where your superannuation currently is. And I know you've got $65,000 there, stick it into this product." You tell me what obligation that person has to tell me a) this is one of our banks products and b) if I sell it to you, I will be on a bonus or a commission. What statutory obligation is there on that bloke under your legislation to give me immediately that information?
MATHIAS CORMANN: Firstly if you walk into a bank and you talk to a bank teller obviously that bank teller will put to you products of that bank, but secondly and more importantly, that bank teller will not be able, will not be able to receive a bonus as a result of selling that product because we have maintained and indeed in the regulations that I have put forward I have made more explicit the ban on remuneration that would conflict the advice given. So when...interrupted
ALAN JONES: Well hang on, wait, wait, wait, hang on.
MATHIAS CORMANN: Yes.
ALAN JONES: Hang on, a bloke is telling me to shift my super, what are you saying? The bloke, is he going to tell me that he's getting a bonus or a commission? Is he going to tell me?
MATHIAS CORMANN: He is not going to get a bonus or a commission. That is the point.
ALAN JONES: How do you know?
MATHIAS CORMANN: Because that is prohibited, explicitly prohibited in the legislation. Don't take my word for it. So the Labor Party has been peddling this proposition that somehow we were bringing back commissions for financial advice. Now don't... interrupted
ALAN JONES: No not the Labor Party. I've spoken to tax experts who argue that a financial planner under your regulations is able to give quote unquote unfettered tax advice.
MATHIAS CORMANN: That's just not right.
ALAN JONES: But your amendments say that bank tellers and the like, selling bank products to customers and receiving bonuses and after all a bonus is the business between the bank and the employee, not between the bank and the Government. But customers [sic] receiving bonuses will have to quote, report the fact that they're receiving bonuses in the bank's Financial Services Guide. This is what you're saying. So this is fairly cute isn't it?
MATHIAS CORMANN: No, it is not the Financial Services Guide. It's actually the Corporations Act Alan. The thing is and this is what I was about to say and you would appreciate this. The ABC Fact Check are hardly apologists for the Government. The Labor Party, Chris Bowen and others have made these claims and the ABC Fact Check assessed those claims and they made very clear that our assertion, that we're not bringing back commissions for financial advisers, that we are in fact keeping the consumer protections that matter in our legislation., they gave that the tick of approval. Don't take my word for it, that is what ABC Fact Check says.
ALAN JONES: Well I don't know who's word to take here, I got to tell you. This is very serious stuff. I don't understand why, when you voted for a lump of legislation only a year ago under the Gillard government, you're now changing that by regulation as I understand it. And I'm not sure that the consumer...
MATHIAS CORMANN: Well Alan, that is not right either.
ALAN JONES: Well hang on, you voted for the legislation twelve months ago.
MATHIAS CORMANN: No, we didn't. No we didn't. So in 2012 when Labor introduced their Future of Financial Advice changes, we said that we supported the key principles but we were concerned about a whole range of aspects to them. We said back in March 2012 that in Government we would fix Labor's FOFA mess. These were the words I used. We took the policy to the last election. What we're doing now is implement exactly, no more, no less, the policy that we took to the last election.
ALAN JONES: Well how come, Commonwealth Bank, all I'm saying is that the Commonwealth Bank's clients lost millions and millions of dollars as a result of advice given by financial planners and commissions and bonuses they received. You've got the chairman your Financial Systems Inquiry, David Murray, a former head of the Future Fund, a chief executive of the Commonwealth Bank, saying that consumers are at a disadvantage, this is David Murray, when dealing with planners offering complex products. All you're talking about is the best interest test. The best interest test. I want to know what happens when that woman goes in with her $900,000, she's seen the financial planner, a) how does she know he's not a ninkumpoop and b) how does she know he is not getting a commission, five, two and half per cent of $900,000 because he is directing her to a product in which he has a pecuniary interest.
MATHIAS CORMANN: This is a very important point. So the issues and they were very bad issues relating to the Commonwealth Financial Planning business, relate to advice provided in the period between 2003 and 2012. The law did change in 2012, with our support in relation to that aspect.
Conflicted remuneration since 2012 has been banned, will continue to be banned under our changes. Just to pick up on the point that you made before, am I on the side of the banks or the consumers. I'm on the side of the public interest and the consumer interest is not just to have more and more red tape and bureaucracy because it does come at a cost, which ultimately has to be funded out of fees that come out of people's retirement savings. I want to ... interrupted
ALAN JONES: That all sounds grand, Mathias, but let me tell you...
MATHIAS CORMANN: It is true.
ALAN JONES: ... But hang on, no hang on, I'll tell you what's true. I'll tell you what's true, Mathias. More than $37 billion, $37 billion of investor funds, these are poor coots listening to you out there now, have been frozen, impaired or lost over the past decade with financial planners involved in advising customers in the vast majority of their own products. $37 billion Mathias.
MATHIAS CORMANN: Indeed there were a lot of issues in that industry. You talk over the last decade, but there has been a lot of change in recent years. There is a lot of change for the better. That journey is continuing. We need to continue to work to lift professional, ethical and educational standards, but we need to ensure that we do it in a way that doesn't unduly keep pushing up the cost of advice in Australia. In Australia, fees that come out of people's superannuation funds are already comparatively high.
ALAN JONES: Hey, Mathias listen, you pay nothing, you get nothing. If we want good advice, we might have to pay for it. ASIC is itself saying that we need laws requiring financial planners to hold a university degree or pass a national exam. Have you provided and introduced those laws?
MATHIAS CORMANN: ASIC actually has got the responsibility to set the minimum educational standards. So if ASIC is of that view they have the power to make relevant judgements.
ALAN JONES: Well hang on, the Financial Planning Association chief executive, Mark Rantall said ASIC's entry requirements where quote, hopelessly too low. This is the Financial Planning Association. We've been called...
MATHIAS CORMANN: That's right.
ALAN JONES: Well what are you doing about it? You're the Finance Minister.
MATHIAS CORMANN: You just told me that ASIC said we needed university degrees and... interrupted
ALAN JONES: Well what are you doing to make sure that they have it?
MATHIAS CORMANN: We currently and this is the point, so there are different aspects to all of this. We are progressing what needs to be done here, including work to lift professional, ethical and educational standards. One key initiative that we are currently bedding down is the establishment of an enhanced public register of financial advisers, so that if you're an investor and you want to know what qualifications your adviser actually has, you're able to access that register, which should be maintained by ASIC ... interrupted
ALAN JONES: But you see Mathias, you're telling me their qualifications aren't good enough and yet you're letting these people loose on poor, unsuspecting old, vulnerable people who've got money. You're telling me on the one hand, yeah I agree, I agree qualifications are poor and we've got to do all these things, but I'm happy to let them loose on people out there who've got money in their pocket. I mean at the end of the day.
MATHIAS CORMANN: Alan, we didn't start with a blank sheet of paper.
ALAN JONES: No, but hang on, you've got the cart before the horse. You shouldn't be loosening, talking about red tape and the cost of all of this. A person, Mathias, with brief qualifications which includes finishing primary school can get a diploma of financial planning in a week. And begin advising poor coots out there with money. I want to know you're doing about that.
MATHIAS CORMANN: What I have just said to you, we are right now in the process of setting up a register, so that if you are an investor that wants to seek financial advice, you can check that financial adviser out on that register, you can see what his qualifications are, you can see what his history in the industry is, you can see who he works for whether he works for a bank or whether he is employed for himself and all of these sorts of things. So as a consumer, you are empowered to make more informed decisions.
ALAN JONES: Now I've got to go to the news, I hope we can talk again about this and Medibank. We didn't get around to Medibank today. I hope you will be agreeable to that.
MATHIAS CORMANN: Always.
ALAN JONES: Thank you so much.
MATHIAS CORMANN: Good to talk to you.