My FoFA Dis allowance Speech

Senator WILLIAMS (New South Wales) (17:20): I rise to make a contribution to this debate. There are many important issues in this debate, but there is one very important issue. We had a grandfathering clause in the change brought forward by Senator Cormann, who is sitting here in the chamber. What that grandfathering clause meant was that, when you had a financial advice business prior to 1 July 2013, you may well have been receiving commissions. There was nothing wrong with that. It was totally within the law.


When the FoFA» started on 1 July 2013, that removed those commissions from these businesses, especially small businesses, that had a cash flow and had done everything right by the book. I will give you an analogy. It is a bit like exporting live cattle out of Darwin and having the government ban live export. You have lost your cash flow, you have lost the value of your property, you cannot sell what you grow on it and it destroys you financially. This is no different.

What Senator Dastyari and others have done here with this disallowance—if successful—will wipe out that grandfathering income for those small businesses. Mr Acting Deputy President Sterle, it would be like you buying a truck and signing a five-year contract, a good contract with a cash flow. Three years into it they just tear it up, and you walk away. You have lease payments on your rig and repairs to do—and your truck has lost its value and you have lost your contract. This is what is going to happen if this disallowance gets through.

I know people like Senator Cameron do not care about small business or their value—do not give a hoot about that.

I want say to people like Senator Xenophon—and Senator Xenophon, I hope you are listening in your office—Senator Lambie; Senator Madigan, and I am glad he is here, he comes from small business, a hardworking blacksmith; and Senator Ricky Muir, a timber cutter from small business: if you do not amend and reinstate part 28, 29, 31, 32, 33, 34 and 35 of those regulations to protect small businesses, you are going to destroy the value of those small businesses that have built that value through hard work and playing by the rules.

I believe that, when the former Labor government brought these «FoFA» rules in, they realised afterwards that they had it wrong; that they went too far. I believe there was a bipartisan verbal agreement to fix this—the grandfathering clauses—to protect the value and cash flow of those small businesses. However, we know the previous government lost government.

So now we have got Senator Dastyari backed up by those senators I mentioned—Senator Xenophon is from small business as a legal professional; as I said, Senator Madigan, a hardworking blacksmith—you would not get much tougher jobs than that; Senator Muir from the timber industry and a tough industry, especially with the Greens trying to strangle it at every post; and Senator Lambie. If you support this disallowance that has been put up in this way, you will destroy the value of those small businesses. You will destroy their cash flow, and they did it all legally.

I would hope that you will come forward, Senator Madigan, with amendments and you will talk to Senator Xenophon and the others. I would hope that those amendments would be supported by Senator Wong and those on the other side. I know many of them do not care about small business, but this is vital. If we make decisions in this place that destroy the cash flow and value of small business, then we should hang our heads in shame—that is the first point I want to make.

When it came to the regulation changes by our government, the scaremongering that went on to say the best interest test will be removed was simply wrong. Section 961B and 961J clearly stated that. We altered and tinkered with the catch-all clause 961B(2)(g) to prevent people from being sued everywhere.

The opt-in—of course the original inquiry chaired by Bernie Ripoll MP—was the suggestion of industry super funds. I see today out there in the corridors Robbie Campo and David Whitely from industry super funds with grins on their faces like a cat out of a dairy; they are very pleased that they have rounded up the troops to support their cause.

I want to read from Judith Sloan's story here: 'Links with industry superfunds are worth probing.'

Senator Wong interjecting—

Senator WILLIAMS: Senator Wong perhaps does not want me to read this.

Senator Wong: No, it's just Judith Sloan—we all know.

Senator WILLIAMS: But let me quote—Senator Wong obviously does not send Judith Sloan Christmas cards.

Senator Wong: No, you're right.

Senator WILLIAMS: No wonder Australia Post is in trouble. Judith Sloan said:

A few weeks ago, former NSW Labor politician and unionist Michael Costa made some very interesting remarks.

'The royal commission (into trade union governance and corruption) has exposed some massive problems … I think the most important is the governance of industry (superannuation) funds,' he said.

'There’s billions of dollars in these funds and they are badly managed in terms of corporate governance. The rorts that are going on there are horrific and they need to be dealt with.'

They were the words of former New South Wales Labor minister and politician Michael Costa.

Judith Sloan goes on to say:

For an outsider, it is difficult to come to grips with the workings of industry super funds. Their annual reports are generally a combination of pictures of happy workers, random charts and effusive copy about the benefits of compulsory superannuation and industry funds. The consolidated financial statements tell you little and, with few exceptions, it has not been possible to establish the remuneration of the executives or trustees.

She goes on to say:

The first serious inkling I had about the dubious practices of industry super funds came in 2010, when failed Labor candidate for the seat of Melbourne Cath Bowtell was conveniently given the job of chief executive of the Australian Government Employees Superannuation Trust.

At the time, opposition finance spokesman Andrew Robb queried the appointment.

We will go on to see what Senator Wong said:

The finance minister, Penny Wong, hit back, claiming that Bowtell (who had once worked for the ACTU) had been a superannuation trustee for more than 10 years—

a trustee—so what?

and a member of the AGEST board for five years.

So what?

But the truth is that being a trustee and being a chief executive of a superannuation fund are very different tasks.

As I said, if this disallowance goes through, we will have the opt-in back in place for more costs, and those planners and advisers will charge more and the consumer will pay for it.

After the recent ASIC inquiry, we have only one in five Australians on average seeking financial advice. Sure there is a lot to do for the industry to improve it. However, when it comes to these sorts of things and industry super funds, it is just amazing.

I questioned ASIC at Senate estimates about The New Daily. I was interested to read a story recently—The New Daily is an online newspaper. It said:

General news website The New Daily has raised a further $3 million in capital from Australia's industry super funds, less than six months after launching.

They kicked off with $3 million; now they have kicked the can for another $3 million and there could be another $3 million on the way—they set up a newspaper to send information to their members. They have got our email addresses. Why can't they put a monthly report together? They do not spend $6 million and then look for another $3 million.

A source at Cbus also confirmed the super fund was re-examining its investment in The New Daily after less than 12 months.

—it is already re-examining it.

The New Daily has been marketed to the more than five million Australians who are members of not-for-profit, or industry, funds. But Nielsen figures show the site had a unique audience of 124,000 in June, and 106,000 in May, putting it just outside the top 100 news sites.

The $6 million kicked in the can was your money, Mr Acting Deputy President Sterle and mine. I do not want my Australian super funds going into some crazy newspaper, but some bright spark thought this would be a great idea.

It went on:

Its directors are industry funds stalwart Garry Weaven, AustralianSuper director Alison Terry, Media Super chairman Gerard Noonan and former Fairfax executive Glenn Thompson. Mr Weaven told last year: "I'm the first one to understand that it is somewhat speculative. The market is moving all the time. But, on the numbers we've done, it can be justified as a commercial investment."

A commercial investment—$3 million from the Australian Super funds, then kick the can for another three million. This is just in 12 months! 'Oh, it is a great commercial investment.' What is it all about? I would like to know. As I said to ASIC, it should be canned.

I will follow this closely. I want to say this, Mr Acting Deputy President and I am going to be very frank, as you are whenever you speak: the previous Labor government's «FoFA» did not address the big problem, and our changes have still not addressed the big problem. The big problem in financial advice is what is called vertical integration. Imagine if I was a salesman for a Ford dealer, and you came in with your wife and six children and said, 'I need to buy a vehicle'—and I had the obligation to sell you the vehicle that is in your best interests. I might not have that product, but I would try to sell you something for Ford, because I work for Ford. Mr Acting Deputy President, I would not say to you: 'Go down to Toyota. They have got a Tarago; it seats eight, it is a good safe vehicle, it is economical. That would be the best vehicle for you.' I am working for Ford: they pay my way; I am going to try to sell you a Ford.

That is what happens in the financial planning industry. The big six—the big four banks, Macquarie Private Wealth and AMP—basically run the industry: their planners work for them. And it is likewise in the financial industry when you wish to invest your money or your self-managed super fund or whatever. They are going to tell you to invest in one of their products—but it may not be the best product in your case or in your circumstances. This is the problem that I am highlighting in this chamber now with vertical integration, and no «FoFA» regulations have ever addressed it. It should be torn down and rebuilt. I do not know for sure, but I believe that if you are a financial planner in the UK, you cannot be linked to any company. You are actually fully independent. It is a bit like politics—if you are an Independent, vote where you like; if you are in a party such as yours, you vote where you are told. So here is the problem we are facing—and «FoFA» has never addressed this.

I just want to say this—and I have highlighted this—to Senator Xenophon and Senator Lambie, and Senator Muir and Senator Madigan: if you do not bring these amendments in to save the value of those small businesses, we will highlight it to those businesses—we will go right around Australia saying: 'The value of your business has just gone down by 90 per cent. Your cash flow has gone. You built a business that you were allowed to build under the regulations and under the rules.' And with what has come here before us today, you are going to destroy the value of those businesses. That to me is totally unacceptable. And I hope that those amendments do come through, no matter what happens today.

We have done a lot of work on financial planning and on getting things together. The crazy system where you can do an eight-day crash course to become a financial planner—we even found, in a recent inquiry, a one-hour course online: it will cost you nothing, you pass the test and you are a financial planner! It is called RG 146, Regulatory Guide 146. It is a farce. After our ASIC inquiry, the recommendation of the committee was to have the Parliamentary Joint Committee on Corporations and Financial Services look at those standards—and that is exactly what we are doing now, under the good chairmanship of Senator Fawcett. Hopefully we will soon have a recommendation to make sure that when you are a financial planner, you are actually an expert; that you have a degree, that you have had training, that you have the right attitude—that you are not someone who walks out of a shearing shed, does a one-hour crash course on the internet, and then tells people how to invest their hard-earned money.

The next thing we need to do is for the parliamentary joint committee to have an inquiry into financial products. I see in a listing just recently that since 2005, $37 billion of money invested in Australia was either frozen or the companies went belly up. We could take it back to the analogy of the cars—I sell you a Ford: 'This is the best vehicle for you'. You head off down the road, but the car I sold you did not have any brakes. You go down the hill, you hit a truck—no brakes; you end up in a mess. We have financial products out there that are shonky—they are dangerous; they are like cars with no brakes. That is the next inquiry we should look at, to see what we can do so that where people invest their money in this country—their hard-earned money, or the money that their parents may have worked hard for, or from their parents' house when they have passed on—their money is not put at risk. With some of the financial products we have seen, you might as well put your money on a favourite in the Melbourne Cup, for all the good the product was! It is pretty lucky to pick the winner in that—even though my chief of staff did pick me the winner this year.

We brought in these «FoFA» regulations, under Senator Cormann, to save the costs, to roll back the red tape, to make it better for people to seek advice—and to protect and grandfather the small businesses, with their investments, their hard work and their cash flow. And I want everyone in this chamber to realise that. Senator Whish-Wilson, you have a business brain—if you vote under the current disallowance, you will destroy the value of those businesses. It would be like us saying to you now, 'From tomorrow, all wine is banned from being sold in Australia'. Senator Whish-Wilson would say, 'Hang on a minute, I have spent a lot of money and done a lot of work to build a winery'—and we have just destroyed your business. This is no different whatsoever. So if you do not at least retain those grandfathering measures in this legislation, hundreds and hundreds of small businesses out there are going to be destroyed financially. And what does that lead to? I will tell you, Mr Acting Deputy President: financial pressure; disputes in the family; no mon, no fun; marriage break-ups; and sometimes, unfortunately, suicide. So, Senator Xenophon, Senator Lambie and Senator Muir—I know that Senator Madigan has listened to me—you are the ones that are the big players in this game. I hope that you see that those small businesses are protected in this country. That is the most important thing I ask for.

As time goes on, I hope that we can also clean up the standards of the financial planners—and I do respect those financial planners. Many of them have done the right thing and put their clients first, and they have given them the best products—safe products. I do apologise if we have damaged their reputations—because some in that field have been terrible; some of them at Commonwealth Financial Planning; some of them at Macquarie Private Wealth. They have all been highlighted and put out there in the media, but those bad eggs have destroyed the reputations of many good people in this profession. It is a most important industry. We have some $600 billion now in self-managed super funds. We want to grow that super. We want those people to retire with a good nest egg, so they are not a burden on the taxpayer of Australia. You know how the population of baby boomers is coming on and how big the population of elderly people is going to grow in the next 10 years. This is a very important issue. I repeat: Labor's «FoFA and our amendments have never addressed the big issue, and the big issue is vertical integration. When we fix that problem, people will get put into the best financial products in their interest. At that, I once again call on those crossbench senators to make sure that they do not destroy the financial value and the livelihood of those small financial planning businesses who have worked so hard.