Good afternoon ladies and gentlemen.
I would like to thank the FPA for inviting me to speak to you today and giving me the opportunity to spell out the Government's financial services reforms to this audience of financial planners.
Because it is practitioners, like financial planners, that play a key role in helping Australians manage their financial affairs and provide for their future.
And that role is becoming more and more important as the range of products expands and the imperatives for saving become stronger.
Financial planning is no longer a concept for those with significant reserves. Rather, is now an issue for ordinary Australians.
As Minister for Financial Services and Regulation, I have a keen interest in your activities as individual planners and the activities of your industry association.
I applaud recent FPA initiatives such as the Certified Financial Planner Professional Education Program which I launched in February.
The Government welcomes moves by industry bodies to improve the financial sector's performance and contribute to Australia becoming a centre for global financial services.
This Government is also committed to ensuring that the financial sector operates efficiently and effectively in an environment that supports industry to do what it does best - that is, doing business.
In March, I released the CLERP 6 consultation paper a major reform initiative which aims at building a regulatory framework for the financial services industry.
This framework will be a key tool in promoting innovation and promoting business while at the same time ensuring consumer protection and ensuring market integrity.
What we need is the right balance.
It would be foolhardy to pitch regulation at a level that fostered innovation but gave consumers such little protection, that they were unwilling to participate.
That wouldn't be good for anyone.
We're also working on ensuring a smooth transition into the new regime for existing players.
To achieve these goals, we are actively seeking input on the proposed reforms.
And so far the response from you, the industry, has been pleasing. In fact, so far we have received over 100 submissions.
We've discussed CLERP 6 with the key stakeholders from the financial markets and financial service providers, as well as industry associations, major institutions and individual intermediaries.
And these have included a number of valuable discussions with the FPA.
A possible timeframe for the progress of CLERP 6 legislation is:
- Release of draft legislation later this year;
- 3 month public exposure;
- Introduction and passage of final legislation; and
- Commencement in the second half of 2000
This is a challenging timeframe, given the range of other issues on the agenda, including Y2K compliance, tax reform and privacy legislation.
But we will be doing our best to deliver on a realistic time frame from both the Government's and from industry's perspective.
Ladies and gentlemen, at this point I would like to delve into CLERP 6 and spell out what it means for financial planners.
There are, I believe, three key themes for financial planners from CLERP 6. Underlying these themes is the need to balance the interests of industry, consumers and other participants in the financial services industry.
The first theme is streamlined, efficient regulation.
One of the underlying objectives of CLERP 6 is to build a regulatory framework that encourages the financial sector. We want business to be effective, we want business to be efficient and we want business to be innovative.
The new framework should see reduced regulatory overlaps so cutting industry compliance costs.
To achieve this, we are proposing a single licensing, conduct and disclosure regime for intermediaries now operating under superannuation, life insurance, general insurance and banking regimes.
This will deliver immediate benefits for anyone sitting in the audience today who is currently trying to comply with:
- the Corporations Law and the Agents and Brokers Act; or
- the Good Advice regulations and the Life Code of Practice
These overlapping but different requirements will be replaced by a single set of requirements your multiple licences will be replaced by a single licence.
The new framework will also provide certainty for industry players while being flexible enough to cater to a range of existing products and future developments.
The framework will set out minimum requirements that all players will have to meet.
Having set up these minimum requirements, ASIC, should apply these flexibly to take account of the different product types and activities a service provider performs.
Industry participants should also have flexibility in how they discharge their obligations for instance, one mechanism may be through voluntarily compliance with industry codes.
The proposed reforms should also encourage competition by reducing unwarranted barriers to entry.
For example, getting rid of multiple licensing requirements as I have already mentioned, and by harmonising conduct and disclosure obligations.
The second theme is participation. That is, the development of a financial sector in which both Australian and international consumers have confidence and in which they can actively participate.
We want to build a financial sector that is stable, yet dynamic; in which consistent minimum standards of competence, service and consumer protection are available and a system which is also responsive to innovation.
In short, we want to build on the existing solid foundations to establish Australia as a centre for global financial services.
This means we have to get it right at the local and regional levels, as well as the international level.
We need to build a financial sector which is well regarded by Australian consumers and in which they have confidence.
To achieve, this we are proposing consistent levels of consumer protection across all financial products.
Our big aim is to foster Consumer Sovereignty that is, empowering consumers so they can make more informed choices.
We will foster Consumer Sovereignty by ensuring consumers have meaningful information from which to make informed decisions.
We will foster Consmer Sovereignty by ensuring that when consumers deal with service providers they are confident of their competence and that they at least meet minimum standards of conduct.
And we will foster Consmer Sovereignty by ensuring that if something goes wrong the consumer has access to an easy-to-use complaints resolution mechanisms.
In other words, we are trying to arm consumers with the tools to protect themselves.
The third theme touches on what I think is the biggest benefit for financial planners.
We are building a framework in which compliance with legislative requirements is good business.
Many look at compliance as a necessary evil, something they are forced to do. They see it as a costly impost, which reduces the business bottom line with few advantages.
Let me ask you as consumers - which we all are - what your perception would be of a financial service provider:
- who when you first meet them tells you who they are, what services they offer, how much they charge, and in the event that something goes wrong, how you can make a complaint?
- who when you get advice, gathers enough information about you to provide that advice, follows up with a written record and also tells you about any benefits they get for advising you?
- And, what would you think of a service provider who told you how you can make an enquiry or complaint if you were unhappy about the services or products you purchased.
What would you say about a service provider who you know is:
- licensed or authorised
- has demonstrated minimum levels of skills and competence; and
- who is supervised
In effect, a service provider who is competent, whose services are transparent, and who provides advice on the basis of your individual needs and who provides a written record of the advice they have given, so that you can go away and think about it.
What is your view?
Well, my perception of the financial service provider is:
- that she is a professional she is probably also a pretty good salesperson but her selling skills sit on top of a solid base of competence and skills
- she is someone I can be confident knows what she's doing, will tell me why she's recommending I do something, and will give me a written record of what has been done.
She is the kind of professional that I would be happy to do business with because she is delivering a quality service.
In summary, our imaginary financial service provider is complying with our proposed regulatory requirements. This is good for business because these are the kinds of things that clients are looking for.
And, like members of the FPA, the imaginary service provider would probably do most of these things whether or not she was required to by law because she knows it is good business - she knows that doing those things will add to the business bottom line, not detract from it.
It means repeat business and good word-of-mouth recommendations that lead to new business.
In other words, a satisfied client outweigh the costs of meeting good standards of service.
The big bonus for this financial planner under the new regime is that
- there probably won't be many changes she has to make to her business to comply
but, more importantly
- the new regime will force her slacker industry colleagues to raise their game
Why is this a benefit?
Well, I believe that these measures will enhance consumer perception of the professionalism of the financial services industry.
This will lead to increased consumer confidence. And increased confidence leads to increased participation. And this is good for the whole industry.
Having looked through the FPA Code of Ethics and Rules of Professional Conduct I think that many of the regulatory reforms contained in CLERP 6 have already been addressed to some extent by your own association and I commend you for this.
I'd now like to focus on some more general Government initiatives that will also benefit the Financial Planning industry, particularly initiatives outlined in the Budget.
What does the budget offer financial planners?
At a broad level the objective of the Budget was to set Australia up to enter the 21st century:
- as a world leader in living standards
- with a healthy and prosperous economy able to weather economic and financial crises; and
- with robust policies in place in areas such as education and research, community, families, health, rural and regional Australia, training and employment and, importantly for you, the financial services sector, to position Australia to lead the region.
All Australians will benefit from these important objectives.
Two specific budget measures which will impact on the financial services sector are funding for:
- to make Australia a Centre for Global Financial Services; and
- CLERP 7
The Government has made no secret of its ambition to establish Australia as a centre for global financial services.
My own Ministry was established specifically to oversee that goal.
The Government's commitment to cement Australia's place in the global market has been further demonstrated in the Budget through the allocation of $3.5 million in each of the next two financial years.
These funds will be used to co-ordinate promotion of Australia as a centre for global financial services. I believe this will ultimately lead to Australia gaining a greater share of the world financial services business.
Last week the Prime Minister unveiled our strategy to make Australia a centre for global financial services and and spelt out my role as our financial service ambassador.
In short, these initiatives will be good for Australia and will be good for your business.
The Budget also included funding to the ASIC for CLERP 7. You may not have heard of CLERP 7, but it is aims to cut the paper compliance burden on Australian companies and enable ASIC to make greater use of communications technology.
Anyone in the audience today who is subject to Corporations Law requirements will benefit from the CLERP 7 reforms.
CLERP 7 will lead to a fundamental overhaul and review of the large range of paper-based documents that the law still requires companies to lodge.
This measure delivers on the Government's election commitment to reduce red tape.
In conclusion, Australia's financial services industry is in a strong position both nationally and internationally.
And financial planners have a key role to play in this industry both in the services you provide to consumers and in pursuing professional, ethical practices.
Right now, the environment in which you operate, while robust, is evolving.
The regulatory regime in which you operate underpins our financial system with security and certainty both vital to ensure consumer confidence.
And, the CLERP 6 proposals now being developed should ensure the financial sectors operates more freely and more efficiently while at the same time tightening the safety net for consumers.
It is a balance the Government is pursuing relentlessly, and a balance we know is good for all Australians.
Thank you.