EMMA ALBERICI:
Arthur Sinodinos, welcome back to Lateline.
ARTHUR SINODINOS:
Thanks for having me back.
EMMA ALBERICI:
Now Labor's reforms were designed to ensure people get appropriate financial advice. Why are you rolling back those consumer protection laws?
ARTHUR SINODINOS:
I don't believe we're so much rolling back the laws as clarifying them and how they're going to apply in a number of cases. The essential consumer protections remain. We're removing some uncertainty over, for example, how the best interest duty applies and that uncertainty will actually hopefully make it better in terms of its application as a general duty for financial advisers to put the interest of clients ahead of their own.
So I don't see it that way. I know there's been a lot of debate around the different models in the sector and am I trying to favour one model over another and people say well because you worked in a bank doesn't that mean you would favour one model over another? What I've tried to do, and I said this at the beginning of my time when I became Assistant Treasurer, and it was in a slightly different context, my view was we create a level playing field and let the different models, whether it's the sort of models based on banks, retail financial institutions, industry funds, independent advisers and others, then play it out. But have some transparency and choice and then let the client basically be the one who makes the choice about what they do and how they do.
I appreciate fully the concern people have around conflicts of interest, conflicted remuneration. The whole point of FOFA was essentially to create a regime to try and protect consumers to the extent possible from issues of conflict of interests by advisers. Where I think there's a conflict of interest, it's one thing to say that where personal financial advice is being provided we've got to make sure that the best interest duty applies as comprehensively as it can. The complication with the prohibition on what's called conflicted remuneration for general advice was always that it was potentially going too far and it was capturing whether it was TV advertisements, website designers, anybody who might contribute to the promotion of a product, ok.
EMMA ALBERICI:
A financial product?
ARTHUR SINODINOS:
A financial product. And actually it's interesting you say a product because, you know, conflicted remuneration exists in a lot of other avenues of life, but we're talking here about financial services.
So on general advice my view was that as long as the person providing a document, for example, a product disclosure statement in a bank about a product, made it clear as they're required to do under the law, that this may not suit your circumstances and you should seek advice about your circumstances, then in a sense I think we are making a clear delineation between providing general advice, sort of low cost, factual advice about products, as opposed to quite comprehensive, personal financial advice based on sitting someone down, going through all their circumstances and seeking to create, if you like, a bit of a mud map about their finances and about the products and strategies that are, if you like, appropriate to their circumstances.
EMMA ALBERICI:
Why don't you just ask financial planners to charge a fee for service in the same way lawyers and accountants do?
ARTHUR SINODINOS:
That's a good question. Where this all started is financial institutions themselves started to move away from commissions and other potentially conflicted remuneration towards fee for service precisely because I think questions were being raised about the advice that was being provided and about, you know, there had been a number of situations where clearly there had been conflicts of interest and that had not been in the interests of consumers.
EMMA ALBERICI:
Products were being recommended on the basis that perhaps they returned the most kickbacks or commissions to the adviser?
ARTHUR SINODINOS:
But it's not just commissions or kickbacks as you call them. Any form of remuneration which potentially created an incentive...
EMMA ALBERICI:
Trips overseas, other gifts and so on.
ARTHUR SINODINOS:
We have to be clear here that we're looking at conflicted remunerations as a whole; we're not just focused on commissions. But my point is the industry itself realised it had to move in this direction, a fee for service.
Now if we were to try and go to a separate, a completely separate model; Alan Kohler for example talks about a very separate or a different sort of model. If I look at lawyers, for example, if we're talking about a structure where they clock on and the clock runs in six minute intervals or whatever and you're charged for this, that, the other, the photocopying, the amount of paper - I'm not sure that's necessarily a perfect model either.
EMMA ALBERICI:
But there's no ambiguity there, that that lawyer is working in your best interests. They are providing you with the best advice for your circumstances, for the case you're building and for the issue that's presented before them. By allowing all these other sorts of remunerations, whether it be holidays or kickbacks or commissions or other inducements, won't there always be that question of is this person in front of me actually working in my best interest?
ARTHUR SINODINOS:
And that's exactly the question a client has to ask and the onus is on the adviser to answer that honestly and correctly. Now there's a lot of paperwork we provide these days to help back that up. In relation to lawyers and accountants and the like, where there is a bit of a difference, and mind you there have been cases of accountants accepting commissions to push people in one direction when it comes to potentially advice on products.
EMMA ALBERICI:
Rare in comparison to financial planners.
ARTHUR SINODINOS:
But my point is this, it's a different business model, because most lawyers and barristers are not part of any larger group.
The complication I've got as a regulator is that I'm trying to create a level playing field between different types of business models. That's the essence of the issue. And I can only go at that by trying to create a level playing field, get as much transparency as possible and then let the client decide. One of the challenges I face is that there are some people out there who are disengaged consumers of financial advice, there's no doubt about that. And some industry funds in particular for example, make a virtue of catering to the disengaged investor. The challenge I see is that even as we add more regulation to try and help those consumers with information, unless we are actually doing things to promote financial literacy, the more information we give them I don't think that necessarily leads them to making more informed choices.
EMMA ALBERICI:
They really do trust the person sitting in front of them, the adviser, to give them the best advice for their circumstances. And we know that most people don't read the bulk of material that gets given to them with the thousands of disclosures and the fine print that says there might be a commission here or a kickback there. Isn't that part of the problem?
ARTHUR SINODINOS:
My advice is to consumers, we as consumers need to get more informed because at the end of the day that is the best sanction on financial advisers. But having said that, I'm preserving most of the regulatory structure of FOFA.
EMMA ALBERICI:
You talked about different models and as far as I can see you've got the Financial Planning Association on the one side, who represent quite a number of advisers, who say they have banned commissions and kickbacks altogether. They're moving towards a fee for service operation. But then on the other side you've got the big four banks and the AMP, which essentially represent something like 80 per cent of all financial advisers in this country. They are the strong lobby who have wanted these reforms rolled back slightly to allow some commissions.
ARTHUR SINODINOS:
Emma, they're one of the groups that wanted changes. A number of groups have wanted changes and part of the reason having consultation since the election is, and don't forget these were election commitments rolling out of a parliamentary joint committee report on the FOFA legislation. There was a dissenting report by Coalition senators. So what I've inherited as Minister for Financial Services is an election commitment based on a report going back sometime around the original FOFA. So these are not changes which have suddenly happened after the election. And there has been lobbying by various groups; including industry funds, independent advisers, banks, financial services councils, it's a wonderful area if you want to have a lot of stakeholders and I'm having to cope with that.
But what I'm hoping to do is make some, I hope, judicious judgments around what helps to, and my guiding light here is level playing field and reducing the costs of complying with the legislation and potentially removing unintended consequences. But once I put the legislation and it will start to happen from next week into the House into the Parliament, I'm going to be keeping a very close eye on it and so will ASIC, because I don't want, and the instructions going to ASIC are going to be that when in monitoring what we are doing, make sure that we are monitoring behaviour in the spirit of the original legislation, because we supported the original legislation subject to the changes that I now talk about.
EMMA ALBERICI:
Because one of the concerns is that at the banks, they don't even call that division necessarily financial advice, they call it their distribution arm because that's the arm through which the bank distributes their financial products. So in other words, it really could even be the teller just saying "Would you like an insurance policy with that?"
ARTHUR SINODINOS:
It sounds like McDonald's.
EMMA ALBERICI:
It can be as simple as that, can't it? And there can be a little concern that if they're motivating staff with remuneration that isn't obvious to the consumer at the teller face, then the quality of the advice can be compromised.
ARTHUR SINODINOS:
Emma, it can be as simple as that except the adviser or in this case the bank teller has to disclose to the person that if you want something that is focused on your circumstances, please get personal advice and the product disclosure...
EMMA ALBERICI:
Does the upfront - apologies for interrupting - does he also necessarily say to that consumer if I sell X number of these policies I'm going to get X amount of dollars?
ARTHUR SINODINOS:
No, but in a case like that the person has a cooling off period, they take away the product disclosure statement, they can look at this in the context of their particular circumstance and make their own decision. It's not like they get signed up on the spot.
EMMA ALBERICI:
Until recently you were a senior executive at the National Australia Bank. I'm interested to know how much your time there influenced your decision to wind back these reforms?
ARTHUR SINODINOS:
Look, everything you do in life is influenced by the experiences you bring to the table. So I was a bank executive for a period. I was also for a very long time a senior Treasury officer. I was a senior chief of staff to a Prime Minister. I've held a variety of roles. When I got my AO it was services to economic reform and the Greek community. So I've done a diversity of things, so I bring a diversity of things to the table. But if we take the view that a particular piece of legislation is because X has had a particular role, well, Bill Shorten was on the board of Australian super in its previous incarnation. He became Minister for Financial Services, did that influence how Bill approached the job? Now I'd like to think Bill brought to the job a particular philosophy and focus on what he thought was important, given the tenants of the Labor Party. Now I hope what I'm bringing to the job is a focus on a level playing field, a philosophical support, if you like, for putting more power in the hands of consumers as I'm trying to do with our changes to the governance of superannuation funds and other measures I'm taking.
EMMA ALBERICI:
Now Industry Super Australia has presented you with some legal advice from the firm Arnold Bloch Leibler.
ARTHUR SINODINOS:
I love Arnold Bloch Leibler, they're good friends of mine.
EMMA ALBERICI:
And I will quote the advice that they say they've passed over to you. "Never before has the law allowed an adviser to avoid responsibility for ensuring the scope of advice is consistent with a client's needs and circumstances. This proposed change would be open to significant abuse and could be used, for instance, to get a client to agree to receive advice which ignores important relevant factors such as their existing debt levels or only considers products that pay commissions to an adviser."
ARTHUR SINODINOS:
I've read their advice, I'm not a lawyer. I will get advice, but everything we've done has been based on the best legal advice in the Commonwealth and at the end of the day interestingly enough some of the changes I'm making, for example, to the best interest duty, are actually to remove some legal uncertainty and actually make it easier for financial advisers to provide advice which in turn will be better for consumers.
EMMA ALBERICI:
And finally, the government has had the findings from the Commission of Audit for some weeks now. When will you make those recommendations public?
ARTHUR SINODINOS:
What's happening internally in the government is in recent times the Commission of Audit recommendations are being looked at. As the Prime Minister mentioned the other day, that process has just started. So watch this space in terms of when the report might come out.
But for me the report is an input. The output is the budget. What we've got to do in the budget is come up with a strategy which, while recognising the transition that's going through the economy at the moment, and supporting that transition by not dragging on growth, put in place particularly medium term options on savings which allows us to get deficits and debt under control without undermining short term growth.
EMMA ALBERICI:
Is there a value, do you believe, in the public having a debate over the contents of the Commission of Audit?
ARTHUR SINODINOS:
I've always believed public debate is good. The fact that we've had this debate over FOFA is actually a good thing because even though, you know, there's been the odd smear and accusation thrown at me, the point is it's given us an opportunity to actually flush out the issues a bit more and in due course I think that would be good with the Commission of Audit report but that's the decision of my betters.
EMMA ALBERICI:
Will it be released publicly before the WA Senate election?
ARTHUR SINODINOS:
That's a decision for my betters.
EMMA ALBERICI:
Do you think it should be?
ARTHUR SINODINOS:
What should happen is a judgment made by my colleagues who are senior to me and who I love very much.
EMMA ALBERICI:
Senator Sinodinos, thank you so much for your time.
ARTHUR SINODINOS:
Thank you.