TONY EASTLEY:
The Federal Government is planning a shake-up of rules governing the financial services industry. Many of the changes would overturn reforms introduced under the Labor Government after the Storm Financial collapse where some investors lost their life savings because of conflicted financial advice. One of the proposed new changes would water down a key provision where advisers must always act in the best interests of their clients. The Assistant Treasurer Arthur Sinodinos says that's one area where Labor's reforms went too far. Senator Sinodinos is speaking with our business editor Peter Ryan.
ARTHUR SINODINOS:
I believe they will receive better protection because we're reducing the cost of implementing the changes. Something like $90 million in implementation costs will now no longer be involved. Ultimately there is no free lunch when it comes to providing free advice, so someone pays when we try and make advice more expensive or less accessible and that is ultimately consumers. We're about trying to reduce the costs of compliance so it makes it easier for people to get advice.
PETER RYAN:
But many of those cost savings would go directly to the financial services industry, not necessarily to consumers.
ARTHUR SINODINOS:
And by promoting competition in the sector, by having vibrant competition between the retail end of town, the industry fund end of town, the independent financial advisers and planners - that is what will keep fees and costs down ultimately is the vigorous competition.
PETER RYAN:
One of the proposed changes is to remove a general provision where advisers always need to act in the best interests of their clients. Why would you want to water that provision down?
ARTHUR SINODINOS:
That provision comes after six other provisions which seek to identify how in practice you would implement such a duty. And having a catch-all creates uncertainty, certainly in the mind of advisers, about whether they've done everything they can in the provision of advice. And the problem always when you create that uncertainty is you don't know how that will distort behaviour and you don't know whether that actually inhibits advisers from giving the best possible advice because they become particularly risk-averse.
PETER RYAN:
But if advisers have to comply with such a catch-all, wouldn't that actually raise more questions about their behaviour or their professional activity that might actually create a better deal or disclosure for consumers?
ARTHUR SINODINOS:
I don't believe so. If you create more uncertainty and potentially make people even more risk-averse, that can inhibit providing robust, good advice.
PETER RYAN:
Many of Labor's reform were in response to the collapse of Storm Financial where some clients lost their life savings because of conflicted or bad advice. Will these new reforms help prevent another instance that would be like Storm?
ARTHUR SINODINOS:
No one can ever guarantee in all circumstances there will never be another financial collapse of any kind or that advisers will in all circumstances give perfect advice. But what we need to do is have a system that maximises the prospects of good advice at an affordable price.
PETER RYAN:
There's a looming inquiry into the financial services system coming up next year. Wouldn't these reforms best be covered in that review where everything will be on the table?
ARTHUR SINODINOS:
We're in this funny situation in this country where we've got a new government which is working as hard as it can to implement all its election commitments and everybody keeps telling us they either don't want us to implement our election commitments or they think we should wait further. I believe we have a mandate to get on with implementing our election commitments and in relation to these particular changes, I can assure you Peter, there is going to be plenty of debate by the players in the industry and there will be plenty of opportunity as we go through the parliamentary process for people to debate the merits of what we've
done. And I'm confident that we have a robust package which strikes the right balance between consumer protection and the vexed issue of regulatory and compliance costs.
PETER RYAN:
What sort of challenges do you face in getting this past a senate that originally passed Labor's reforms?
ARTHUR SINODINOS:
Well, I think that will be a challenge but it's good if Australians are debating the cost of good quality financial advice and that's our objective.
TONY EASTLEY:
The Assistant Treasurer Arthur Sinodinos speaking with our business editor Peter Ryan.