I'm delighted to have been invited to speak at the Association of Financial Advisers' National Conference. This will be my first official address to a financial services audience since my appointment as Assistant Treasurer.
I'd like to thank AFA President Michael Nowak for inviting me to speak with you today.
Government's deregulation agenda
I had the pleasure of addressing the AFA at a lucheon last year. Those of you who were present may remember that on that occasion, I outlined the Coalition's commitment to cut at least $1 billion of red and green tape each year.
Our deregulation plan is part of the Government's broader agenda to build a stronger and more productive economy. It is a vital component of the Coalition's Better Productivity Plan, along with increasing competition and improving infrastructure.
It's imperative that we improve the productivity of our nation. We must offset lower terms of trade and the impact this has on income growth over the medium term. One of the most effective ways we can do this is through deregulation, in an environment which promotes competition, and improved, lower cost regulation, where some form of regulation is needed. The Government is not anti-regulation per se. But we are only too well aware, from talking with business and not-for-profits, that the cumulative effect of Commonwealth law, State law, and local regulation is stifling innovation and creativity – ultimately it is holding back Australia's economic development and prosperity.
As part of our deregulation agenda, the Government will also overhaul the process for creating, implementing and reviewing new regulations.
To this end, we will implement a process within Government where we carefully balance the costs and benefits of additional regulation.
We will also drive cultural change throughout government. That includes the Cabinet and Parliament, as well as the public service. As you may be aware, the Hon Josh Frydenberg, Parliamentary Secretary to the Prime Minister, has taken over responsibility for the deregulation agenda within the Prime Minister's portfolio.
We are establishing Ministerial Advisory Councils in every portfolio, made up of business people, consumers, and not-for-profits who are impacted by regulation. They will be charged with providing concrete examples of unnecessary red tape and solutions on how the Government can remove it. The performance of senior public servants will be assessed, inter alia, on their success in identifying and reducing unnecessary red tape.
We will set aside at least two Parliamentary sitting days each year for the express purpose of repealing counterproductive, unnecessary or redundant legislation.
We will repeal or amend costly/excessive regulation wherever possible.
Second, we will implement a root and branch review of competition law and policy.
With our eye firmly on increasing the productivity of the Australian economy, infrastructure is the third key priority. Tony Abbott said he wants to be known as the infrastructure Prime Minister. He took a clear plan to the election.
Our infrastructure policy is based on three key priorities:
The early roll-out of big-ticket election commitments such as infrastructure projects in Victoria, NSW and QLD, along with measures to streamline project assessment processes.
Infrastructure Australia will examine new and innovative ways to engage private sources of funding for infrastructure. The role of infrastructure bonds is already being examined.
The effective deployment of state balance sheets. This should start with the sale of existing assets to fund higher priority greenfield investments. It is important to optimise the use of existing infrastructure and send the right signals for new investment.
Financial sector inquiry
To build the stronger and more productive economy that Australia needs for the future, the Government will ensure that our financial system is positioned to best support economic growth and meet the evolving needs of our nation.
This is why the Treasurer, Joe Hockey, announced the financial system inquiry as one of his first priorities.
Fifteen years after the Wallis inquiry and five years on from the Global Financial Crisis, we are undertaking a timely review of a dynamic and critical sector.
The inquiry will chart a course for the financial system over the next decade. It will be an agent for growth — not a vehicle for more regulation.
The Government is aware of the amount of regulatory change the sector has seen over recent years, and the significant adjustment and compliance costs of that regulation. We want to allow industry the time to bed down those reforms.
This is why we are imposing a moratorium on significant new financial sector regulation while the inquiry is underway.
I am a strong supporter of the Johnson Report – the Coalition remains committed to working on key recommendations to better position Australia to be a global financial centre.
The recent signing of the Statement of Intent by Australia, Korea, New Zealand and Singapore for the Asia Region Funds Passport is a terrific example of positioning Australia as a financial centre in the region.
The remaining recommendations are at differing stages of consideration and we will work through these in a consistent and methodical manner.
Future of Financial Advice
Ladies and gentlemen, I have outlined the Government's drive to reduce complexity and limit the administrative burden on stakeholders. I can assure you that we will follow through on this commitment in relation to the Future of Financial Advice reforms.
As you are no doubt aware, the legislation commenced on 1 July 2012 on a voluntary basis and became mandatory on 1 July 2013. The voluntary start date was implemented to allow the financial services industry time to transition to the new regime.
The legislation was designed to improve the trust and confidence of Australian retail investors in the financial advice sector, specifically by tackling the conflicts of interest that have pervaded the financial advice provided to Australian investors.
Your association has been a strong voice throughout the FOFA debate. In fact, the AFA welcomed the recommendations from the Ripoll Inquiry that led to the FOFA reforms. At the time, your former National President Jim Taggart said that the Ripoll recommendations:
"represent an important step forward in the journey towards making the financial advice industry one of Australia's most trusted professions".
So FOFA started off very promisingly. But along the way, somewhere between the release of the Ripoll recommendations and the implementation of FOFA, something went wrong. The resulting legislation is unnecessarily complex and imposes a significant regulatory burden on industry.
The Coalition supported, and continues to support, the principles of FOFA. But we have concerns about regulatory overreach, and I know that AFA shares this view. The industry estimates that this overreach in terms of red tape will result in an estimated $700 million implementation cost and impose an additional $375 million annual compliance burden on the financial services industry.
At the top of our agenda are changes to remove the opt-in requirements. The requirement to obtain a client's agreement at least every two years to continue an ongoing fee arrangement adds an unnecessary layer of red tape.
Insurance remuneration is another of our top priorities.
The differing insurance remuneration arrangements inside and outside superannuation create confusion. The Ripoll Inquiry did not recommend the banning of commissions paid for risk insurance products. Recent experience in the UK indicates that banning commissions on risk insurance just doesn't work. In fact, the UK has since reversed its decision to ban such commissions. Such bans increase costs for consumers, limit their choices and leave many people worse off.
As I have stated, the Government supports the principles underlying FOFA. In particular, we support the elimination of conflicted remuneration structures in the financial services industry. And we commend the work undertaken by industry to eliminate these structures, particularly by moving to a fee-for-service model and reducing reliance on product commissions.
We recognise that any major reforms require a transition period to allow the industry to adjust their business models.
I understand that the industry, including the AFA, has some concerns in relation to the grandfathering arrangements for the ban on conflicted remuneration. And I can assure you that we will work with the industry, including the AFA and its members, to ensure there are appropriate grandfathering arrangements in place.
There is a lot of anticipation and speculation within the industry and the media about how the Coalition Government will deal with FOFA. We have very clear election commitments on this issue.
I will shortly announce the process by which we will discuss, listen and work through the FOFA issues with stakeholders. We will not be rushed on this consultation – however we will provide certainty to the industry as to where the Government stands, any changes that will be required to refine the current regime and in what timeframe this will be achieved.
The FOFA reforms have also created some concerns around the issue of corporate super, specifically about the ability of corporate superannuation advisers to charge for their advice.
As I'm sure you know, the traditional commission-based remuneration models that corporate super advisers have relied on to charge for their services are no longer permitted under the FOFA reforms. This is because the reforms establish a presumption that all volume-based benefits are a form of conflicted remuneration, which is banned under FOFA.
There are concerns about whether advisers who provide both advice to employers about their choice of default superannuation fund, as well as advice to employees about their individual superannuation investments, are complying with the reforms.
I note that Douglas Latto, President of the Corporate Super Specialist Alliance, will speak about these issues at a Breakfast Overview at this conference on Tuesday.
The changes that have been imposed on the superannuation industry are substantial, and the Government is keen to hear the views of the industry. However, we need to ensure that industry views are fairly balanced against the effects of conflicted remuneration, both on investors and on the viability of the industry more broadly.
The superannuation system
Restoring stability and certainty to our superannuation system is a key aspect of the Government's agenda to build a strong and prosperous economy.
We strongly believe in competition. Greater competition in the superannuation sector through increased transparency and a more informed market can only lead to better outcomes for fund members. I want a superannuation sector that operates on a level playing field for all stakeholders in the industry.
There are very distinct components of the industry: the retail sector, the industry sector and the self managed super funds sector. Whilst they operate on different models – they all strive for the same outcome – to deliver a solid retirement income for their members.
With this in mind, I believe that is vital that we have the appropriate regulatory framework in place for the superannuation system as a whole. One that protects the interest of consumers but is not overly burdensome and costly. This will be the focus of a Coalition government as we work with industry on implementing our election commitments.
In particular, we are committed to improving the quality of information available to superannuation fund members and employers. We want them to have the information they need in order to make informed decisions when comparing the relative performance of funds – but it must be done with low compliance costs.
We are aware of concerns within the industry about the impact of tight implementation timelines and some of the detail of the disclosure requirements proposed or put in place by the former Government.
We will work with the industry and regulators to ensure that the new disclosure regime enhances comparability, and in doing so, boosts competition.
I should also point out that, despite the introduction of MySuper default superannuation products, the Labor Government failed to introduce genuine competition and transparency into the default fund market for award-covered employees.
Australia's system of compulsory superannuation is expected to grow strongly over the new few decades, from around $1.6 trillion today to around $8 trillion by 2039-40.
It is imperative that our super system provides adequate income in retirement for millions of Australians, and is managed sustainably and with complete integrity.
People need to trust the system.
Good governance in superannuation is critical to securing that trust and integrity.
The Government is committed to aligning superannuation governance more closely with the corporate governance principles applicable to ASX-listed companies.
We will take a considered approach on this important reform and all of our election commitments. I will shortly announce the process. The Government will issue a discussion paper before the end of the year with clear timeframes for consultation with all stakeholders. There will not be any unexpected or detrimental changes to the superannuation system under the Coalition. We will provide certainty.
We are committed to making improvements in superannuation governance while minimising compliance costs for the industry and avoiding unintended consequences.
The government will consult widely and wisely on the issue.
Ladies and gentlemen, it is important that Australia's financial services sector operates as smoothly and efficiently as possible. Not only because a sound industry will help us to build the strong, competitive and prosperous economy that we need, but also because of the far-reaching impact the sector has on all Australians.
I am aware that in 2011 the AFA conducted research, which showed that only one in five consumers were in a financial advice relationship. That just isn't right. Australians expect and deserve a financial advice industry which helps them maximise their savings and gives them confidence for the future.
By working together, we can make this happen.
Once again, thank you for inviting me to speak with you today, and I hope you enjoy the rest of the conference