Hello to everyone gathered in Canberra for the AFA’s National Adviser Conference.
Unfortunately I can’t be with you in person today, but I didn’t want to miss an opportunity to share the Turnbull Government’s vision for financial services.
As most of you would be aware, financial services is Australia’s largest sector.
It accounts for about 10 per cent of our economy — supporting growth, employment and making a direct contribution to the country’s finances.
And it’s for this reason that the Government wants to make the system even stronger. In short, we want to build a world-class system that is capable of taking advantage of the opportunities ahead and tackling the challenges of the future.
Of course, if we’re to do that we need to confront challenges head on.
And one of the most pressing is the issue of trust and confidence in the sector.
You’d all be aware that both of these things — which are crucial in any sector, but particularly financial services — have been undermined recently by the actions of a few.
It is an unfortunate reality. But it’s one we need to deal with, and we can deal with through common-sense reforms that meet consumer expectations of fair treatment.
So that is exactly what the Government is doing.
And in the short time I have, I want to focus on reform to life insurance adviser remuneration — something many of you will be interested in.
Life insurance, of course, is crucial. It provides financial security for Australians, often during times of crisis, and that is why it needs to be performing at the highest level.
But the life insurance advice sector has been under the spotlight in recent times. And the findings haven’t always been flattering.
Of course, the Government knows that as with financial advice more broadly, the majority of the sector does the right thing.
However, if the sector is to grow — and if consumers are to receive appropriate advice — then we need to address these concerns.
A number of recent inquiries and reports have made recommendations to improve the quality of life insurance advice by addressing the conflict between remuneration and consumer outcomes — including a report by ASIC, the industry-commissioned Trowbridge Review and the Financial System Inquiry.
One of these inquiries recommended banning upfront commissions all together.
The Government has taken a more measured approach and has responded to these reviews by working with key industry stakeholders, including the AFA, to introduce a package of reforms — reforms that better align the interests of advisers and consumers.
Of course, it would have been easy for the Government to simply accept the recommendations of the Financial System Inquiry, and move to a level commission model.
But we didn’t do that.
Instead, we chose to work cooperatively with the industry to develop a package of reforms that balance the need to maintain industry viability, and improve consumer outcomes.
That said, there is a lot of misinformation about what these reforms do and don’t do.
So let me clear up a few things.
First, these reforms are not about price fixing. While there is a maximum cap on upfront commissions, commissions are still allowed — unlike other financial products covered by Future of Financial Advice — and level commissions and fee for service are not affected.
Secondly, these reforms cover all life insurance sales involving advice — regardless of whether it’s personal advice or general advice. There is absolutely no ‘carve-out’ for direct sales and the Government will ensure that future sales methods designed specifically to avoid the reforms will be captured including those where no advice is provided to the consumer.
I have been determined to ensure that these reforms don’t favour one part of the industry over another.
The Government has listened to the concerns raised by business — large and small. I’ve met with many financial advisers, I’ve read your correspondence and I welcome the engagement that I have had with the AFA to improve the package.
The legislation that I will introduce into the Parliament this month will transition all advisers to the new remuneration structure on 1 January 2018 regardless of their employment arrangements.
This is a departure from the approach undertaken during the FOFA reforms and a variation to the original LIF legislation, which originally proposed a staggered approach to compliance – by grandfathering employee advisers for the duration of their specific Enterprise Agreements. This change will ensure a level playing field for all advisers and benefit consumers by bringing forward the practical implementation of the reforms.
Ultimately I believe that we have found a good middle ground — one where all sides have made compromises and where the consumer will benefit.
I would like to thank the AFA for the role you played in this process.
The AFA advocated effectively on behalf of advisers, and many of the changes, such as moving from a three to a two-year clawback, expanding the legislation to nil advice sales and a single implementation date for all advisers are the result of their ongoing strong engagement.
Now that said, life insurance reforms are only one part of the Government’s agenda to raise trust and confidence in the financial services industry.
And before I finish, I want to mention a few of them.
We will lift the education, training and ethical standards of financial advisers across the board.
We will enhance ASIC’s surveillance capabilities — with a funding injection of $127 million — so that it’s better able to proactively combat misconduct in the industry.
We will also consult on strengthening ASIC’s enforcement tools in relation to the financial services and credit licensing regime, and improve the accountability of issuers and distributors of financial products.
Finally, we have established a panel — led by Professor Ian Ramsay — to review the role, powers and governance of the financial system’s external dispute resolution and complaints schemes.
So as you have no doubt gathered, the agenda for the Turnbull Government is significant.
We want a world-class financial services system — one that has the trust and confidence of all Australians, and can grow as a result.
That is why we are pursuing some well-considered and common-sense reforms.
But the success of these reforms will ultimately depend on the industry’s active and positive participation.
I have no doubt that with your support we can grow financial services in a way that will benefit every individual, every family and every business across Australia.
Thank you and my best wishes to you all for the remainder of this conference.