|
representatives vote 2020-02-11#5
Edited by
mackay staff
on
2020-02-21 13:02:44
|
Title
Bills — Treasury Laws Amendment (2019 Measures No. 3) Bill 2019; Consideration in Detail- Treasury Laws Amendment (2019 Measures No. 3) Bill 2019 - Consideration in Detail - Conflicted remuneration
Description
<p class="speaker">Stephen Jones</p><p>by leave—I move opposition amendments (1) and (2), as circulated in my name, together:</p><p class="italic">(1) Clause 2, page 2 (at the end of the table), add:</p>- The majority voted against [amendments](https://www.openaustralia.org.au/debates/?id=2020-02-11.92.1) introduced by Whitlam MP [Stephen Jones](https://theyvoteforyou.org.au/people/representatives/whitlam/stephen_jones) (Labor), which means they failed. The amendments related to conflicted remuneration, which is defined as:
- > *… any benefit, whether monetary or non-monetary, given to a financial services licensee, or a representative of a financial services licensee, who provides financial product advice to persons as retail clients that, because of the nature of the benefit or the circumstances in which it is given:*
- >
- > *(a) could reasonably be expected to influence the choice of financial product …*
<p class="italic">(2) Page 71 (after line 3), at the end of the Bill, add:</p><p class="italic">Schedule 4—Removing conflicted remuneration exemptions</p><p class="italic"> <i>Corporations Act 2001</i></p><p class="italic">1 After subsection 963B(1)</p><p class="italic">Insert:</p><p class="italic">(1A) Despite paragraph (1) (e), regulations made for the purposes of that paragraph have no effect to the extent the regulations prescribe a monetary benefit relating to any of the following:</p><p class="italic">(a) interests in a managed investment scheme that are, or are proposed to be, quoted on a prescribed financial market;</p><p class="italic">(b) interests in a listed investment company (within the meaning of section 115-290 of the <i>Income Tax Assessment Act 1997</i>).</p><p class="italic">2 Application provision</p><p class="italic">The amendments made by this Schedule apply in relation to monetary benefits given on or after the commencement of this Schedule.</p><p>The amendments before the House deal with the issue of conflicted remuneration, specifically conflicted remuneration in respect of listed investment trusts and listed investment companies. Section 963A of the Corporations Act defines 'conflicted remuneration' as:</p><p class="italic">… any benefit, whether monetary or non-monetary, given to a financial services licensee, or a representative of a financial services licensee, who provides financial product advice to persons as retail clients that, because of the nature of the benefit or the circumstances in which it is given:</p><p class="italic">(a) could reasonably be expected to influence the choice of financial product …</p><p>In 2012 the FOFA reforms banned this type of remuneration for the sale of future financial products. This was fiercely resisted at the time by many but not all within the industry. Many advisers understood the long-term implications and were aware of reforms occurring in the United Kingdom, Canada and New Zealand and could see the writing on the wall. Regrettably, in 2014 the Abbott government amended the FOFA laws, winding back a number of provisions, including the conflicted remuneration provisions of the FOFA act as they relate to stamping fees. We propose appending a new schedule to this bill that amends the Corporations Act to remove the current legislative exemption from conflicted remuneration rules for financial advisers in relation to the selling of units or shares in listed investment trusts and listed investment companies.</p><p>Listed investment trusts and companies are financial entities that are listed on a securities exchange, such as the Australian Securities Exchange. They operate in a similar way to a managed fund except for the fact that they're a listed security. The existence of these funds has almost doubled since the exemptions were put in place as a result of the FOFA reforms. As a result of these changes, lots of mum-and-dad investors have been sold into listed investment companies and trusts, and this has created a significant distortion in the market. As a result of these changes—and we say as a result of the conflicted remuneration—there has been a massive increase in these funds. In fact, <i>The </i><i>Australian Financial Review</i> reported:</p><p class="italic">… there has been a tsunami of new listed investment companies (LICs) and listed investment trusts (LITs) launched since 2017, raising more than $6 billion for fund managers who have paid brokers/advisers enormous sales commissions of up to 3 per cent of the value of the capital contributed by mums and dads.</p><p>It is creating a distortion in the market. It is also creating an enormous risk for mum-and-dad investors.</p><p>We have recently read through documents that were provided to <i>The</i><i>Australian Financial Review</i> as a result of an FOI request that show that the Australian Securities and Investments Commission has significant concerns about this and has advised the government of its significant concerns. It said that 'it is difficult to justify the existing exemption from the FOFA laws for the selling and the stamping fees that are provided through listed investment trusts and companies'.</p><p>It is worth noting that the Financial Planning Association of Australia supports the amendments. In a recent survey conducted by Morningstar of over 670 financial planners, over 71 per cent said that they supported an end to the stamping fees for these financial products. ASIC, in its research, showed that the LICs and LITs were significantly underperforming in the market—they were trading at a significant discount—and that there was a correlation between the poor performance of these investment products and the size of the stamping fees or commissions that were being paid.</p><p>An amendment was made to the FOFA act back in 2014. It has had adverse consequences. It is creating distortions in the market and significant risks for mum-and-dad investors. We know that the government share some of our concerns. The process they have put in train will not lead to a swift closure of this loophole. We commend the amendments to the House.</p> <p class="speaker">Michael Sukkar</p><p>We don't support the amendments moved by the member for Whitlam. This is just another example, perhaps quite understandably, of the opposition trying to get ahead of an area that the government has already taken action on. As the shadow Assistant Treasurer referred to, on 27 January the Treasurer announced that Treasury will undertake—and, therefore, is in the process of undertaking—a targeted public consultation on the merits of the current stamping fee exemption. These amendments really undermine that review by predetermining its conclusion and its ultimate recommendation. We believe that thorough public consultation will allow the government to make an informed decision on whether to retain, remove or modify the stamping fee exemption, ultimately to ensure that the interests of investors are protected and, of course, that capital markets remain efficient and globally competitive.</p><p>The opposition should know that failing to take the temperature of the public has contributed to the lack of faith that so many in the business community have in the Labor Party in particular. We won't go down that path. We believe that this targeted consultation is important. As we saw with director identification numbers, the government's quite ambitious project with MBR, this is just another example of Labor trying to get ahead of what is obviously an area where the government is taking action. We don't support the amendments moved by the shadow Assistant Treasurer.</p> <p class="speaker">Stephen Jones</p><p>I thank the Assistant Treasurer for his comments. In reply, I hope we can persuade government members of the wisdom of what we are putting. The first point I want to make is that the risk is known: the risk to mum-and-dad investors, who are being convinced by certain financial advisors—not all of them—to invest in what is, by its very nature, a very opaque form of investment instrument, one where it's almost impossible for a retail investor, an ordinary mum-and-dad investor, to properly analyse the value and underlying risk in the instrument that they're investing in.</p><p>The risk has been known to the government for quite some time. In the documents discovered through the FOI process, it is now known that the government was warned by the Australian Securities and Investments Commission at least six months ago, if not longer. For at least six months the government has known about this. I wrote to the Treasurer on 23 January urging an immediate bipartisan approach to this. In that letter I pointed out that, the longer we wait, the market will respond by rushing to the door. We are concerned that the longer this process goes on, the more those that have benefited enormously through the stamping fee process will rush through the door. There'll be listings and there will be commission based sales of these innately risky products to mum-and-dad investors, and it will be too late to unwind that. I seek leave to table a copy of that letter.</p><p>Leave not granted.</p><p>In addition to writing to the Treasurer, I wrote to the Commissioner of the Australian Securities and Investments Commission. I pointed out that there was a significant concern amongst Labor members about this continuing loophole. I referred to the documents and ASIC's own research, which pointed out the poor performance of these funds; the fact that these trusts and companies were trading at large discounts to the net tangible assets; that there were high, significant management fees that were being charged; and that the conflicting selling arrangements in 42 of the 48 listed investment companies, that have been listed since the loophole was opened up, were directly related to the higher stamping fees. That is to say, ASIC's own research showed that there was a positive correlation between the amount of stamping fees, the amount of commissions that were being paid on an issuance and the poor performance of that fund.</p><p>Against this background, I don't think anyone can stand here and credibly say the public wants us to let this loophole continue. I don't think anyone can say it is in the public interest to let this known risk continue. And it'll be on all of our heads, if, against this background—against the known risks, the deep concern within the financial advising community, indeed the support for the majority of people within the financial advising community; and that there are further issuances and further listings and commission based selling of these products—we let this risk continue and we have not acted. If one of those companies or one of those trusts falls over, it will be on our heads, because we will not have acted. I don't think there's anybody in this place who wants to look back in 12 months or 18 months time and say, 'We had the opportunity to close this loophole down, and we did not act.'</p> <p class="speaker">Michael Sukkar</p><p>I'll be very brief. I, again, thank the shadow Assistant Treasurer but reiterate to him that the Treasurer announced, on 27 January, that a four-week consultation period would open. If, as the shadow Assistant Treasurer says, the evidence is overwhelming and compelling, then that will of course come out in that process. But we believe it's good governance and good practice to conduct that, and the outcome of that consultation will inform the next steps to be taken, if any, by the government.</p> <p class="speaker">Tony Smith</p><p>The question is that the amendments moved by the member for Whitlam, detailed amendments (1) and (2), be agreed to.</p><p></p>
|