Mr STEPHEN JONES(Throsby) (16:21): I am happy to make a few observations in the debate on the Corporations Amendment (Streamlining of Future of Financial Advice) Bill 2014, because it is topical but it is also a matter that has had, in the absence of decent regulation and protectionswhat I prefer to call guardrails and not red tapea devastating impact on hundreds and hundreds of investors within my electorate of Throsby.

It is worth recounting some of the background to this legislation. You would be aware that through the global financial crisis we saw a range of large investment vehicles, which may have not been sound at the get-go, come under enormous pressure and ultimately fail. What we saw as a result of that was a whole heap ofordinarily what we like to call, sometimes pejorativelymum and dad investors left high and dry and exposed to the collapse of some of those investment vehicles. What we also saw exposed were people who had become the victims of less-than-optimum financial advice. Regrettably, I saw a lot of that in relation to the collapse of Trio Capital, an investment vehicle to which a number of constituents in my electorate were exposed.

In government, we took the opportunity, after extensive inquiry in consultation, to introduce the Future of Financial Advice laws known now through the shorthand of FoFA laws. In short, we sought to ban the kickbacks that were being received by many financial advisers for attracting, advising, luring investors into certain investment products. In addition to that, we also put in place a requirement that financial advisers act in the best interests of their clients and not in their own pecuniary best interest. The laws also included stricter requirements to provide information on so-called trailing commissions. These are different from the kickbacks. These are commissions that are paid over the life of, perhaps, an insurance bond or some other form of investment which provide the agents or the salesperson with a regular commission over many years. Some research has been done on this. We found that some investors were paying tens if not hundreds of thousands of dollars in commissions. Had they been completely transparent or had they known about them, they probably would have opted for alternate investments and would have structured their finances in a completely different way. In a nutshell, we sought to rebalance the pendulum in this area. We thought it was absolutely essential that we put in place some consumer protectionswhat we see as a guardrail not as red tape.

It is increasingly important that we get this right. The self-managed funds sector is the largest sector of the Australian superannuation industry and one of the fastest-growing parts of the superannuation industry. The enormous pile of self-managed super money is currently being used in the retirement phase resting at about $296 billion. It has tipped to almost double by 2023 to over $560 billion. It is lightly regulated and has different arrangements in place on the assumption that, if people opt for self-managed superannuation funds, then they are active and engaged investors. That assumption is not always sound. I know that from my own experience of talking to constituents in their dozens who thought their superannuation was no different from the superannuation that they were contributing to when they were a part of an employment based scheme.

We saw this as a problem that needed to be addressed. We saw this as an issue which, if not dealt with, would create more victims of financial collapse, financial fraud and mismanagement down the track. If we did not get it right, at some point down the track people were going to point the finger at government and say, 'Why did you not get the regulatory framework set straight when you had the opportunity?'

I have mentioned the investment vehicle known as Trio Capital which, in my research, was probably the largest superannuation fraud in Australian historyabout $176 million of superannuation funds were lost and they are unlikely to ever be recovered. Hundreds of victims of this financial fraud were from my electorate of Throsby. If you look at the pattern of the victims of the collapse of Trio Capital, you see there was one common characteristicthat is, they were all clients of a handful of financial advisers who recommended clients take their money out of whatever investment vehicles it was already in and invest in what appeared to be wildly attractive returns available through Trio Capital investments. Of course we now know that those returns were never sustainable, that they were a part of an elaborate fraud to attract investors and financial advisers to coerce them into investing in that vehicle.

In my own electorate the largest number of clients who have had their money invested in Trio Capital were encouraged to do so at the advice of one particular financial advising company, Tarrants. It is regrettable that the decisions of those advisers encouraged hundreds of investors to put their money in unwise investments. We can only speculate the reasons for which they were encouraged to do that, but it is quite clear that the advisers in this case were not acting in the best interest of the clients.

Indeed, the Administrative Appeals Tribunal upheld the decision of ASIC to ensure that Mr Tarrant had his licence to act as a financial adviser revoked for seven years. The AAT found that Mr Tarrant failed to have a reasonable basis for the advice he provided to at least eight of his clients and probably many more. This particular adviser continues to protest his innocenceas is his rightbut the finding of the AAT still stands. Trio stands as an example of why we need to get this legislation right.

The victims of Trio organised themselves in the lead-up to the last federal election, as is entirely their right. They sought assurances from the then shadow finance minister, Senator Mathias Cormann, as to what the then alternative government of the country would do if they were successful at the next federal election. Undertakings and understandings were given via Senator Cormann to the victims of Trio. He said, 'There would be some justification for a level of compensation for the victims of Trio.'

It has been almost one year since the election of the Abbott government. These victims are still out of pocket. These victims were encouraged to vote for the coalition government because the coalition government was going to do something about the losses they had suffered through the Trio fraud. They were encouraged vigorously throughout the course of the 2013 electionparticularly in my electorateto vote for the Liberal candidate and to vote for other candidates who were directing preferences to the Liberal candidate, because the Liberal Party was going to honour its promise in providing some level of compensation for those victims.

I hate to think that those people were somehow misled in the course of the 2013 election. We have heard very little about their claims since that election, so I now use the opportunity in this debate to ask the finance minister and the government what they are doing about the commitments they made to the victims of the Trio collapse in the 2013 election. It is about time they made good on those promises; otherwise, the people of Australia and the victims of Trio will be entitled to conclude that it was nothing more than a ruse to attract votes, during the course of the 2013 election, and that there was absolutely no intention of providing some form of compensation to the victims of this fraud.

I would like to make a few observations that go to the recent Senate inquiry into the Commonwealth Bank investment scandal and some of the observations that have been made by the Senate committee. In my view, many of them should have been picked up before relevant legislation came before the House. This is the first opportunity the government has had to respond to the recommendations of that Senate inquiry, which made a number of pertinent findings about professionalism and the need for enhanced professional standards within the financial-advice industry.

A certain National Party senator has been quite outspoken on this and some of his observations warrant close examination. This legislation would have been an opportunity for the government to do something about the recommendations. Regrettably, they have not done that. Regrettably, they have removed the essential catch-all provisions in the best-interest test, which adds a loophole for advisers. It means Labor's best-interest clause could become less effective than it was.

There is the removal of the opt-in provision. This provision requires financial advisers to seek the permission of their clients to continue to charge them an annual fee. It would be very attractive if you were running a business to have a set-and-forget revenue stream. If I were running a business, I would find that incredibly attractivea set-income stream that would enable me to focus on other areas of the business, because I know it is coming, in year after year, on the basis of my customer base. It is not necessarily in the best interests of the client, however.

It would be, we say, in the best interests of the client for there to be full transparency. The existing legislative provisions, which require the clients to be advisedfor the financial adviser to seek re-approval for ongoing charging of feesare nothing less than reasonable. We think the annual disclosure arrangements for clients is a backward step. The lifting of the ban on some conflicted remunerationthat will only apply to personal advice and general advicecreates another avenue for unscrupulous advisers, the extreme minority, to do what they otherwise would not.