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Interview with Bernie Ripoll. The Future of Financial Advice Reforms.

10 November, 2011

 

 

Bernie Ripoll

Bernie Ripoll MP, shares his insights into the proposed FoFA reforms.

 

Henry Davis York recently interviewed Bernie Ripoll on the Future of Financial Advice (FoFA) reforms. Mr Ripoll shares his insights into the proposed FoFA reforms, the hurdles in getting them through parliament and the changes which are essential for the future of Australia’s financial services industry.

 

HAS FOFA TURNED OUT THE WAY YOU HAD HOPED?

 

It has certainly been an extensive process which has involved pretty much every stakeholder. They have all had an opportunity to participate. I had hoped to find a better way to deal with peoples’ retirement savings and investments and also with the way that the financial sector works. All of the issues that we have put forward with this legislation go to that goal, whether they were put forward in the Cooper Review or the review that I was involved with (Parliamentary Joint Committee on Corporations and Financial Services). We have come out of it with great proposals. The difficulty now is that the final position adopted by the parliament may not be one that I expected.
 
YOUR RECOMMENDATIONS?  HOW DO YOU SEE THE MINORITY 
GOVERNMENT FEATURING IN THIS?
 
The most significant hurdle is that if any one of the Independents does not support it and it is not supported across the parliament, then the legislation will not get up. We need people to get on board. If it does not get up, then that is a worse scenario than the status quo. We will have gone through an extensive process taking 
three years, which has won broad support. Nearly everyone agrees with it. The real tragedy if it doesn’t get through is that the financial services sector would be asking: “What do we do now?” A lot of significant players have moved already towards adopting the recommendations, and that’s a good thing.
 
We have presented the legislation in two tranches, the second of which will come later this year. I would like to think that both tranches will get up as they stand, but there is the possibility always that none of it gets up. I am aware that we don’t have the support of the Opposition, which is disingenuous on their part because they 
were part of the process and came with us all the way. In the end, they didn’t like a couple of issues. That puts a lot back on the Independents. We have talked them through it, and they say that they understand how it works. Now it’s up to them.
 
IF NOT ALL OF YOUR RECOMMENDATIONS GET IMPLEMENTED, THEN WHICH
ONES DO YOU SEE AS ESSENTIAL FOR THE FINANCIAL SERVICE INDUSTRY? 
 
I like to think that it’s all essential. The changes related to conflicted remuneration and the best interests test are, in my view, essential. There’s always room for negotiation, but we need to have broad support on these points. Where there remains some controversy, we have made enough concessions and dealt with 
the concerns. You need to keep in mind that this is a package. Each piece links in with every other piece. For instance, to change the provisions related to remuneration and not deal with conflicts would not work. There is no one solution or tweak that will fix the bill (to everyone’s satisfaction). But we need to pass the 
legislation because we need to make long term commitments about advice and remuneration. We need to bring about a philosophy of disclosure and consent and to ensure that clients understand what is happening with their savings.
 
DOES THE POTENTIAL FOR A GFC2 CHANGE ANY OF YOUR VIEWS?
 
There is no direct impact. The passage of legislation is happening regardless of what might happen in the broader economic sphere. However, what does make it relevant is that when times get tough that is when things are more exposed. That’s when people lose money. The critical issue with respect to any GFC2 is that 
we get this right and have it bedded down so there are fewer strains on the system if another downturn occurs. This will make it harder for people to do the wrong thing. People should know what they are paying for, they should know what they get and how long it goes for and also know how to get out if they want to. It’s a value 
proposition. The industry will provide a service and people will give their consent to that. In every society, people should know what they are being provided with and they should give their consent.
 
WERE THERE ANY RECOMMENDATIONS IN YOUR REPORT THAT WERE
OVERLOOKED WHICH YOU BELIEVE COULD HAVE MADE A DIFFERENCE TO
THE INDUSTRY?
 
I accept the overall package, and I am very happy that most things made it through. But the main one that was not included from my perspective was the formation of a one-stop umbrella organisation to cover the entire sector. The view was that we were not ready for that, and that there were already a number of organisations dealing with that issue. That’s not a critical issue, but maybe we will go back to that idea.
 
Another was the formation of a consumer compensation scheme, but that has gone to Richard St John to report back on. I had also wanted measures introduced to make it clear what particular advisory businesses were – who controlled them and the like. That should be made clear on their business cards and in their marketing material so that people know the relationship between the people selling the product and the ones supplying it.
 
WITH THE REFORMS IN PLACE, HOW WILL THE AUSTRALIAN FINANCIAL SERVICES INDUSTRY LOOK IN 2020?
 
I would like to think that more people will be involved with it. I hope that it is a more professional sector that has a changed culture and a professional status that is more highly regarded. I hope that more people take an interest in their retirement savings and investments and have an understanding of risk.
 
Risk is the biggest issue, because people need to know how much risk they are prepared to take. Many people don’t know that if they take 100% of their savings and borrow another 100% and put that into an investment that is not diversified, that they have increased their risk. That is what we have seen people do in cases like Trio, and they have lost all of their money. The fund may have said that their investments were diversified, but when the fund collapses people lose all of their money. There is a gap between expectations and understanding. In 10-15 years’ time, I would like to think that we have become more sophisticated and understand what real risk is.
 
 
For further information, please contact:
 
Robyn Tolhurst, Henry Davis York
robyn_tolhurst@hdy.com.au
 
 
 

 

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