How ALP’s view on the CSLR changed when it won Govt
Despite Labor Party members of a Parliamentary Committee having backed capturing Managed Investments Schemes (MISs) in the funding of the Compensation Scheme of Last Resort (CSLR), the Government has tabled legislation putting most onus on financial advisers and licensees.
In what represented its last report before the Federal Election, the Senate Economics Legislation Committee supported the CSLR but with the Labor Senators delivering a separate report in which they said “Labor would encourage the government to expand the scope of the proposed compensation scheme of last resort to include MIS’s”.
The fact that the legislation tabled in the Parliament yesterday failed to pick up on the MIS recommendation prompted the Financial Planning Association (FPA) to express concern that the collapse of MIS schemes such as Sterling would not be covered.
However, there are hopes the Australian Greens and cross-benchers may force the necessary amendments.
For its part, the Financial Services Council (FSC) said it believed the Government had essential features right and was right to take a cautious and prudent approach to the final design of the CSLR “as the scheme is rife with moral hazard that must be carefully managed”.
FSC chief executive, Blake Briggs said that the financial services industry recognised consumers impacted by financial advice failures often incurred significant losses that should be compensated but at the same time this needed to be balanced with the fact the companies funding the scheme took responsibility for the quality of their advice and did not contribute to unpaid claims.
“To avoid incentivising unnecessary risk taking by unscrupulous firms, it is necessary to place sensible limits on the extent to which responsible financial service providers are expected to underwrite the misconduct of their competitors,” Briggs said.
“The Government has got the essential features of the scheme correct, including a $150,000 cap on individual claims and a focus on financial advice failures.
“Our collective goal should be a compensation scheme that is rarely required as adequate capital levels and professional indemnity insurance obligations for financial advisers result in minimal unpaid Australian Financial Complaints Authority (AFCA) determinations.”
He claimed recent advice failures appeared to have increased the backdated costs of the compensation scheme significantly, reinforcing the FSC’s view that costs could easily get out of control if the scheme was not appropriately targeted and controls on the design of the scheme are necessary.
“The Government must ensure the scheme is efficiently operated or Australia will end up like the UK, where financial service companies and their customers are facing a billion pounds in annual costs,” Mr Briggs added.
The FSC also recommends that AFCA takes steps to ensure all claims are eligible and the causes of losses are appropriately attributed, the scheme operator must fully enforce subrogation rights, and these provisions apply equally to backdated claims as they would when the scheme is operational.
FPA chief executive, Sarah Abood said it was disappointing the MISs had not been included and cited the impact of the collapse of the Sterling Group and Mayfair 101.
“These products were often promoted directly to investors (using the wholesale\sophisticated investor exemption). These people have lost their life savings and in many cases are now completely dependent on the Age Pension,” she said
“We’re unsure at this stage what the findings will be in the case of the Dixon group. However insofar as any consumer harms are a result of product failure, those investors would also not receive compensation from this scheme.
“At present, after nearly four years of operation, there is $3.7 million in unpaid AFCA determinations relating to financial advice due to insolvency. Yet MIS operators have $6.4 million outstanding against them at present. The total unpaid determinations are $14.7 million across all the areas AFCA manages.
“This makes it clear that the CSLR must extend across AFCA’s remit to achieve its aims of ensuring that victims of financial misconduct can be compensated where the firm involved has become insolvent.
“It’s also critical that the scheme be funded equitably and the administration costs of a CSLR should be closely monitored to ensure that cost recovery from industry primarily compensates consumers rather than covering bureaucracy and administration.
“We look forward to continuing to work constructively with the Government, planners, consumers and other stakeholders in the sector to deliver certainty and fairness for the financial planning profession and ensure consumers can have trust in the financial system. We will continue to advocate for the scope of the CSLR to be extended,” Abood said.
Kill Advisers at all costs mentality continues, even when it’s clearly not Advisers fault, i.e. Product Failures.
Govt, Financial Institutions, ASIC, AFCA, FARSEA & CSLR can ALL go and get stuffed.
Better off providing illegal, unlicensed Money Coaching than more of this totally biased rubbish.
Adviser must say ENOUGH!!!
14,000 odd have said enough. I’m guessing many more will do the same depending on what the outcome is financially of this stupid scheme. It’s time governments stopped taking other peoples money to fix problems.