Equity dictates MISs must pay their way on CSLR
ANALYSIS
For most of the past half decade, the Association of Independently Owned Financial Professionals (AIOFP) has made public a list of all the financial product failures which occurred between January 2006 and August 2022 – a total of 191 products.
Most of those products fall under the broad heading of managed investment schemes (MISs) and the cost of those failures ran to over $43 billion. If that list were to be updated it would, of course, have to include Dixon Advisory, the Shield Master Funds and the First Guardian Master Trust, and the cost would run closer to $50 billion.
The AIOFP provided that list to the new Assistant Treasurer and Minister for Financial Services, Daniel Mulino, just a few weeks after he was appointed to the portfolio in hopes of persuading him that product providers rather than financial advisers represented the problem area.
But none of this would have been surprising to Mulino in circumstances where back in 2022 when the Senate Economics Legislation Committee reviewed the Financial Sector Accountability Regime Bill 2021 and the Financial Services Compensation Scheme of Last Resort Levy Bill 2021, Labor senator urged the inclusion of managed investment schemes in the funding arrangements.
The Labor senators said they supported the bill, “Labor is concerned by the narrow focus of the proposed compensation scheme and the decision by the government to exclude manage investment schemes (MIS’s) from coverage.
“Labor would encourage the government to expand the scope of the proposed compensation scheme of last resort (CSLR) to include MIS’s,” the then opposition senators said.
They pointed to the fact that a number of witnesses to the Senate Committee inquiry had suggested that “the proposed scope of the compensation scheme was too narrow and would lead to poor outcomes”.
By comparison, then relatively newly-installed NSW Liberal Senator, Andrew Bragg, who had previously worked for the Financial Services Council (FSC) argued that MISs should not be included.
“… it is imperative that the CSLR scheme not extend to managed investment schemes (MIS’s). Participation MIS’s can, depending on the type, come with significant downside risks,” Bragg said,
“To push these risks onto the wider sector would extend the exposure to risk to the wider financial sector, while insulating the responsible parties from accountability. De-risking investment activity would have a distortionary effect on financial markets, undermining the integrity of the financial system as a whole.”
Three years’ down the track, the Financial Advice Association of Australia (FAAA) is lobbying hard to have the Government and the Opposition support a continuation of the lapsed Senate inquiry process examining the cost of the CSLR in the context of the collapse of Dixon Advisory.
Hardly surprisingly, the FAAA wants any new/resumed parliamentary inquiry to traverse the impact of the Shield Fund and the First Guardian.
The reality, of course, is that all the issues which will be traversed by a new inquiry have already been examined by parliamentarians and the warnings relating to the narrow funding construct of the CSLR have proved valid.
The real question is whether the Government has the political will to make product manufacturers pay their way on the cost of the CSLR.
Advisers must refuse to pay for MIS frauds & failures. DO NOT PAY CSLR.
As for Bragg, a FSC loving & product paid corrupt mouth piece to help avoid MIS’s paying.
Bragg & the rest of Canberra should pay, if you don’t want MIS to pay.
The whole system is rigged against the advisory community helping average Australians in favour of the MIS operators who use their deep pockets to manipulate political party agendas. Where are the regulators? Where is fairness? How can the MIS industry escape all financial responsibility from CSLR?????? I believe the financial advisory committee deserves answers
How many have had the fingerprints of AIOFP on them
10,000% should MIS’s pay. While dodgy advisers directed (pushed) client monies into these MIS’s the Adviser wasn’t responsible for the MIS blowing up.
Why should advisers of today keep having to pay for fk’ups of the past?
WTF
“To push these risks onto the wider sector would extend the exposure to risk to the wider financial sector, while insulating the responsible parties from accountability.”
Isn’t this exactly what the CLSR does to Advisers?