Make MISs carry PII says FAAA

Mike Taylor

Managing Editor/Publisher, Financial Newswire

20 February 2026

Managed Investment Schemes need to play a much greater role in ensuring that clients can be compensated when they are the subject of misconduct and experience loss as a result of product failure, according to the Financial Advice Association of Australia (FAAA).

In doing so, the FAAA has told Treasury’s consultation on the effectiveness of PII Insurance that the Australian Financial Complaints Authority (AFCA) rule that excludes complaints about the management of a scheme or fund as a whole need to be removed.

It said this is required to better empower clients to make complaints and benefit from PII cover held by MIS and superannuation funds.

“There needs to be a better solution for other responsible parties to contribute to the compensation of clients, including research houses, auditors and others,” the FAAA submission said.

The submission said the PII needs to work effectively for more than just financial advice and that this has been reinforced by the collapse of the Shield and First Guardian funds.

“The design of the CSLR places the predominant focus on the financial advice sector, including with respect to how PII works at the financial advice firm level. However, as the Shield and First Guardian matters have demonstrated, issues causing consumer loss are occurring at every step in the financial services value chain,” the FAAA said.

“The focus of the review of PII effectiveness should include the MISs responsible for these collapses,” it said noting that the “the relatively small number of complaints made to AFCA about the Responsible Entities of Shield (21 in 2025/26) and First Guardian (82 in 2025/26) have been closed and classified as outside AFCA rules”.

“This is entirely unsatisfactory. The AFCA rule (C1.5) that allows these complaints to be excluded, needs to change, and the PII of these MISs also needs to play a role in ensuring that clients can be compensated when they are the subject of misconduct and experience loss as a result of product failure.

“This problem needs to be looked at from a much broader perspective. We have also argued that AFCA Rule C1.5, being the exclusion of “a complaint relating to the management of a fund or scheme as a whole” needs to be removed to better allow complaints about the operation of superannuation funds.

“We further seek a better solution for other responsible parties to contribute to the compensation of clients, including research houses, auditors and others,” the FAAA submission said.

Elsewhere in its submission, the FAAA echoed the view of the major accounting groups that there need to be better data collected on the effectiveness of PII Insurance but has gone further in suggesting that the Australian Securities and Investments Commission (ASIC) should undertake a risk-based investigation of the adequacy of PII cover for a sample of licensees that demonstrate warning signs”.