The report recommended the passage of the Compensation Scheme of Last Resort (CSLR) – which aims to provide limited compensation where a determination issued by the Australian Financial Complaints Authority (AFCA) that relates to a financial product or service remains unpaid – in its current form, despite calls from groups within the sector for the scheme to be expanded.
Speaking to ifa, the Association of Financial Advisers (AFA) CEO Phil Anderson noted the good and bad coming out of the report.
“The AFA is disappointed that the Senate Economics Legislation Committee main report recommended passing the CSLR bill in [its] current form, although we also noted that in additional comments from ALP Senators, that they did recommend the inclusion of managed investment schemes in the scope of the CSLR,” AFA chief executive Phil Anderson told ifa.
“We support the inclusion of managed investment schemes and also a more reasonable basis for the allocation of costs, which is unfairly focussed on financial advisers.
“It is important to note that the inclusion of managed investment schemes would not cover investors for poor investment returns, but instead for misconduct such as fraud and misrepresentation.”
Though the legislation is yet to be passed in Parliament, Mr Anderson said he is also concerned about data regarding unpaid determinations at AFCA that shows reports of 272 open complaints on managed investment schemes, while there are 216 on financial advisers.
Mr Anderson said these statistics highlight the need to include managed investment schemes in the CSLR.
“It is interesting to note that [managed investment schemes] rated above financial advisers in this list, which only serves to highlight the implications of them being excluded from the scheme,” he said.
“This report by AFCA also highlights that there is $49 million of claims raised against insolvent financial advice firms, where the matter is unresolved.
“This is a concerning amount that we need to be aware of, particularly in the context of a recent high profile insolvency matter.”
The government’s CSLR model has been widely criticised over its limited coverage of financial products and services.
According to critics, consumers who have invested in managed investment schemes, such as victims of the Sterling Group and Sterling Income Trust, have been hung out to dry.
