Another industry group has expressed concern over the government’s decision to exclude managed investment schemes (MIS) from the Financial Services Compensation Scheme of Last Resort Levy Bill 2022 (CSLR), tabled in parliament last week.
Just a week after the Financial Planning Association of Australia (FPA) CEO Sarah Abood called the move “disappointing”, SMSF Association CEO John Maroney called the decision to exclude MIS from the scheme a “concern”.
“Historically, these failed schemes have had an enormous financial impact on those consumers caught up in them, including self-managed super funds (SMSFs),” Mr Maroney said.
“The financial devastation they can cause to unwitting consumers was well documented in a Senate Inquiry in late 2021, that examined the Sterling Income Trust collapse. Most of the victims were elderly Australians, yet under this proposed compensation scheme, they will be excluded.
“In the same way it will exclude consumers from First Nations communities who lost thousands of dollars invested in funeral insurance policies after the collapse of the Aboriginal Community Benefit Fund.”
Though Mr Maroney broadly welcomed the introduction of the scheme, saying it will provide a new layer of consumer protection, the peak body head said the exclusion must be addressed by government.
He noted that a key recommendation from the Financial Services Royal Commission was to establish a “wide-ranging” compensation scheme.
“But the compensation scheme outlined in these four pieces of legislation does not incorporate the spirit or intent of the Royal Commission’s recommendation, and, as such, is failing the ordinary Australians who fall victim to failed MIS,” he said.
“We urge the government to revisit the legislation with the aim to expand its scope so that MIS victims are included.”
Last month, the FPA called for the CSLR to be “urgently established” after ASIC urged former clients of Dixon Advisory & Superannuation Services (Dixon Advisory) — now in administration — to lodge complaints to AFCA as they may be eligible under the CSLR which at the time was not confirmed.
Meanwhile, the Financial Services Council (FSC) CEO, Blake Briggs, said the government was “right to take a cautious and prudent approach” to the final design of the scheme as it’s “rife with moral hazard that must be carefully managed”.
“The financial services industry recognises consumers impacted by financial advice failures often incur significant losses that should be compensated. But at the same time, this must be balanced with the fact the companies funding the scheme take responsibility for the quality of their advice, and do not contribute to unpaid claims,” Mr Briggs explained.
“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.”
Fancy the FSC talking about moral hazard with regards to the CSLR. Remember the last piece of legislation the FSC campaigned for? LIF anyone? Totally destroyed the life insurance industry.
MIS and advice may seem to the uneducated to be similar, but they aren’t related. You don’t sue the car dealer if your VW is recalled because of a dodgy part. If such an “insurance scheme” is warranted, let the market provide one and people can pay. To force “everyone” to pay is like adding a levy to all cars to cover breakages to those some 18yo “does up” and the bins. Why not bail him out when he inevitably drops a diff or crashes the overpowered, poor handling death trap he’s purchased.
That aside, this is about clients of small AFSLs with no balance sheet and no personally exposed individuals gave “poor advice” and their clients are out of pocket. Meanwhile clients who used Adviser with reasonably capitalised AFSLs (who presumably pay higher fees to compensate for this increased security), either don’t get such advice, or are compensated when favourable judgements are made now must pay a further cost (sorry levy), to help cover those who have chosen NOT to pay for this increased level of security?
It’s a shame there are people who’s lives are ruined through such dealings – I’ve had to help many try to recover over my career and it’s as infuriating as it is heartbreaking. Go after those responsible as best you can by all means, but making it easier to get away with has NEVER worked, nor has making other’s who have already paid to mitigate such risks pay twice.
Kill Advisers Government mentality continues under Labor.
Yep keep blaming Advisers for anything and everything wrong in the Finance / Investment world, even when it is clearly a MIS Product problem.
ADVISERS NEED TO TELL GOVERNMENT / ASIC & AFCA TO GET STUFFED !!!!!!!!!!!!!!!