In the lead-up to the federal election, Financial Advice Association Australia (FAAA) has put forward its “five asks” of the next government, chief among them was addressing the Compensation Scheme of Last Resort (CSLR).
While a number of aspects of the CSLR are problematic, FAAA chief executive Sarah Abood said one of the primary issues is that because product providers aren’t part of the scheme, advisers are being held accountable for product failures regardless of how much advice is at fault.
“We are being put in a position where if there’s any poor advice anywhere near a failed product, then advice is being held fully to account for that,” Abood said on The ifa Show.
“There’s been very little investigation in the cases we’ve seen so far as to whether the products themselves have been managed appropriately, whether they’ve been run in line with the PDS, whether the RE has done their job properly.
“We can’t keep carrying the can for that whole sector. Not only is it extraordinarily unfair, it’s simply unsustainable because we don’t have the money.”
Abood explained that while the concept of contributory negligence is recognised by law with the understanding that “often there’s more than one thing that goes wrong in these collapses”, it seems that this has not been applied to cases that fall within the CSLR.
“What we object to is all of the blame being sheeted home to financial advice. I also think it’s interesting in the case of Dixon Advisory that no adviser has been held to account. So to my knowledge, no adviser has been prosecuted or even sanctioned,” she said.
In order to address this, the FAAA has been pushing for products to be brought into the scheme, an action that Abood said would create an avenue for retribution when products fail while also removing the “perverse incentive to shift blame” to advisers when something goes wrong.
“There’s a strong incentive to say it was an advice failure, irrespective of other matters, because if it was an advice failure, compensation exists. If it was a product failure, then there may be no money left or you may have to go to court to get the money because the products are not members of the CSLR,” she said.
“If you can get 150 grand compensation from the CSLR automatically as soon as the AFCA says yes to your complaint, then why would you take someone to court? Why would you take the risk? Why would you hire a lawyer? You know, you don’t need to. So that’s our massive concern.”
While the FAAA has consistently raised issues with the CSLR over the last few years, shadow financial services minister Luke Howarth has taken a more aggressive view of the scheme, suggesting that it should be scrapped entirely.
Speaking at Momentum Media’s pre-election event earlier this month, Howarth said, “I don’t even believe in the CSLR.”
In a Q&A session following his address, he said: “I think the whole thing’s stupid. It’s ridiculous … It’s not a go at anyone who’s running it … The reality is it shouldn’t have been set up to start with.”
This is a notable turnaround from the Coalition given they were the ones to propose its introduction towards the end of their last term in government.
To hear more from Sarah Abood, tune in here.
