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FOS compo scheme a ‘band aid’ solution

The Financial Ombudsman Service’s (FOS's) proposal for an industry-funded client compensation scheme blames advisers for product providers’ flaws, says the director of an ‘adviser protection fund’.

AIOFP executive director Peter Johnston – who runs a protection fund for members akin to the Police Association’s – said that while he welcomes the aim of FOS’s proposal for a new scheme, the focus is misguided.

“This is a ‘band aid’ solution that does not address the systemic flaws in our industry,” Mr Johnston told ifa.

“It also perpetuates the erroneous notion that financial advisers are responsible for product failure. Advisers do not manufacture products; institutions build them, manage them and research houses rate them.”

Mr Johnston called for the FOS regime to be expanded to fund managers and product manufacturers in order to “hold them responsible for mismanagement of their own products”.

Consumer benefits would flow from fund managers being faced with the same punitive actions as advisers, such as cancellation of AFSLs, he said.

The comments come in response to a revamped compensation scheme proposal from FOS as the number of determinations being unpaid continues to rise.

The rise in unpaid cases was largely attributed to the “liquidation of a single [unnamed] financial advisory firm which could not pay compensation totalling almost $1.8 million, awarded in six determinations”.