The government should help bankroll a means-tested compensation scheme of last resort for consumers who have been affected by financial misconduct, argues Labor Senator Sam Dastyari.
Having such a fund, which Senator Dastyari has previously suggested should be paid for by financial services institutions, would mean that those who have suffered losses due to bad advice would have a method of recourse.
“We do have to start looking at some kind of a scheme of last resort for consumers that does involve a certain level of government financial support,” Senator Dastyari told delegates at the Association of Independently Owned Financial Professionals (AIOFP) conference held last week on the Gold Coast.
“I think it's about time we turn it around and say, do you have a scheme of last resort that is means-tested that is capped? We're talking about the $200,00 to $250,000 kind of mark, and that means that if people do fall through the cracks of the system, they do know that they are going to be looked after.”
The Financial Ombudsman Service (FOS) first raised the idea of a national compensation scheme in 2009 and has suggested that the scheme should be capped at $150,000. ASIC also highlighted the need for such a scheme in a submission to the Financial System Inquiry.
The proposal has not, however, received support from the institutions.
In August, the Australian Bankers Association (ABA) told Fairfax Media that large institutions should not be burdened with another levy and should not be forced to "pick up the tab" for other organisations' customers.
But Senator Dastyari said a government-funded scheme of last resort would help to restore confidence in the advice sector and ensure that Australia’s advice industry remained competitive and multi-faceted.
“You have a situation where you need to have Australians getting more financial advice – that is a public good," he said. "At the same time, we want to make sure that it's not just a couple of large institutions alone that are providing that financial advice, but there is a variety of small independent or medium-size businesses creating that competitive edge."
Such a scheme would also benefit planners by decreasing the pressure on professional indemnity insurance, he added.
“If it’s done the right way, it puts an incredible amount of downward pressure on indemnity insurance. It gives people a level of confidence and the industry a level of confidence [so] that you can actually be pushing towards more people getting more financial advice,” Senator Dastyari said.
"You have a situation where planners are the public face of what is going on, they have been held responsible for things that are not their fault," he said. "You don’t want a situation where small to medium [sized] businesses and other independent financial advisers end up being driven out of the system. You want one where more people are getting advice from more voices and have a system that can be trusted.”
AIOFP executive director Peter Johnston welcomed the proposal.
“We are very pleased that the Senator recognises that advisers are also consumers and we rely on other parties to act efficiently and not blame us if things go wrong,” he said.
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