Today, the panel that recommended the establishment of AFCA in April 2017 has handed down a second report urging the government to establish a compensation scheme of last resort (CSLR) to address the problem of unpaid and unenforced EDR determinations.
The panel – made up of Melbourne Law School professor Ian Ramsay, former Choice CEO Alan Kirkland and Productivity Commissioner Julie Abramson – recommended that such a scheme be limited to the financial advice sector, claiming that “over 90 per cent of unpaid determinations relate to financial advice”.
“While unpaid determinations represent a very small proportion of total EDR determinations the impact on consumers and small businesses can be significant and can erode confidence in the dispute resolution processes and the financial system more broadly,” the report states.
“To fill what the panel regards as a gap in the dispute resolution framework, the panel has recommended that a limited and carefully targeted CSLR be introduced for future unpaid compensation in parts of the financial services sector where there is evidence of a significant problem of compensation not being paid.”
The panel also recommended that licensees be required to provide regulators and AFCA with more thorough details on professional indemnity insurance of authorised representatives.
The government will now consider the report but will defer its decision on whether to accept or reject the recommendations until after the conclusion of the royal commission into banking, superannuation and financial services.
I have recommended that we as a profession/industry start a Fidelity Fund that collects (say) 0.25% of turnover from all financial planners – administered by them – to pay as last resort, after all other insurance and legal avenues have been exhausted. THAT would give the business some credibility and allow those who don’t stuff up to at least retain some pride, knowing that the “widows and orphans” aren’t left without. Perhaps 50% of their contributions could be refunded to retiring advisers – after 5 years – if they have no claims against them… All professions seek to look after their claimants as a means of creating goodwill and integrity. The FPA should have done this decades ago; it may have had some credibility if it had.
I pity the next generation of financial planners. Who would wish this profession on anyone. An industry body that forgets who it represents, a compliance regime that can never be met commercially, an impossible to defend litigation from a good lawyer all the while constantly being questioned over fees, performance and value of advice. Meanwhile technology just eroding any perceived advantage of paying for a planner. Good luck, your going to need it in spades. The banks have had enough, soon the independents will work out what a load of nonsense the industry is.
And who is going to pay for this? Govt, Taxpayers, Licencees, financial advisers who are not doing the wrong thing. If it is the later that is just going to push up the cost of doing business. Having funds of last resort will just encourage the ‘no win no fee’ legal brigade to purse litigation on a chance, again pushing up costs and reducing the amount of compensation received by consumers. How narrow is the bref going to be and will it make it not viable to apply? Will insurers walk away from PI cover more easily if this is in place? Last resort compensation always seem to be a major problem. What about the costs of managing it and funding these costs?
How many of those unpaid determinations really relate to product failure, but the adviser was the only one the lawyers to pin it on? I would be surprised if it wasn’t the majority of them.
So will this replace the requirement for professional indemnity or will this be licences financial advisers footing the bill for unlicenced advisers who do not have professional indemnity?
Nice to see advisers represented – Hows this for BIAS….”former Choice CEO Alan Kirkland” choice a collective of teachers and engineers from Balmain – self appointed SOOKS