In a submission to the Senate inquiry into the Australian Securities and Investments Commission’s (ASIC’s) performance, the dispute resolution body argued that government intervention is needed to fix failures of the system to provide compensation to aggrieved clients.
“Under the Corporations Act, licensees are required to have adequate compensation arrangements … to date the primary mechanism has been by means of PI insurance policies,” the submission states.
“However, FOS experience highlights that PI insurance is not by itself an adequate response to these problems. PI insurance of the type required to meet the minimums prescribed by ASIC guidance is either not available or very costly for small firms to obtain.”
The submission calls on government to make good on the recommendation of a parliamentary joint committee in 2009 to thoroughly investigate the costs and benefits of different models of a statutory last resort compensation scheme for investors.
“As recent experience continues to highlight the limitations in availability and efficacy of PI insurance to meet the legislative requirements for adequate compensation, in our view the issue of uncompensated loss should be considered again in any broader review of financial sector issues,” the submission continues.
FOS also urges the Senate committee to be alert to instances where a financial services provider goes into insolvency, providing it with a shield against client claims and FOS determinations.
“This is a problem confined to the non-prudentially regulated sector and smaller financial planning firms,” it said.
At the risk of repeating myself and potentially putting compliance and legal people out of jobs due to the complaints levels falling off rapidly…..get rid of risk profiling as it stands today. “Congratulations…you’re a growth investor…you would suit this lovely piece of geared up trash”.
Start with objectives, advise on how to meet objectives, then explain risk and get agreement. Be a professional and give educated advice, instead of being cannon fodder for complaints.
Peter, you would have to agree that a lack of professionalism in some areas of the fp “industry” is one of the major causes of the problem? No guarantees but will be a good start.
Secondly the FPA has sought to further its own agenda rather collaborate with other bodies to create a professional standards board across the industry that could have enforced a level of professionalism. (I have never been a member as when I started in 2000 the educational level was ludicrously low and presided over by the FPA’s own educational programmes. This is sole reason I didn’t join then.)
For certain the FPA is a vastly better organisation than it was back then, it still has a long way to go in my view.
Had they dramatically increased professional standards and education requirements back then we would not have half of the ridiculous regulation that was forced upon us.
It IS with foundation.
Wildcat (whoever you are!) Your comment re the FPA seems to fly in the face of the fact that FoS have often stated that if FP’s follow the FPA Code they will not get in to trouble in the first place. Given that, plus the fact that approx 90% of all FP’s getting in to trouble with ASIC are NOT FPA members, I have to call in to question the validity of your comments . They are without foundation.
There also needs to be a reality check by investors. Markets up = FOS claims dn, mkts down, FOS claims up.
You can’t have the benefit of the up markets in risky assets but have someone else carry the can if the mkt doesn’t deliver what you hoped for.
Yes there is plenty of dodgy advice however a professional standards board and proper accreditation processes would eliminate much of this problem.
FPA and ASIC are both equally to blame here.
PI therefore becomes much less of an issue, FOS is irrelevant and premiums come down.
Sorry my mistake…I used logic for government policy. D’oh
I’ve got an idea – why don’t ASIC force all advice businesses to pay a mandatory levy of $10,000 pa (non-refundable) thus creating more cost and compliance for the adviser IN ADDITION to the exorbitant PI fees we already pay, that way we can just pass it straight back to the consumer, simple solution!
One major problem I’ve seen with PI is advisers choosing to waste their PI limit disputing claims from disgruntled clients, all for the sake of their ego, rather than allow some compensation to flow through to the client.