The Financial Planning Association of Australia (FPA) has welcomed the tabling in Federal Parliament of the Financial Services Compensation Scheme of Last Resort Levy Bill 2022 (CSLR).
FPA CEO Sarah Abood says the measure that results in consumers receiving compensation for bad advice is a positive one.
“A CSLR promotes trust amongst consumers in our profession, ensuring that if money has been lost due to poor advice, compensation will be available,” Abood says.
“We are concerned however that the scope of this scheme does not ensure that consumers are covered for the full range of matters considered by the Australian Financial Complaints Authority (AFCA) including managed investment schemes (MIS).
“While it was in Opposition, Labor suggested amendments which would at least include MISs in the CSLR, and it is disappointing that these changes have not been included in the Bill.
“For example, most of the victims of the Sterling Group collapse would not be covered under the proposed scheme. This is also the case for most investors in the Mayfair 101 Group products. These products were often promoted directly to investors (using the wholesalesophisticated investor exemption). These people have lost their life savings and in many cases are now completely dependent on the Age Pension.
”We’re unsure at this stage what the findings will be in the case of the Dixon group. However insofar as any consumer harms are a result of product failure, those investors would also not receive compensation from this scheme.
“At present, after nearly four years of operation, there is $3.7 million in unpaid AFCA determinations relating to financial advice due to insolvency. Yet MIS operators have $6.4 million outstanding against them at present. The total unpaid determinations are $14.7 million across all the areas AFCA manages.
“This makes it clear that the CSLR must extend across AFCA’s remit to achieve its aims of ensuring that victims of financial misconduct can be compensated where the firm involved has become insolvent.
“It’s also critical that the scheme be funded equitably and the administration costs of a CSLR should be closely monitored to ensure that cost recovery from industry primarily compensates consumers rather than covering bureaucracy and administration.
“We look forward to continuing to work constructively with the Government, planners, consumers and other stakeholders in the sector to deliver certainty and fairness for the financial planning profession and ensure consumers can have trust in the financial system. We will continue to advocate for the scope of the CSLR to be extended,” Abood says.