The Federal Treasury has been told that product manufacturers should be made to provide a warranty against defective, faulty and flawed management of new retirement income stream products.
West Australian financial planner and political candidate, Julie Matheson has used a submission responding to the Treasury’s exposure draft of the Treasury Laws Amendment (Innovative Superannuation Income Streams) Regulations 2017 legislation to argue that a product warranty is necessary to prevent product manufacturing “hiding behind the flawed Australian Financial Services Licensing (AFSL) system”.
Her submission, provided to Money Management, claims “providers currently hide behind the flawed Australian Financial Services Licensing system by abrogating their responsibility for product failure to authorised representatives of an AFSL, i.e., blame the adviser!”
Matheson suggests her proposed warranty arrangement “should cover product failure caused by investing in ‘tricked up’ mortgage investments such as [collateralised debt obligations] CDOs, property developments riddled with debt, [and] hedge funds which purchase bits of paper only to fail because they are last in line to collect their returns from a ‘Ponzi scheme’."
“Providers have also lost retirement funds from shares in collapsed companies like ABC, Allco Finance Group, Babcock and Brown, MFS, Westpoint, Timbercorp, Bridgecorp, Great Southern Plantations, ADR, Bill Express, Commander Communications, Opes Prime, Lift Capital, Fincorp, and Australian Capital Reserve (Schwab, 2009),” her submission said. “A warranty would make providers think twice about their investment choices.”
Elsewhere in her submission Matheson suggested people aged over 55 and who have been out of work for more than two years should be eligible to participate in the new retirement income steams arrangements.
“Generally, we support this initiative by the Minister, the Hon Kelly O'Dwyer MP, to give the Australian public a choice of superannuation lifetime income streams. However, the providers of these new products must be held accountable for poor management and investment choices which can ruin the lives of retirees when they are most in need of financial protection,” her submission said.
Providers must not be able to weasel out of their responsibility using the flawed AFSL system to blame authorised representatives (financial planners) for losses and mismanagement of these important retirement products, she said.