Jo-Anne Bloch
The Financial Planning Association (FPA) has urged members of the financial services industry to contest the corporate regulator’s proposal to double the size of professional indemnity (PI) insurance, claiming it will drive premiums to unacceptably high levels.
The Australian Securities and Investment Commission’s declaration that it would like financial planners to take out at least $2 million in PI insurance next year followed the Financial Industry Complaints Service’s (FICS) proposal to raise its monetary limits from $100,000 to a suggested figure of $280,000, thereby extending its jurisdiction.
However, the FPA is concerned that significantly raising PI coverage levels is unfair and may prove detrimental to smaller licensees.
“Increasing PI insurance requirements only protects the insured, it does not solve problems in the marketplace,” said FPA chief executive Jo-Anne Bloch.
However, FICS chief executive Alison Maynard argues that the organisation needs to raise its monetary limits to make much-needed improvements to the complaints resolution scheme.
“There is significant consumer benefit in allowing more complainants access to FICS’s services. Our monetary limits have remained unchanged since 1999 and we’re having to reject more and more cases each year because they exceed the $100,000 limit. No, the proposed changes won’t stop the next [property investment firm] Westpoint collapsing, but they will enable consumers who are affected by such a collapse to have their cases heard.”
However, Bloch argues that the proposed increases are unwarranted considering FPA members have typically met compensation payments ordained by FICS, outside of extraordinary circumstances.
In Maynard’s view, however, this provides cold comfort to those whose complaints do fall within the realm of the extraordinary. “I don’t think it’s fair to tell someone, ‘I’m sorry we can’t help you because yours are exceptional circumstances’. These are often the people who are most in need of our services.”
Bloch said she has concerns about FICS’s processes in general, claiming they unfairly advantage complainants.
“We need a model that equally supports complainants and those who are the subject of a complaint. There needs to be more robust, transparent mechanisms in the ways FICS deals with complaints.”
Maynard, however, said she believes FICS’s processes are good, albeit that there is always room for improvement.
“While it’s true that the proposed changes may have a negative impact on smaller licensees, you have to look at the bigger picture. It is important that consumers are able to have confidence in the advice financial planners impart and are able to get compensation if things go wrong.”
