Organisations have welcomed the introduction of legislation for the Compensation Scheme of Last Resort (CSLR).
The CEOs of the Financial Services Council (FSC) and the Financial Planning Association of Australia (FPA) said the CSLR was a good idea and would promote trust among consumers.
Sarah Abood, chief executive of the Financial Planning Association of Australia, said: “A CSLR promotes trust amongst consumers in our profession, ensuring that if money has been lost due to poor advice, compensation will be available.”
Blake Briggs, FSC chief executive, said: “The financial services industry recognises consumers impacted by financial advice failures often incur significant losses that should be compensated but at the same time this must be balanced with the fact the companies funding the scheme take responsibility for the quality of their advice and do not contribute to unpaid claims.
“To avoid incentivising unnecessary risk taking by unscrupulous firms, it is necessary to place sensible limits on the extent to which responsible financial service providers are expected to underwrite the misconduct of their competitors.
“Our collective goal should be a compensation scheme that is rarely required as adequate capital levels and professional indemnity insurance obligations for financial advisers result in minimal unpaid Australian Financial Complaints Authority (AFCA) determinations.”
However, Abood said she was disappointed that managed investment schemes, which had been suggested for inclusion by Labor, had been not included. MIS operators currently had $6.4 million outstanding against them while total unpaid determinations across all areas covered by AFCA were $14.7 million.
“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 wholesale/sophisticated investor exemption). These people have lost their life savings and in many cases are now completely dependent on the Age Pension.”
