Financial advisers stand to be disadvantaged in terms of the likely increased cost of professional indemnity (PI) insurance and their inability to challenge decisions under the new Australian Financial Complaints Authority (AFCA) regime, according to the Association of Financial Advisers (AFA).
The AFA has used a response to AFCA’s own consultation paper to warn on the PI implications of raising the monetary limit and compensation cap for AFCA, as well as questioning what relevance an independent assessor will have in the absence the assessor’s findings being binding on the new complaints authority.
The AFA response said the organisation “continued to have some important concerns about the impact of the proposed increases in the monetary limit and compensation cap on the cost of PI insurance for financial advice businesses”.
“This concern is also directly related to the inability to appeal decisions, particularly where it is felt that strong grounds exist,” it said.
The AFA said the PI insurance market for financial advisers was already under significant pressure and the AFCA reforms would have further consequences.
“This might be in the short term or it may take longer to play out, however we expect that the outcome will be a reduction in the providers of PI insurance and a significant increase in the cost of that insurance,” it said.
On the question of the so-called Independent Assessor, the AFA said it was supportive of the role but believed the benefits would be lost as a result of the exclusion of the assessor from the looking at the merits of a matter.
“In our view, this fundamentally reduces the value of such a role,” it said, adding that it had noted that the recommendations of the assessor would not be binding on AFCA.
“In the context of the inability for financial advice licensees to appeal a decision that they believe is materially flawed, this would have been a good option,” the AFA said. “In our opinion, the limitations placed on the role of the Independent Assessor significantly diminish the ability of this role to make a difference and influence improvements in AFCA.”