AIOFP blocks PI cover
The Association of Independently Owned Financial Planners (AIOFP) is to exclude professional indemnity (PI) cover to members who invest client money in property funds without a minimum investment grade rating.
The move was triggered by the collapse of Bridgecorp Finance, owing an estimated $24 million to investors, as well as that of Westpoint and Fincorp, according to AIOFP chief executive Peter Johnston.
Ironically, the move comes in the same week PI cover for financial planners officially became mandatory — by way of the promulgation of Corporations Regulation 7.6.02AAA.
Johnston said its brokers have been asked to restructure the PI cover the AIOFP offers members to exclude investments in property products without at least a three star investment grade or equivalent rating from either Lonsec, Morningstar, or van Eyk.
Johnston said the move was intended as a disincentive for its 1,700 member planners in 140 practices to get involved with property funds where there are conflicts of interests between management and third parties.
Johnston said AIOFP members should not be in a relationship with a property fund where there’s any relationship with someone raising money and then someone investing money.
Bridgecorp, Westpoint, Fincorp, Estate Mortgage, Telford and others are examples of where conflicts between management and third parties led to the collapse of the fund.
“These funds go under [and] financial planners invariably get the blame as the ‘soft target’, and everyone else runs for political cover.”
Johnston said the move was also intended to try to mitigate all of the risks that lower the cost of PI cover, as insurance always increases when there are major calamities in the marketplace.
It is also intended to “assist both ASIC [Australian Securities and Investments Commission] and consumers by starving these conflicted relationships of capital”.
“Unfortunately for the public’s ultimate protection, ASIC are restrained by Australia’s Constitution to take total control of the property market, leaving loopholes for group’s like Westpoint to exist.”
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