The compensation scheme of last resort (CSLR) should be expanded to include the jurisdiction of the Australian Financial Complaints Authority (AFCA), according to the Financial Planning Association of Australia (FPA), but should not be applied retrospectively.
Appearing before the Senate Economics Committee, Ben Marshan, head of policy, strategic and innovation at the FPA, told the committee that CSLR should be expanded to ensure a sustainable funding model.
“We feel the scheme should be expanded to incorporate the jurisdiction of AFCA to ensure there is a sustainable funding model for the scheme and that levies are calculated based on the risks posed by the particular sub-sectors. It would also mean that consumers are adequately protected by the scheme,” he said.
“We don’t necessarily believe that the current scheme should be retrospective but it does need to be broadened out to ensure fairness and adequate compensation and protection for consumers.
“You’ve got financial services that assault consumers but consumers have no ability to make a complaint to the external dispute resolution body because there’s no requirement for them to be a member of the scheme.”
Managed investment schemes, such as Sterling, were not currently required to be a member of the CSLR but the FPA felt the scheme was too narrow in scope and should be changed to include all types of financial products.
He was also asked by a committee member whether Sterling could have done with additional risk information but Marshan said he felt that adding extra information would “switch off” consumers.
“I don’t think adding extra layers of financial reporting and risk statements is going to help the consumer understand whether or not the product is risky. In fact, they are going to switch off even more,” he said
“I also make the point that if the regulator is not regulating these products then we need to stop calling them a regulator and just call them an administrator.”
The FPA had previously told the committee that consumers failed to understand when they were receiving personal advice, particularly at events or seminar where products such as Sterling Income Trust were promoted.
Comments
And at the same time as aligning CSLR with AFCA jurisdiction, remove financial advisers from the jurisdiction of AFCA.
Financial advisers only account for about 1% of AFCA complaints. Financial advisers are already subject to at least 4 other regulatory regimes which unnecessarily add to cost and complexity of advice for consumers. Other less regulated and less qualified financial advice providers that are widely used by consumers, such as accountants and real estate agents, are not subject to AFCA at all. It's time to completely remove financial advisers from AFCA.
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