Poor regulations allowing phoenix advisers
More stringent regulations are required to prevent insolvent financial advisers reopening their businesses and avoiding paying liabilities to clients who suffered due to negligent advice, according to Maurice Blackburn Lawyers.
The practice, know as ‘phoenix activity’, allows rogue financial operators to re-establish their business continue operating while clients who have suffered have no further avenue to seek compensation for negligent advice, according to Maurice Blackburn lawyer Briohny Coglin.
Many financial advice companies also have inadequate insurance arrangements, she said.
“In a case we settled last year, the financial advice company argued that regardless of whether or not the company’s negligence caused its clients massive losses, it had a limit of only $2 million to pay all claims made in a one year period, and that year’s two million had almost run out,” she said.
“In contrast, a doctor in private practice has a standard limit of insurance of $20 million per claim.”
A Maurice Blackburn submission to the Government’s Review of Compensation Arrangements for Consumers of Financial Services outlines areas where protection offered to investors is poor, Coglin said.
“We believe a compensation scheme of last resort should be set up as a matter of urgency in order to fill the void that is currently leaving investors with compensable claims in financial ruin with no avenue of recourse,” she said.
“The Federal Government should also look at strengthening the current arrangements including a review of professional indemnity insurance. Our client was faced with the choice of accepting a settlement that did not reflect the value of her losses, or proceeding to trial and risking there being nothing left by the time the hearing date came around.”
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