The Royal Commission’s recommendation to introduce a last resort compensation scheme for consumers that suffered a financial loss from ill advice has been heralded as a win for self-managed superannuation funds (SMSFs), according to SuperConcepts.
The scheme would be established as a part of the Australian Financial Complaints Authority (AFCA) and would be available for disputes involving financial advice failures which resulted in unpaid external dispute resolution determinations, court judgements and tribunal awards.
SuperConcepts’ managing director, Peter Burgess, said that although the AFCA had no jurisdiction over superannuation complaints brought before it by members of an SMSF it did have jurisdiction over financial advice provided to an SMSF member.
“Even though the AFCA can make a determination in favour of an SMSF member, under current arrangements, there is still no guarantee that the member will receive any compensation payment,” Burgess said.
“There have been cases in the past where members have missed out on compensation that has been awarded to them because the offending financial firm is insolvent or is simply unwilling to pay.
“And this is where a last resort compensation scheme can play a critical role by ensuring members receive at least partial compensation when all other compensation avenues have been exhausted.”
He said that it was particularly important for SMSF members who unlike members of APRA regulated funds were not eligible for government financial assistance in the event of fraud or theft.
According to him, one of the disadvantages of an SMSF compared to an APRA regulated fund was its lower level of protection members had against unscrupulous operators.
“But we acknowledge a scheme like this needs to be funded which, in line with the Ramsay Review recommendations, is likely to come from a levy imposed on financial firms engaged in the types of financial services covered by the scheme,” Burgess added.
“To this end, to reduce the cost of the scheme, we support measures which require advice firms to hold adequate PI insurance as this will ensure the scheme will truly be a ‘last resort’ for uncompensated losses.”