A consortium of 15 consumer groups and professional associations have banded together to call for a broader compensation scheme, despite financial services minister Jane Hume recently ruling out any expansion of the planned compensation frameworks arrangment.
The groups, which include the FPA and the AFA, the Institute of Public Accountants, CA ANZ, Financial Counselling Australia and consumer representative bodies CHOICE and Super Consumers Australia, are calling for the proposed legislation to be expanded to provide compensation for all financial producst and services that fall under the jurisdiction of the Australian Financial Complaints Authority (AFCA).
“The Government’s draft bill will exclude vast segments of the financial industry, including managed investment schemes and the funeral expenses industry, leaving many victims of financial misconduct without redress,” the group stated in a press release.
“It will also mean that a number of large financial institutions including product providers are not required to contribute to the costs of compensation.”
The group will have their work cut out for them after Jane Hume, the sitting minister for superannuation, financial services and the digital economy, all but vetoed an expansion of the scheme in a recent address at the AFA’s national conference.
“The Ramsay review recommended that a CSLR should cover financial advice. The review found that most unpaid determinations were in the financial advice sector. By value, 92 per cent of unpaid FOS determinations were from financial advice,” Hume said.
“For this reason, the CSLR will not include managed investment schemes, and primarily cover personal advice – with a few extensions to other ‘advice-like’ areas, for example mortgage brokers.”
The Financial Ombudsman Scheme Hume referred to was rolled into AFCA several years ago. Since then, complaints against advisers have dropped dramatically, with AFCA senior ombudsman for investments and advice Shail Singh telling Professional Planner recently the advice industry has “fantastic” overall standards.
The scheme itself – a recommendation from the Hayne royal commission – was originally meant to come into effect at the end of last year, but was delayed due to the pandemic with the government only releasing its proposal mid-July this year.
The CSLR is currently tabled to only apply to five products and services: personal advice on relevant financial products to retail clients, credit intermediation, securities dealing, credit provision, and insurance product distribution.
According to CHOICE CEO Alan Kirkland, the current plan fails to live up to the “spirit” of the royal commission recommendation and doesn’t go far enough to protect investors.
“The Government’s proposal will exclude victims of managed investment scheme collapses, like the many elderly Australians who lost their savings through the collapse of Sterling First,” he stated. “It will also exclude consumers from First Nations communities who were tricked into paying for funeral expenses policies by the Aboriginal Community Benefit Fund, now trading as Youpla.”