Jane Hume has shot down hopes of extending the planned Compensation Scheme of Last Resort, telling the audience at an industry event that including Managed Investment Schemes in the CSLR would coddle investors and disrupt the founding principles of risk and reward.
Despite repeated calls from the industry to spread the cost of the CSLR so that advisers don’t have to foot an outsized portion of the funding cost, Hume said protecting investors from risky investment offerings was not the purpose of the scheme.
“The Government’s approach to [the] CSLR is about maintaining the founding principles of risk and reward in our market by upholding personal responsibility, fostering innovation and progress while also ensuring investors are protected in the necessary circumstances,” Hume said. “And this balance is crucial. Pulling out the wrong jenga block can have disastrous impacts.
“The compensation scheme of last resort is not an insurance scheme designed to pay compensation to any consumer who has lost money in an investment. It is only intended to cover unpaid compensation awarded because of misconduct relating to a targeted range of financial products and services,” Hume continued. “The CSLR will also not cover managed investment schemes or other high risk financial products.”
At an AFA conference in September Hume first hosed down the idea of including managed investment scheme providers in the CSLR, noting that the Ramsay Review found 92 per cent of unpaid Financial Ombudsman Service determinations came from the financial advice sector.
This data is several years old, however, predating the Hayne royal commission and its subsequent reform. Of the 70,510 complaints received by the Australian Financial Complaints Authority in the finanical year ending 30 June 2021, only 997 involved financial advice.
“Last financial year, only 1.4 per cent of complaints to AFCA were related to advice, and of those, only 0.03 per cent were not settled, and yet the advice sector is expected to fund the lion’s share of the CSLR,” commented Synchron director Don Trapnell. “It beggars belief.”
In August a group of eight associations in advice made a similar call for the scheme to include a broader section of the financial services sector, particularly product providers. In October, this became a group of 15.