The advice sector should not be required to contribute to the long-awaited compensation scheme of last resort (CSLR) at all according to industry veteran Don Trapnell, who says financial institutions running managed investment schemes (MIS) should foot the bill.
In a statement today Trapnell, director at insurance advice provider Synchron, said “not a single dollar” should be paid by advisers towards the proposed scheme.
“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,” Trapnell said. “It beggars belief.”
Of the 70,510 complaints received by AFCA in the financial year ending 30 June 2021, 997 involved financial advice. Of those, only three went unsettled.
In contrast, Trapnell said, consumers had lost billions to failed or frozen managed investment schemes over the last decade or so.
“It’s clear that financial institutions that operate managed investment schemes should pick up the tab,” Mr Trapnell said. “The advice community should not be required to pay any CSLR levy whatsoever.”
The industry looks look set to have a hard time getting the scope of the scheme reconsidered.
At an AFA conference in September Hume 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.
“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,” Hume said.
The Ramsay Review’s final report was published in 2017, and used data from the 2016 External Dispute Resolution Review interim report.
It was not for another two years that the Hayne royal commission would combine with tough education and ethics standards to combat many of the problems that led to the industry’s outsized contribution to compensation matters.
The CSLR itself was a recommendation that came out of the royal commission, which itself borrowed the initial proposal from the 2016 EDR review’s final report.
Regardless, the government looks set to use the advice industry standards from at least five years ago in the CSLR’s design.
Trapnell’s call for a review of the scheme’s parameters comes after a group of eight consumer organisations called for an expansion of the proposed scheme in October.
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 2018 the Financial Ombudsman Service (FOS) – one of the three group’s that folded into AFCA – said operators of managed investment schemes were responsible for 13 per cent of all unpaid determinations. Advisers were responsible for 55 per cent.
“We accept that financial advisers would need to be part of the scheme, however we are astonished that managed investment schemes have been excluded from the proposed scope of the scheme, particularly given FOS evidence that they are the second largest contributor,” the Association of Financial Advisers said in its submission to the CSLR consultation. “How is this outcome possible?”