In Tuesday night’s budget the Federal Government allocated $2.7 million to a pair of reviews which will include an examination into managed investment schemes.
According to the budget paper, $2.7 million has been allocated to support reviews into MISs as well as for the review of the RBA.
Additionally, more funding will be provided to ASIC to fund the adviser exam, with user-pay fees only covering partial cost recovery.
Speaking during a post-budget brief hosted by the FSC on Wednesday morning, Assistant Treasurer and Minister for Financial Services, Stephen Jones, cited “property and property-like schemes” as a key focus.
Jones name-checked Sterling Income Trust as the “perfect example” and the scope will be about malfeasance rather than covering market risk.
“The CSLR puts in place a collective liability when things go wrong so we have to ensure it does operate as a last resort compensation scheme – it’s not the role of government to ensure investors against loss,” Jones said.
Jones said the review will cover the wholesale/retail threshold and the type of products being sold to retail markets.
“We want to have a look at that and to see if existing regulatory settings and oversight settings are right,” Jones said.
Switching the spotlight
Jones acknowledged there has been a spotlight on banking and advice but not product providers which this review seeks to remedy.
“We’ve had a spotlight on financial advice and we’ve done some pretty major regulatory reform across [advice, banking and credit], not all of it great and we’re having to revisit it,” he said.
Jones added there has been much government attention to the regulatory settings, including the current Quality of Advice Review.
“We’ve had a royal commission, several reviews and regulatory resets in both banking and financial advice and the superannuation sector,” he said.
“We’ve just come through five years of significant regulatory resets in a whole bunch of those areas.”
However, Jones said managed investment schemes have been omitted throughout the scope of these reviews.
“What I’m seeing and a lot of my colleagues are seeing is every year we see significant investor losses and collapses, and inevitably the victims come to government or ASIC and say ‘what were you doing?’”
Jones added it’s not a royal commission style inquiry and it will be conducted by and through Treasury.
FSC chief executive Blake Briggs told Jones there are no FSC members with unpaid AFCA liabilities.
“If we can avoid situations where the failures of others are having to be bailed out by FSC members or advisers then that’s certainly an objective worth working towards,” Briggs said.
Win for advisers
Labor had pushed for MISs to be included in the CSLR but was willing to pass the bill regardless The bill lapsed once the election was called and legislation was reintroduced after the election with MISs once against omitted from the scope.
Financial Planning Association head of policy Ben Marshan tells Professional Planner the FPA has been concerned for years with the CSLR not including all financial products and services.
“One of the issues with that is where a consumer loses money because a product fails, the only avenue for compensation out of the scheme is to go after the financial planner,” Marshan said.
Marshan said this means AFCA assigns more blame to the planner than what otherwise might be appropriate because it’s the only avenue for compensation.
“This is a critical review to improve the operations of managed investment schemes to stop consumers from losing money and improve the operation of the compensation scheme of last resort by bringing in more financial products,” Marshan said.
