Two financial advice-related claims to the Compensation Scheme of Last Resort have already hit or come close to the compensation cap, as the scheme announces its first batch of payouts.
The CSLR announced in a media release on Tuesday morning that it had made its first four payouts, with three of the four related to the advice sub-sector.
The CSLR confirmed to Professional Planner the four claims fall under the pre-CSLR levy covered by the 10 largest financial services institutions for complaints submitted before 7 September 2022 which is referred to as the “pre-CSLR” period in the legislation.
While the concept of the CSLR had been welcomed by the industry, the overwhelming burden of paying for disputes related to Dixon Advisory – none of which were included in the first three payouts – has drawn the ire of the advice sector.
CSLR chief executive David Berry will be at the Professional Planner Licensee Summit to discuss the scheme’s approach to matters such as Dixon, as well as other case studies.
In a set of case studies detailing the first four claims, the CSLR said one victim who lost all their life savings received the maximum payout of $150,000, which wasn’t enough to recover all their savings due to the cap on claims.
The victim said they had relied on an adviser to provide “sound investment strategies” but the strategies ended up being conflicted.
“The loss had a significant and detrimental impact on my partner and I because it was virtually our whole life’s savings wiped out,” the victim said.
“It also caused a rift in our relationship with ongoing stress and anxiety. It was and continues to be a very dark period in our lives.”
A second victim, a mother of four children, received $145,417.76 after a “fraudulent” financial adviser convinced her she was investing in a property that was to be built, but instead fled the country.
The CSLR release said the compensation payment meant the mother avoided having to sell her house and falling deeper in financial hardship.
She had approached a liquidator who suggested lodging a claim with AFCA, but was delayed by the Covid-19 pandemic and instead had to wait for the establishment of the CSLR.
“We believed we were investing in a property being built and he [the adviser] managed to convince us to give him access to our super funds,” the victim said.
“He had a way of making people trust him but he took our money a year before we even agreed to the investment – which wasn’t even real. He withdrew our superannuation funds without our consent and eventually, he fled the country and escaped justice.”
The victim said she had to apply for a financial hardship loan because she couldn’t meet mortgage payments on her house, which was exacerbated by two of her kids having special needs.
While the two aforementioned claimants received six-figure sums, the third advice-related victim received $16,836.56.
The victim invested $200,000 via a recommendation from his accountant into a company he was told invested in international bonds but which the accountant was in “kahoots” with.
He planned to use the returns for his daughter’s education, but despite being told he would receive quarterly income he stopped receiving payments after the first year and later found out the company had gone bankrupt.
After receiving no responses from the company’s managing director, the victim received a determination from AFCA and was able to apply for the CSLR.
“I think the CSLR is absolutely fantastic for people like me, we were taken for a ride, I know at least another 15 couples who were also scammed,” the victim said.
“Some of them died because of old age or got heart attacks because of what happened and never saw their money back. I am hoping that these companies who are illegitimate or criminals get pushed out of the business. The industry needs to have higher standards.”
The fourth payout related to mortgage broking, which fell into the credit intermediation sub-sector. The CSLR covers four sub-sectors, with credit providers and securities dealers being the other two, and each are levied independently on a cost-recovery basis.
The CSLR is unable to assist in disputes related to managed investment schemes, collective investment schemes, any dealings in foreign exchange or derivatives, arranging insurance through a broker, superannuation or scams.
