SMSF administration provider SuperConcepts has labelled the banking royal commission’s recommendation to have a compensation scheme of last resort put in place as a win for the sector.
“The intent is that the scheme will be established as part of the Australian Financial Complaints Authority (AFCA) and consistent with the design principles of the Ramsay review,” SuperConcepts technical services general manager Peter Burgess said.
“It will be available for disputes involving financial advice failures which result in unpaid external dispute resolution determinations, court judgments and tribunal awards.”
Burgess pointed out the new body will be crucial for SMSFs that suffer from financial product collapses because AFCA currently only gives them an avenue to seek compensation for losses arising from poor financial advice and not collapsed investment schemes.
“There have been cases in the past where members have missed out on compensation that has been awarded to them because the offending financial firm is insolvent or is simply unwilling to pay. And this is where a last resort compensation scheme can play a critical role by ensuring members receive at least partial compensation when all other compensation avenues have been exhausted,” he noted.
According to Burgess, the new compensation arrangement will alleviate the angst SMSF members have suffered in the past through their exclusion from government compensation schemes made available to Australian Prudential Regulation Authority (APRA)-regulated super funds in the wake of the collapse of an investment offering.
“One of the disadvantages of an SMSF compared to an APRA-regulated fund has always been the lower level of protection members have against unscrupulous operators. While we still need to see the details, we see this new last resort compensation scheme as levelling the playing field somewhat, which is a good thing for the sector,” he said.
“But we acknowledge a scheme like this needs to be funded, which, in line with the Ramsay review recommendations, is likely to come from a levy imposed on financial firms engaged in the types of financial services covered by the scheme. To this end, to reduce the cost of the scheme, we support measures which require advice firms to hold adequate PI insurance as this will ensure the scheme will truly be a ‘last resort’ for uncompensated losses.”
Further, he said SuperConcepts endorses the idea of a cap being imposed on the compensation scheme.
The government has agreed to adopt the measure and its implementation will be executed in line with the recommendations of the earlier Ramsey review.