The proposed compensation scheme of last resort (CSLR) must include products and their manufacturers to ensure it is fair, reduces the cost on the advice sector and prevents any product failures being blamed on advisers, according to the SMSF Association (SMSFA).
In its submission and opening remarks to the Senate Standing Committees on Economics inquiry into the CSLR, the SMSFA stated the absence of product manufacturers or managers, particularly managed investment schemes (MIS), was concerning given those who provide advice on the schemes were to be included under the CSLR.
“Where losses are incurred due to misconduct, misrepresentation or fraud of a product issuer or manufacturer, consumers have a right to be protected. The exclusion of this group is of concern given the significant losses that have been suffered by direct investors and SMSFs in the past,” the submission stated.
“A proactive model that operates on a future funding methodology would alleviate the financial risk and burden to the sector and would ensure that all participants contribute to the fund.
“This would be preferable to a reactionary model when a significant event occurs which creates a significant financial burden for those that remain.”
The industry body pointed out the exclusion of MIS providers pushed the burden of compensation onto advisers in the event where a product or its provider fails, such as in the cases of Westpoint, Trio, Opes Prime, CommInsure, Timbercorp and Storm Financial.
“Where a product fails, currently the only recourse that is available to consumers is to lodge a complaint with the Australian Financial Complaints Authority (AFCA) or take legal action against the adviser involved,” it added, noting AFCA did make a distinction between advice and product failures.
“However, the scheme by its nature is placing a spotlight on advisers for the allocation of fault.
“It is only natural that a complainant will seek restitution from any available sources and is encouraged to build the strongest case possible in support of the only avenue for them to claim.
“Conversely, serious misconduct, misrepresentation or fraud of a product issuer or manufacturer is given a free pass, given their specific exclusion from the proposed scheme.”
In October 2021, the SMSFA joined with with 14 financial advice and consumer interest groups to call on the government to expand the proposed compensation scheme of last resort (CSLR) to cover all products and services overseen by AFCA. Earlier in the year, it had voiced concerns with other practitioner associations the scheme would increased the cost and reduce the accessibility of advice.
