The Financial Advice Association Australia (FAAA) has stipulated determining why actions being taken up with the Compensation Scheme of Last Resort (CSLR) is needed, along with establishing accountability for financial product failures, to allow the reparation program to operate properly and not cripple the financial advice industry through continually increasing levies.
“We’re still not resolving why these claims are happening. Why are we not able to ensure that the people who have done the wrong thing and have caused these consumer losses [are held responsible]? Why are we not making every effort to bring those individuals and those businesses to account?” FAAA chief executive Sarah Abood said to attendees of a member webinar held today.
“We appear in this sector to be socialising losses while we’ve privatised profits and that is not going to work long term. If people are able to retain the profits that they’ve made from poor activity and bad behaviour that’s impacted clients, but the losses are socialised across all participants in the sector, that is going to be diabolical in the future. We can’t allow that to continue.
“So we would consider it to be incredibly urgent that we address all the other issues with the CSLR that have been called out by many participants in the two inquiries that are currently afoot.”
Abood pointed out the Dixon Advisory situation highlighted the problems with the CSLR and what needs addressing to prevent equivalent scenarios from occurring repeatedly in the future.
“We’ve seen in the case of Dixon Advisory, which was a subsidiary of E&P (Evans and Partners) Financial Group, [where] we’ve paid the compensation for that and yet the company that hosted Dixon Advisory and moved its advisers and clients to another entity in the group is not paying,” she explained.
“Nobody’s been held to account so far. No single adviser has been banned or sanctioned for the Dixon Advisory debacle. Yet it has somehow been defined as an advice failure and all of the advisers in the profession are paying for that, whereas the firm that benefited and the firm that offered the URF (US Masters Residential Property Fund), which is the product at the heart of this collapse or scandal, is not paying for it.
“I still find that completely astonishing and what message is that sending to the sector? It’s saying you can run a high-risk product, you can set yourself up a managed investment scheme and if it fails, that’s okay. You can keep all the fees you made from that product, you can [put] the entity that was responsible for the advice into administration and you’ll be fine.”
She acknowledged addressing the severity of the CSLR special levies advisers are currently facing is important, but described it as only a band-aid measure if the source of compensation claims is not addressed.
