The Financial Advice Association Australia (FAAA) has said the government and industry must work together to stop collapses like those of Dixon, Shield and First Guardian, with the termination of phoenixing activity made a priority, while raising concerns about the sale of InterPrac by parent company Sequoia Group.
“We’ve made a specific suggestion that phoenixing could be addressed by the AFCA [Australian Financial Complaints Authority] rules because it’s going to take a long time and be very complex to change the insolvency laws of this country,” FAAA chief executive Sarah Abood said in a recent policy update webinar for members.
Abood pointed out the biggest contributor to the Compensation Scheme of Last Resort (CSLR) levies was currently Dixon Advisory and the reason the burden of its collapse fell to the CSLR was because it was effectively shut down and restarted under a new company structure by parent company E&P Financial Group.
In relation to InterPrac, whose advisers placed large amounts of clients’ money into Shield and First Guardian, she noted the two transactions Sequoia Group announced regarding InterPrac are somewhat confusing.
“One of them is a transaction to allow its advisers to transition to a financial licensee called Avalon FS, essentially waiving their requirement that they’re imposing on advisers going to other licensees of paying two years’ professional indemnity (PI) cover, and also essentially saying that they’ll go to the top of the queue if advisers move to that particular licensee,” she said.
She added the announcement by Sequoia to sell InterPrac to the little-known Conquest Investment Partners subsequently came as a surprise.
The issue, she pointed out, is what will be the impact of the transaction on PI insurance held by InterPrac advisers, as if payments are not made, the burden will ultimately fall on the CSLR.
“So, what PI is in place and whether it’s affected by this transaction is a question that’s being asked,” she said.
She also pointed out InterPrac has more than 700 complaints outstanding with AFCA, which are likely to be for material amounts and also run the risk of adding to the CSLR load.
