Government proposals to include SMSFs in the funding model for the Compensation Scheme of Last Resort (CSLR) will only move costs to investors while ignoring the drivers of their losses, three accounting bodies have stated.
CPA Australia, Chartered Accountants Australia and New Zealand, and The Institute of Public Accountants claimed in a joint submission to Treasury targeting specific categories of retail investors for reduced statutory rights via the imposition of a specific levy would not fix the funding problems of the CSLR.
“We are concerned that the consultation paper is targeting SMSF members or retail clients for the most part as a potential solution to the funding issue and ignoring the obvious sector, Managed Investment Schemes (MIS),” the submission said.
“The Joint Bodies note the pressures currently being experienced within the CSLR are downstream manifestations of upstream failures, including lead generation practices, conflicted distribution models and product governance deficiencies.
“In some cases, the CSLR claims have disproportionally skewed towards SMSFs primarily because they have been targeted by many of the failed MIS, for example, Dixon Advisory and United Global Capital.
“Unless the law is amended, in the future CSLR claims may be disproportionally skewed towards Australian Prudential Regulatory Authority-regulated super funds in a similar manner because retail investors have been targeted by other failed MIS offered in those superannuation funds, for example, Shield and First Guardian.”
CPA Australia superannuation lead Richard Webb indicated the proposal to shift CSLR funding costs onto SMSFs was a continuation of the flawed approach of saddling financial advisers with rising costs not related to their actions.
“Making SMSFs fund the CSLR directly is poor policy, especially given that the current funding problems were caused by earlier failures. The people responsible for those losses should pay for them – not the investors who were harmed,” he explained.
“The current CSLR regime already shows the unfair and disproportionate cost burden imposed on currently registered financial advisers and extending this to SMSFs simply compounds the problem.”
Webb added the CSLR must return to its original function while being supported by effective oversight and accountability right across the financial system.
“For the CSLR to deliver the greatest benefit, it must truly be a scheme of last resort, and that means the upstream links in the chain must work properly. A sustainable model requires all sectors responsible for those losses – particularly managed investment schemes – to contribute fairly,” he poined out.
“It’s critical that costs caused by product failures are internalised by relevant product issuers, rather than being borne by unrelated sectors through special levies.
“Strong product governance must be incentivised, rather than increasing systemic risk and cross-subsidisation.”
Jason Spits
SENIOR JOURNALIST
Jason is a senior journalist with Benchmark Media and writes for the selfmanagedsuper website and magazine and smstrusteenews website. He has covered financial services since 1999 and has written about life insurance, superannuation, investment management and financial advice, in both a freelance and in-house capacity, and also did a brief stint as a media manager for an industry association. He has been the editor of trade titles Money Management and Financial Standard, and was most recently senior journalist with life insurance title Riskinfo.
Articles by Jason