The final report of the royal commission recommended that the government introduce a compensation scheme for consumers who have suffered a financial loss from advice failures.
The government has already agreed to adopt the recommendation and has advised that the scheme will be designed consistently with the recommendation of the Ramsay review.
SuperConcepts general manager of technical services Peter Burgess said the intent is that the scheme will be established as part of the Australian Financial Complaints Authority (AFCA) and be available for disputes involving financial advice failures which result in unpaid external dispute resolution determinations, court judgments and tribunal awards.
While the AFCA generally has no jurisdiction over superannuation complaints brought before it by members of an SMSF, he said, it does have jurisdiction over financial advice provided to an SMSF member.
“Even though the AFCA can make a determination in favour of an SMSF member, under current arrangements, there is still no guarantee that the member will receive any compensation payment,” Mr Burgess said.
“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.”
A last resort compensation scheme would play a critical role by ensuring members receive at least partial compensation when all other compensation avenues have been exhausted, he explained.
“It’s particularly important for SMSF members who, unlike members of APRA-regulated funds, are not eligible for government financial assistance in the event of fraud or theft,” he said.
“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.”
Mr Burgess noted, however, that the scheme would need to be funded, and under the Ramsay review recommendations, this would likely 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,” he said.
“We also support a cap being applied to the level of compensation that the scheme can provide along the lines recommended by the Ramsay review.”
Another reason for accountants to keep giving advice outside the license requirements. It would be nice if ASIC actually did something about this.
Oh great another tax / levy to fund last resort claims and ambulance chasing lawyers.
Maybe we should all just donate our entire income to Government levies / additional taxes.
Where does it ever end ?