A dealer group chief has called for the establishment of a professional indemnity (PI) compensation fund that would provide financial planning clients with more stability should further corporate collapses and product failures occur.
The current PI premium pool for the advice sector was not enough to cover the consequences of huge market dislocations and product manufacturers therefore needed to be held more accountable, Lifespan Financial Planning managing director John Ardino said.
“It’s clear that the PI pool for financial planners is currently inadequate to meet the needs of clients who’ve experienced the sorts of losses we’ve seen with Storm and Opes Prime and so on,” Ardino said.
“I think the total financial services community needs to be far more creative in creating the pool of money required to compensate some of the victims of any future market fallouts.
“I can’t see any other way that this can be done except by possibly having a portion of fund management fees being allocated to create a national compensation pool, in the order of one to five basis points, to compensate those people.”
The Boutique Financial Planning Principals’ Group (BFPPG) agreed fund managers needed to be held more accountable and supported the establishment of a PI compensation fund.
“If a product falls over, what happens then is the financial planner is usually held accountable and there’s no apportionment of the problem or the blame back up the line,” BFPPG president Claude Santucci said.
“Now when something goes wrong, I would like to see a compensation fund where there are contributions from everybody.”
However, advice associations said they believed the issue required a more systemic approach in order to find a solution.
The FPA said it would not solely back a compensation fund as it would not solve the overall problem.
“No, we would not support a compensation fund by itself. We need to look at everything on the table to make sure that all the appropriate parts of the system respond to their obligations to consumers,” FPA deputy chief executive Deen Sanders said.
