Financial planning and self-managed superannuation fund (SMSF) bodies intend to use their submissions to Treasury’s review of Australia’s compensation system to highlight the need for greater awareness in areas of advice when relating to product failure.
FPA deputy chief executive and head of professionalism Deen Sanders said as it stood, Australia’s compensation system was woefully inadequate when it came to issues of failed product.
Sanders said the issue was the central feature of its submission framework to the government and Richard St John’s compensation paper on the back of Trio Capital’s collapse and the government’s response to provide $55 million of select investor compensation.
In particular, Sanders said the entire compensation system continues to be restrictive on the issue of advice when financial loss relates to a failed product.
“Whilst arguably and we certainly acknowledge that inappropriate advice may have put the client into that product, then in those circumstances that’s when the adviser is obviously obligated and subject to a potential compensation claim against the adviser,” he said.
“Where there is a proven issue of fraud or misconduct against somebody associated with the product . as far as we are concerned it is the product that should be paying for the compensation in all instances for the advice failures and also for the client, including SMSF clients, who lost out.”
He said while the association had a small exposure to Trio, it had not received “enormous comfort” from the government on the matter.
“It is our view that until we get that piece right, until we get better product regulation, until we get an appropriate compensation structure in place for failed products, then I think that we will continue to have this problem,” he said.
Self-Managed Super Fund Professionals’ Association of Australia chief executive Andrea Slattery said the government’s failure to cover all SMSF trustees invested across the Trio funds was a great concern, and held little hope changes to the country’s compensation ruling would provide for SMSF trustees.
“We’re interested in dialogue and discussion where the SMSF sector will benefit and the integrity won’t be compromised,” Slattery said.
“[And] the way in which the SMSF sector works is actually not compromised from an investment point of view and where there is an ability to review and understand the compensation scheme and see whether or not it should be applied to the SMSF sector.”
She said the association was seeking views on the matter from its members.
Association of Independently Owned Financial Planners (AIOFP) executive director Peter Johnston said it was a comfort that Trio and Astarra Asset Management were deemed “a blatant fraud”.
“The advisers are tired of being blamed for product failure, these products should not have been in the market in the first place and the ultimate responsibility lays with the successive politicians over the years who have failed to understand the industry,” Johnston said.
He said like the FPA, the AIOFP had a small exposure to Trio and Astarra, with only seven out of the association’s 150 practices involved.
In April, Assistant Treasurer and Financial Services and Superannuation Minister Bill Shorten announced the government would assist more than 5000 investors caught up in the four Trio superannuation funds by giving them access to $55 million.
