Establishing a Compensation Scheme of Last Resort

Executive Summary

The AIOFP and its members totally support a fair compensation scheme for consumers who suffer financial loss from the actions of industry stakeholders.

We agree with the current general thrust of a Compensation Scheme of Last Resort (CSLR) and findings of the Hayne Royal Commission but want to propose a relatively simple internal structure that will deliver a fair outcome for all stakeholders.

Two Key Principles recommended by the Ramsay Review are simplicity and a solution to the disproportionate losses from failed Product related unpaid determinations, we will suggest a solution for both issues.

We also note that in the Governments Response section of the Discussion Paper they are committed to ‘Extending the scheme to beyond personal advice failure…’, this can only mean, in our view factoring in a Product failure loss solution with the scheme.

We also note that even AFCA are seeking a solution to the conundrum of Managed Funds failing in their CSLR submission. We are hopeful that the Institutional lobby’s past skills of ‘spinning’ the blame onto the Advice community is finally falling on deaf ears in Canberra and all stakeholders will act in the best interests of consumers.

An aspect that is commonly lost on all concerned when product failure occurs is Advisers have the personal relationship with the consumer and they, more than anyone else want to see their clients compensated. This dynamic may also explain why other stakeholders who have some direct responsibility for a product failure occurring can do whatever it takes to avoid accountability with a relatively clear conscience. We think this is due to having no personal connection with the consumer/client and the Adviser is the only stakeholder left standing next to the client in their hour of need.


We believe ADVICE and PRODUCT should be separated; it makes practical sense to assess them unilaterally. If this is done the losses associated with actual poor financial advice will pale into insignificance against the $40 billion of failed Managed Funds since 1980. It will also put some reality into the current discussion around the CAPITAL ADEQUACY requirements for AFSL Holders and should lead to having 2 AFSL basic categories – ADVICE and PRODUCT with different conditions.

It also should be noted that since FOFA commenced in 2013 Advisers are no longer remunerated by the Product manufacturers/Institutions, their clients pay them for advice, which is the way it should be. That was the only commercial link between PRODUCT and ADVICE pre 2013 and it is a long bow to draw that paying commission made the product fail.

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