Small advisory firms less likely to compensate — ASIC
Size matters when it comes to consumers being compensated for bad advice or other failings in the financial services industry, according to the Australian Securities and Investments Commission (ASIC).
The regulator has used its submission to the Government's Review of Financial Services External Dispute Resolution (EDR) to indicate its support for a last resort compensation mechanism, but also to point out that uncompensated losses are usually attributable to smaller advisory firms.
"The current concentration of unpaid determinations is in the small to medium sized advisory services sector," the submission said.
"Consumers and investors may not generally appreciate that, in the event of a product failure or insolvency, there are fundamental differences in their access to compensation depending on the nature and size of the entity with whom they deal."
As well, ASIC suggested that the level of uncompensated losses being reported may be understating the level of the problem.
"Public reports of uncompensated losses by the FOS [Financial Ombudsman Service] and CIO [Credit and Investments Ombudsman] should be treated as a minimum," it said.
"The schemes are unable to quantify losses suffered by investors or consumers who did not lodge disputes, or whose disputes were closed early in the process because there was no reasonable prospect of any order for compensation being met."
On the question of uncompensated losses, the ASIC submission ended on the note that: "The whole financial services system bears the risk of adverse consumer outcomes and a lack of trust and confidence in the event of a significant product or licensee failure. In the absence of a last resort compensation scheme, uncompensated losses within the EDR framework will continue to occur".
Recommended for you
Policy and advocacy specialist Benjamin Marshan has left the Council of Australian Life Insurers after less than a year, having joined in March from the Financial Planning Association of Australia.
The declining volume of risk advisers meant KPMG has found a rising lapse rate for insurance policies arranged by independent financial advisers, particularly in the TPD and death cover space.
The Life Insurance Code of Practice has transferred from the Financial Services Council to the Council of Australian Life Insurers.
The firm has announced it will no longer be writing new life insurance policies in the retail advised and corporate group insurance channels, citing a declining market and risk adviser numbers.