Australia’s financial planning sector has thrown its support behind recommendations to improve the country’s compensation requirements for investors.
The FPA and Association of Financial Advisers (AFA) both responded in favour of suggestions made by academic Richard St John in his compensation arrangements for consumers of financial services report to the federal government.
AFA chief executive Richard Klipin said the report heralded “sensible findings”.
“The last thing the industry needs is more regulation,” Klipin told InvestorDaily.
“It’s about making what’s on the table work more effectively and we look forward in being engaged in that process.”
FPA chief professional officer Deen Sanders used the association’s response to the findings to urge the government to “not lose sight” of the recommendations in the wake of the 2012 federal budget.
“The focus might be on [Treasurer] Wayne Swan’s budget surplus [last night], but all professional planners are cheering a massive ‘consumer surplus’ delivered by Richard St John [yesterday],” Sanders said in a statement.
The association views St John’s review as “thorough”, with many of its conclusions welcomed, he said.
“Its conclusions are welcomed – including the need for careful redress of regulatory imbalances before considering any ‘last resort’ compensation scheme as a solution for retail client compensation,” he said.
“In other words, the report recognises that obligations on the licensed financial advice community have been ‘unbalanced’ in comparison to the light-handed regulatory approach of product issuers.”
The association “particularly endorses” St John’s comments in relation to making sure the government made the right changes to regulation, he said.
Financial Services and Superannuation Minister Bill Shorten announced the report’s recommendations yesterday.
In his report into compensation arrangements for consumers of financial services, St John recommended the government turn its attention to bolstering Australia’s existing compensation rules rather than introducing new layers of regulation.
The report, commissioned by the government in 2009, also found retail clients were generally able to recover compensation for losses attributable to misconduct by financial services licensees, except where the licensee lacked the resources to meet those claims.
“[The report] concludes that it would be inappropriate, at this point in time, to introduce a ‘last resort’ compensation scheme, without first strengthening the existing compensation arrangements,” Shorten said in a statement.
“[It] recommends strengthening the existing compensation arrangements, in particular the holding of adequate professional indemnity insurance cover, greater ASIC monitoring and capital adequacy requirements to ensure that licensees have the financial resources to meet compensation liabilities.”
The report also said consideration should be given to the “merits” of product issuers being required to take greater responsibility for protecting consumers of their products.
It also recommended a more detailed and targeted review into the arrangements between product issuers and consumers.
The government anticipates finalising its formal response to St John’s report in the next three months.
