While the Future of Financial Advice (FOFA) reforms have been in the pipeline for well over a year, the government’s take on industry consultation has thrown many into a spin and it’s only halfway through the year.
In line with its mandate to ‘clean up this town’ (my words Minister), the government has called for industry feedback on Australia’s compensation system and the professional indemnity (PI) policy of Australian financial services licensees (AFSL) has found its way into the firing line.
Responses to the government’s compensation call have been mixed.
For some, in particular the Financial Ombudsman Service (FOS), the formation of a Financial Services Compensation Scheme (FSCS) has caused more than a little concern.
When FOS first came up with its FSCS concept in 2009, calls from the industry were to shut it down before it was able to get off the ground. Those calls were obviously heard, with the ombudsman waiting two years before putting the scheme back on the government radar.
Though while the provisions under FOS’s scheme have changed somewhat, the reaction has not.
In a recent edition of IFA, licensees reacted strongly against the FSCS, crying out how unfair such a move would be, that the scheme offered a level playing field that benefited only those who went against the rules, and perhaps even operated their business from inside a van.
This, of course, is putting it mildly, and of course is being mindful of what we are allowed to print.
The expletives that I have heard over the proposed compensation scheme would be enough to curl my grandmother’s toes, and she’s one tough lady.
Though really, it is understandable. Aside from the FOFA reforms, the PI premiums and considerations around monitoring and compliance are enough to give any straitlaced AFSL a headache. Yes, rules are rules, though for the AFSLs out in the industry who stick by the rules, why should they be forced to hand over 1 per cent of their revenue alongside Mr/Mrs dodgy adviser down the road?
There have been a number of possible alternatives, from scrapping the scheme altogether to calling on all operators/participants in the industry at large to adhere to a financial levy.
With submissions to the government’s compensation review now closed, the industry will need to adopt its well-versed waiting game pose and await the government’s conclusion as to the fate of the country’s compensation system and, in turn, PI.
