Industry Super Australia (ISA) has called for the creation of a statutory compensation scheme once the current round of financial planning regulation has been finalised.
In its submission to the Senate’s ‘scrutiny of financial advice’ inquiry, the ISA pointed out the limitations of individual financial services providers when it comes to covering claims.
A "key issue" within the advice sector has been that the combination of insurance and the financial resources of the provider have not been sufficient to cover claims, said the ISA.
"The absence of a backup source of compensation has left many consumers without compensation, despite having substantial claims," the submission said.
The ISA cited the 5 April 2012 Richard St John report that considered the need for, and costs and benefits of, a statutory compensation scheme.
In his report, Richard St John noted there are "limits to the extent to which professional indemnity insurance cover will respond to claims against a licensee by retail clients".
In the absence of available insurance cover, it is up to the financial resources of the provider to meet the claim, said the ISA.
"It is therefore essential that licensees ensure that insurance requirements adequately meet their business needs," the submission said.
The ISA pointed to the Financial Ombudsman Service finding that 33 per cent of unpaid determinations are in the investments, life insurance and superannuation area.
The Richard St John report did not go as far as recommending the establishment of a statutory 'last resort' scheme on the grounds it would be "inappropriate to require more responsible and financially secure licensees to underwrite the ability of other licensees to meet claims against them for compensation".
However, the ISA submission said there is "merit" in the establishment of such a scheme once current regulatory issues such as FOFA, higher codes of conduct and a public register of financial planners are finalised.