Call for new financial compensation scheme

15 May 2015 | Consumers are being left out of pocket even when compensation is awarded for bad financial advice.

Ensuring consumers don't lose out

CHOICE, along with six other consumer groups, is calling for a new financial compensation scheme to be put in place for consumers who have lost out as a result of poor financial advice.

Around a quarter of consumers entitled to compensation as a result of bad advice on investments, life insurance and superannuation have not been compensated.

These are cases where the Financial Service Ombudsman (FOS) has that ruled a licensee must compensate consumers for their losses but it hasn't happened, usually because the licensee is insolvent or can't be contacted. The other issue can be that the professional indemnity insurance, which advisers are required to have, may not cover the conduct for which compensation has been awarded.

For the period between 1 January 2010 and 31 March 2015 there were 126 determinations that remained unpaid, according to FOS. This now totals losses of $21.3 million for consumers, once interest and inflation are taken into account.

CHOICE, along with six other consumer organisations, has made the call for a last resort compensation scheme in a joint submission to the Senate Economics Committee's Scrutiny of Financial Advice Inquiry.

The other consumer groups in support of the scheme are the Consumer Action Law Centre, COTA Australia, the Superannuation Consumers' Centre, Consumers' Federation of Australia, Financial Counselling Australia and the Financial Rights Legal Centre.

CHOICE spokesperson Tom Godfrey said this scheme will help restore trust in the financial planning industry, and is badly needed in the wake of some of the biggest financial scandals in Australia's history.

"This financial compensation scheme will help to ensure the broken lives of so many everyday Australians can be on the path to repair following the devastation wreaked by this often reckless industry," he said.

The proposal asks that the scheme be industry-funded through a government-imposed levy. It would compensate consumers in cases where the the financial service doesn't have the funds or can't be found.

You can read the full submission here.