The Financial Planning Association (FPA) and the SMSF Professionals’ Association of Australia (SPAA) have broadly backed the government’s response to the parliamentary inquiry into the collapse of Trio Capital and the Richard St John report.
However, both queried elements of the parliamentary response while the opposition accused the government of dragging its feet on the Trio fraud.
Last Friday the Minister for Financial Services and Superannuation Bill Shorten released the government’s response to the report by the Parliamentary Joint Committee (PJC) on Corporations and Financial Services on the collapse of Trio Capital (the Trio Report) as well as the report by Richard St John on compensation arrangements for consumers of financial services.
While both reports indicate no systemic issues in the regulation of the superannuation industry, they do recommend a range of improvements.
Acceptance and self-regulation
The government said it accepted “the vast majority of the reports’ recommendations” including legislative changes to strengthen professional indemnity insurance requirements, improve the communication of risks to investors and to ensure the adequacy of regulatory processes and consultation papers by Treasury on powers to support ASIC in its enforcement role.
“The Gillard government takes seriously the issues of misconduct by financial services providers. This response, together with far-reaching reforms, such as the Future of Financial Advice and Stronger Super, will improve trust and confidence and enhance investor protection,” said Shorten (right).
The implementation of the government’s response will be coordinated by a Superannuation Regulators Working Group, comprised of representatives from Treasury, APRA, ASIC and the ATO.
St John noted that an industry-funded last-resort scheme to compensate consumers impacted by a financial collapse would be inappropriate and possibly counterproductive and, for the moment, the government has accepted this recommendation.
“In the meantime, the government encourages professional bodies to themselves consider possible solutions to the issue of under-compensation, such as the implementation of their own scheme which further protects retail clients in the event of a member’s insolvency,” said the minister.
Opposition? Really
However, Senator Mathias Cormann slammed the government’s lack of urgency in responding to the findings of the parliamentary inquiry into the Trio fraud, in which over 6000 Australian superannuation and other investors were defrauded of $176 million.
Beginning its inquiry in 2011 after parliamentarians received complaints from victims of the Trio fraud, the PJC on Corporations and Financial Services delivered its findings nearly a year ago.
“It is completely unacceptable that Bill Shorten has taken nearly a year to consider this report by a key parliamentary committee and even now only just provided a preliminary response,” said Cormann (left).
“By announcing further new reviews and ‘consultations’, he persists with his longstanding strategy of avoiding making decisions.
“He is kicking the can further down the road to take this whole issue beyond the next election, even though actual decisions now would give certainty to investors.”
What the FPA thinks
The Financial Planning Association (FPA) said it supports the PJC inquiry recommendations and the Government’s response to these recommendations.
“The FPA supports all recommendations that aim to improve access to and transparency of financial advice for all Australians. We also support recommendations that address our concerns about better access and justice in compensation for poor financial advice and more importantly poor financial products,” said Mark Rantall, FPA chief executive.
However, he believes the government should reconsider its stance on the Richard St John report.
“The FPA fully supported the thorough report by Richard St John, originally announced in May 2012, and we believe the report recognised that obligations on the licensed financial advice community have been ‘unbalanced’ in comparison to the light-handed regulatory approach of product issuers. The government has taken some of these recommendations on board, but has more to do in order to align with the overall sensible approach made by the Richard St John report.
“The FPA does not support the notion that financial adviser misconduct is the only reason why compensation has been awarded to date. We believe that this ignores the role played by other gatekeepers in the value chain in consumer losses, something Richard St John highlighted in his report,” said Rantall (right).
“The problem is that the only, and the easiest, source of compensation for consumers is through the financial adviser and accessing compensation from other gatekeepers such as product providers, directors, auditors is not possible, too difficult or requires a class action – and this is part of the problem.”
The FPA has also stated that they do not support some of the government’s recommendations for Professional Indemnity Insurance (PII) changes stating that increasing PII requirements will not solve the problem, but simply increase costs and further restrict financial advisers in servicing consumers due to increased costs and red tape.
View from the SPAA
The SPAA gave a qualified thumbs-up to the government response and its director of education and professional standards, Graeme Colley, believes actions will speak loader than words.
“What SPAA is waiting to see is how these recommendations from the PJC on Corporations and Financial Services into Trio and Richard St John’s report into compensation arrangements for consumers are implemented,” he said.
Colley says SPAA is disappointed by the government’s decision on the last-resort compensation scheme for the financial services sector by accepting St John’s advice that such a scheme would be “inappropriate and possibly counter-productive”.
“SPAA will continue to advocate such a scheme where clients have suffered financial losses because of the misconduct or insolvency of an AFS licensee, and that the compensation should be funded by a levy imposed on that sector of the industry where the misconduct occurred.”