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BFCSA: Mega ombudsman too powerful say financial planners

Posted by on in ROYAL COMMISSION URGENT
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Mega ombudsman too powerful say financial planners

Australian Financial Review Apr 23, 2019 4.44pm

James Frost

 

The Financial Planning Association of Australia says new powers to enable the Australian Financial Complaints Authority to revisit cases from 10 years ago will lead to a spike in the cost of professional indemnity insurance and may even put some planners out of business permanently.

FPA head of policy Ben Marshan said the organisation, which represents the interests of 14,000 financial advisers, was concerned that looming rule changes allowing AFCA to expand the period for eligible disputes back to 2008 were unfair and unreasonable.

“The FPA recommends this issue warrants urgent consideration and further investigation,” Mr Marshan said.

AFCA was a forced amalgamation of the Financial Ombudsman Service, the Superannuation Complaints Tribunal and the Credit and Investments Ombudsman. It has awarded customers $67 million in compensation since it opened its doors on November 1.

The changes FPA has challenged were part of the government’s response to royal commissioner Kenneth  Hayne’s final report, released on February 4. Assistant Treasurer Stuart Robert directed AFCA on February 18 to expand its remit and consider complaints back to January 1, 2008.

Mr Marshan said the language used in the new rules was loose and could undermine the complaints process.

“AFCA works when everybody knows what to expect. When they have too much leeway,  it can lead to unfair results and becomes significantly more costly and challenging,” Mr Marshan said.

The FPA is worried legislation will see advisers and the advice they gave being judged against standards such as the Tax Agent Services Act of 2009 and the Future of Financial Advice reforms introduced in 2013.

It says the application of these standards mean any successful action against a planner may not be covered by professional indemnity insurance, leaving them exposed to hefty compensation bills and potentially forced out of the business entirely.

Mr Marshan said more care needed to be given to the wording of the rules that would leave both advisers and customers exposed. He said external dispute resolution services worked better when the parameters were predictable and consistent.

“On the financial planning side, we are hearing that professional indemnity insurance has doubled in the last 12 months,” Mr Marshan said. “The changes will potentially increase their PI premiums even further and they will be become unaffordable.

“The second issue on the consumer side is that the policy coverage may fall outside normal parameters and therefore the insurers won’t pay. If the insurance policy doesn’t pay and the planner doesn’t have the money, then the consumer won’t get paid and that is in nobody’s interests.”

The pushback follows news the Association of Independently Owned Financial Professionals was looking to raise $1 million from its members to challenge the legality of Mr Hayne’s recommendation to end grandfathered commissions.

The banking community also questioned the sense of the federal opposition’s proposal to give the ombudsman even more power than the federal government does, including the ability to revisit disputes already settled by the courts.

The Australian Banking Association chief executive Anna Bligh pointed out that both Mr  Hayne and Professor Ian Ramsay – who chaired a Turnbull-government initiated review of dispute resolution in the financial system – had explicitly rejected the concept of revisiting old cases to grant unsatisfied and aggrieved customers further avenues of redress in their respective reviews.

 

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