Consumers who have received negligent financial advice need a Compensation Scheme of Last Resort now more than ever as financial losses are amplified by the COVID-19 economic crisis, says the Australian Lawyers Alliance (ALA).
"The Government must move to implement this Scheme as soon as possible," said Mr Josh Mennen, solicitor and spokesperson for the ALA. "Because the proposed scheme is forward-looking, every day that it is delayed is another day of financial losses that wronged consumers may never be able to recover.
"The Government committed to introducing legislation to enable this Scheme by the end of this year after a number of horror stories were graphically exposed through Commissioner Hayne's public hearings.
"We understand the government's attention is justifiably diverted towards immediate COVID-19 management measures but this long-promised safety net cannot be delayed any longer as many consumers are now suffering devastating, often permanent losses, through no fault of their own."
A Compensation Scheme of Last Resort will enable consumers to recover losses they have suffered due to the misconduct of a licensed financial adviser who has become insolvent or is otherwise unable to pay compensation. The need for such a Scheme was endorsed by Recommendation 7.1 of the Financial Services Royal Commission report.
"The Australian Financial Complaints Authority has established systems to assist consumers who, it has previously determined, are entitled to receive compensation from an adviser who is not able to pay," said Mr Mennen.
"However, these initiatives do not assist the large cohort of consumers who will now be suffering devastating COVID-19 losses caused by negligent financial advice where the adviser is now insolvent or deregistered.
"Financial advisers have long been incentivised through grandfathered commission structures and asset-based fees to invest their client's funds into higher risk portfolios than is appropriate for their risk tolerance.
"This inappropriate financial advice often goes unnoticed until an economic crash and hundreds of individuals and families will now be reeling from the impact of losses incurred as a result of the current economic crisis."
