Back-up compensation for bad advice needed, ABA says

In a submission to the federal government’s review of external dispute resolution, the ABA said there needs to be a back-up solution for those who receive inappropriate advice, but cannot get their money back because the adviser “has gone broke” or does not have adequate insurance to cover customer losses.

“We support a mandatory, industry-wide last resort compensation scheme applying prospectively and being funded by all financial service providers, including banks,” said ABA chief executive Steven Münchenberg.

“In reality, such a scheme would not be used by bank customers because banks have the capital strength to compensate customers if needed, but we think it’s an important initiative to build trust and confidence across the financial services sector.”

The submission also called for the creation of a “one-stop shop” dispute resolution scheme, rather than three.

“At the moment there are three main organisations that handle financial services disputes – the Financial Ombudsman Service, the Credit and Investments Ombudsman and the Superannuation Complaints Tribunal,” said Mr Münchenberg.

“If there was one body to handle disputes or direct people where to go, this would help customers get their disputes resolved faster. It would also make the process easier as customers would know exactly who to contact for help.

“Whether we have an overarching gatekeeper or one ombudsman or a tribunal, the dispute resolution system should focus on ensuring that customers who can’t access the formal legal system can get a fair hearing, and that the system is easier for customers to use.”