Push to recover billions lost to failed managed investment schemes continues

The Association of Independently Owned Financial Professionals has once again accused the federal government, including minister Jane Hume, of defying commissioner Kenneth Hayne’s recommendations by excluding investment managers from CSLR obligations.

According to AIOFP executive director Peter Johnston, while Mr Hayne wanted all managed investment schemes (MIS) and other bank products involved in the CSLR catchment zone, Ms Hume has done the opposite, excluding the allegedly largest perpetrators.

“Commissioner Hayne intentionally recommended a retrospective date for the commencement of CSLR to assist consumers who have lost life savings due to the incompetence of banks. The Commissioner also wanted all managed investment schemes and other bank products involved in the CSLR catchment zone to comprehensively protect consumer savings,” Mr Johnston said in a letter to MPs, seen by the ifa.

“Minister Hume however wants to defy Commissioner [Haynes’] recommendations by precluding banks and their MIS products from CSLR catchment and not backdating its commencement – an astonishingly conflicted position to take against consumer best interests.”

But the AIOFP has now gained some major backing. With the Senate inquiry into the collapse of the Sterling Income Trust due to commence on Tuesday (16 November), consumer groups, including CHOICE, are demanding one key change from the government – the inclusion of MIS to CSLR.

“Having CHOICE on board is a major plus,” Mr Johnston said on Monday (15 November).

According to the AIOFP’s extensive research, the results of which have been emailed to MPs, frozen and failed products managed by the banks have resulted in 200,000 consumers losing a total of $40.23 billion.

Some of the top losses include the Great Southern agribusiness, which swallowed $4 billion, followed by Storm Financial with $3 billion.

Commenting on these colossal failures on a recent episode of the ifa podcast, Mr Johnston touched on the unfair blame often pinned on advisers. 

“The trouble is all these products have failed and they blame the advisers. So we say, ‘Hang on, we didn’t make these schemes. We didn’t manufacture them. We didn’t manage them.’ Everyone runs for cover and blames the advisers, which is just wrong,” Mr Johnston said. 

The AIOFP has now been joined by other member organisations including CPA Australia, the Association of Financial Advisers and the Financial Planning Association in pushing for the expansion of CSLR’s remit. 

In its submission to the Senate inquiry, the CPA expressed its concern that the scheme proposed in the bill tabled in Parliament has “significant short comings” and may not assist victims of Sterling Income Trust.

“The CSLR, as proposed, is too narrow in scope, appears to provide inadequate coverage to consumers and does not seem to address the underlying causes of unpaid determinations,” the CPA said.

“The narrow scope of the proposed CSLR means that MIS and other complex products are excluded. 

“This exclusion will leave many consumers who invest directly into schemes such as Sterling First ultimately unable to seek appropriate compensation or redress in the event of a future collapse.”

As such, the CPA recommended the scope of the CSLR bill be amended to include all financial products to ensure all consumers who engage with a financial product, with or without seeking professional advice, have access to adequate compensation and redress.

However, to date, nothing has indicated that the government could be preparing to yield.