Forgotten finance victims have waited long enough
4 June 2016
Adele Ferguson
On Sunday a group of Timbercorp victims will meet at a small shed in Coburg, Melbourne, for a regular monthly meeting. More than 100 victims set up the action group, the HNAB Group, when the agribusiness collapsed in 2009.
The HNAB Group are victims not only of Timbercorp but also their accountant, Peter Holt, who was one of the biggest spruikers of managed investment schemes and was described in Parliament by Senator Sam Dastyari as a "crook, a criminal and a fraudster".
Each month they talk about their plight, including the emotional and financial impact of the money they lost and the loans they have to repay following writs served by Timbercorp's liquidator.
People have had heart attacks, anxiety attacks so severe they were thought to be heart attacks, various immune-related diseases known to be stress-induced, and severe depression and anxiety affecting relationships, family, work and all aspects of life.
One man attempted suicide by hanging. They are just a few of the thousands of "forgotten people" who have no redress.
In HNAB's case Holt, who was banned by ASIC in September 2012 for three years for inappropriate advice to his retail clients, went into bankruptcy in 2011, which means they can't sue him or lodge a claim with the Financial Ombudsman Service (FOS).
FOS fumbles
The latest figures from FOS indicate that more than $16 million of compensation applications made by victims that should have been paid, weren't because the organisations either collapsed or refused to pay.
Fairfax Media recently exposed another accountant, Pullen Pillay, who gave advice to hundreds of clients, that they claim was questionable and resulted in financial devastation.
They say he didn't mention he was getting massive commissions every time he flogged a product.
Many of these victims have lodged claims with FOS but at least 24 can't because they invested in products when Pillay was operating under dealer group Morrison Carr, which shut down after its licence was cancelled in 2012
Over the years there have been many attempts to introduce a compensation scheme of last resort for the so-called forgotten people.
ASIC raised the concept in a submission to the Financial System Inquiry and FOS has actively lobbied for a scheme of last resort.
Such a fund would assist customers who have suffered losses due to the collapse of a fund or an entity as a result of rogue advice.
Xenophon's pledge
On Friday Senator Nick Xenophon said if he was re-elected, at the post-election sitting he would introduce legislation to establish a compensation scheme of last resort for victims of financial fraud and misconduct.
He said it would require a modest levy on financial institutions to fund the scheme, and for retrospective claims, the government would need to step in.
"A compensation scheme of last resort is long overdue.
The evidence various Senate inquiries have heard indicates that too many Australian lives have been destroyed financially by a regulatory framework that has failed," Senator Xenophon said in a statement.
"Such a scheme with a more robust regulatory framework and insurance requirements for advisers would go a long way to restoring confidence amongst mum and dad investors," he said.
Naomi Halpern, who is herself a victim of Peter Holt and is running for a seat in the Senate, said the scheme was vital for victims who fall through the cracks, when there are no other avenues for redress.
"In Peter Holt's case he declared himself bankrupt and his professional indemnity insurance was inadequate," she said.
Support for scheme
A long list of groups support a compensation scheme of last resort, including the Consumer Action Law Centre, ASIC, FOS and the Australian Bankers' Association.
Consumer Action Law Centre chief executive Gerard Brody said despite the various reforms, including the future of financial advice reforms, there is still a dodgy financial adviser who has lost customers' money.
"This only serves to demonstrate why a compensation scheme of last resort is required to provide redress where FOS or a court has ordered redress, and the licensee doesn't pay out."
Other countries including Britain have a compensation scheme and ASIC raised the concept in a submission to the Financial System Inquiry.
Banks move
In April, shortly after the opposition pledged a royal commission on the sector if it is elected to office, the Australian Bankers' Association released a package of measures to "protect consumer interests, increase transparency and accountability and build trust and confidence in banks".
It said: "We will evaluate the establishment of an industry-wide, mandatory last resort compensation scheme covering financial advisers.
We support a prospective scheme being introduced where consumers of financial products who receive a FOS determination in their favour would have access to capped compensation where an adviser's professional indemnity insurance is insufficient to meet claims."
This is a good start, but to be truly effective and redress the wrongs of the past, a compensation scheme of last resort needs to operate retrospectively.
If such a scheme is introduced, the big questions become: how much will be in the kitty and how far back it will go and the scope of the claims to be covered.
There are also questions how it will be implemented, who will take ownership of running it and collecting the funds.
Not surprisingly, details are scant, but what needs to be remembered in any discussion of the architecture is that many of these "forgotten people" got burnt during the global financial crisis.
They can't afford to be forgotten this time around.
'A chance to rebuild': Xenophon to push for 'last resort' compo for financial victims
4 June 2016 – 12:15AM
Patrick Hatch
Australians facing ruin because of fraud and misconduct in the finance sector would be bailed-out by a "last resort" compensation scheme proposed by senator Nick Xenophon.
The scheme would cover people who lose money because of misconduct but are not compensated because the institution or individual that wronged them are bankrupt or have inadequate insurance.
Victims left devastated by poor advice welcomed the push, saying such a scheme would give them a chance to rebuild their lives.
"It will never compensate people fully for the damage and harm they're received, but there needs to be a last-resort scheme," Senator Xenophon said in Melbourne.
"This needs to be an election issue, it needs to be an issue after the election. We need to have a sensible discussion about how you deal with victims of financial misconduct because there are many thousands around the country."
The South Australian senator said he and members of his party would push for a scheme if elected to the next Parliament.
The policy is modelled on a proposal by the Victorian Consumer Action Law Centre, which says almost a quarter of all compensation ordered by the Financial Ombudsman Service relating to investments, life insurance and superannuation has not been paid.
The federal government would fund retrospective payments to victims of collapsed managed investment schemes, including Timbercorp and Great Southern, which Senator Xenophon said was justified given the schemes were a "creature of the Commonwealth" and badly flawed legislation.
He could not put a figure on how much the scheme would cost until its "architecture" had been designed in consultation with banks and consumer groups.
Compensation to future victims would be funded by a levy on financial institutions.
Senator Xenophon said the levy would create an incentive for the industry to stamp out bad practices, and that would drive down its cost over time.
The policy was announced alongside about a dozen victims of poor financial advice, including Victorian Nick Xenophon Team candidate Naomi Halpern, who lost money after investing in Timbercorp through notorious planner Peter Holt.
Another of Mr Holt's victims, David, thew his support behind the proposed scheme, saying it would give people like him "a chance to try to rebuild".
The father of two was left with debts of nearly $100,000 when Timbercorp collapsed in 2008, and said he spent the past 10 years trying to climb out of a "financial black hole".
"My only mistake was going to seek the advice of an accredited professional, that was licensed by ASIC … and trusting that the advice he was giving me was in my best interests," the 48-year-old said.
"It's never going to be a position where [the scheme] is going to be able to fully restore or fully compensate for the losses, but it's going to go a long way."
The Australian Bankers Association said in April it supported a "last-resort" compensation scheme for customers who receive a Financial Ombudsman Service determination in their favour but whose claims could not be covered by their adviser's insurance.
The Greens want compensation schemes to be included in the terms of reference in a royal commission into the financial industry, a party spokesman said.
Senator Xenophon defended his failure to declare a directorship in a property company run by his father as an "embarrassing" slip-up.