On Tuesday the federal budget will officially double the funding of the $2 trillion super fund industry's Superannuation Complaints Tribunal (SCT) in an attempt to tackle a backlog of customers who have been waiting up to four years to have their disputes, including life insurance matters, resolved.
Unfortunately, the Turnbull Government has decided to kick some other pressing issues years down the road, which has done consumers a disservice. These include addressing financial planners' educational qualifications and professionalising the sector after a string of financial planning scandals which exposed lax education standards.
Currently, planners can sit the basic RG146 regulation to qualify as a financial planner, which can take less than eight days to complete in an open-book, non-supervised environment. They are then legally qualified to advise on people's life savings.
On Thursday assistant treasurer Kelly O'Dwyer quietly put out a press release on her website saying the beefed up education and exam requirements that were supposed to be effective from July 2017, will be delayed until 2019 and existing advisers will have until 2024 – almost a decade - to reach degree-equivalent status. A joint parliamentary inquiry chaired by David Fawcett recommended higher education standards back in December 2014.
This isn't a transition, it is capitulation at a time when the opposition is calling for a royal commission to clean up the mess. Those financial planners who are degree-qualified and sign up to a code of standards to act in clients' best interests above the law, have basically been sold out.
The government has also delayed changes to the size of upfront commissions paid on life insurance advice and didn't deal with some significant recommendations relating to ASIC in its response to the Capability Review.
It has however agreed to give a one-off $5.2 million funding injection to the SCT, partly in response to the opposition's call for a royal commission into the financial services sector.
The financial scandals have put the spotlight on a number of shortcomings in the industry. Unfortunately, when things go wrong for customers, the dispute resolution bodies available to them are far from adequate.
Last week the Turnbull government said it would establish an independent panel to review the role of the SCT, the Financial Ombudsman Service (FOS) and the Credit and Investments Ombudsman.
Under the current system, customers of poor advice or dodgy insurance policies can wait up to four years to get a determination from the SCT and up to two and half years from FOS.
The SCT has 1500 open complaints, some dating back to 2012. It is a statutory body set up in 1992, funded by the industry via an APRA levy, but ASIC provides the resources and allocates its budget. Under the current structure it doesn't have a bank account. This dispute resolution tribunal, which effectively serves millions of Australians who belong to a super fund, has had to operate on a budget of a few million dollars.
A cut in resources from ASIC has resulted in the SCT having to cut back the number of panels held for determinations, hence the backlog. The budget cuts have come as the volume and complexity of complaints has increased significantly.
FOS, which is funded by the industry, has its own set of issues, including lack of resources and caps on how much can be claimed, which means if there is a claim that exceeds a certain amount of money, the victim has to apply to the organisation for compensation or take legal action.
It means hundreds and possibly thousands of customers are left out in the cold. In heart attack victim James Kessel's case, who had a $1.2 million trauma policy with CommInsure, FOS was not an option. (CommInsure recently paid out Kessel's claim and updated the definition, albeit backdating it only two years, after being exposed on Four Corners and in Fairfax Media.)
Michael Gill, a former director of Cisco Systems who suffers from crippling severe rheumatoid arthritis, waited almost two years before FOS made a determination on a trauma policy he had with CommInsure.
The definition of rheumatoid arthritis is years out of date. The trauma insurance policies require customers to be "deformed" by the condition, and meet other criteria, including blood tests, before they can receive a payment. However, modern treatments prevent many patients with severe rheumatoid arthritis becoming deformed, even as they continue to suffer from the pain and debilitation brought on by the condition.
Medical classifications relating to rheumatoid arthritis, an autoimmune disease that affects 1 per cent of the population, have not required a patient to be "deformed" by the condition since at least 1987.
FOS didn't challenge this definition. It agreed he had severe rheumatoid arthritis but said he didn't meet the policy criteria, even though it was common knowledge, including reports seen by FOS by specialists, that the criteria applied by CommInsure was no longer accepted.
CommInsure updated its definition of rheumatoid arthritis in March, following a joint media investigation that exposed widespread misconduct. It backdated it to May 2014, despite the definition being years out of date.
Gill asked CommInsure to review his claim. It was again rejected on the basis that "it fails to meet the definition as set out in the relevant policy document." If it had backdated the definition beyond 2014, Gill might have received a more favourable response.
Victims like Gill illustrate deficiencies in the complaints handling process.
Another area of concern are the so-called forgotten people who fall through the cracks. According to FOS more than $15 million worth of compensation applications should be paid to victims but the organisations have either gone belly up or their professional indemnity insurance doesn't cover the payouts.
These are people who have suffered due to the collapse of a fund or entity and as a result of rogue advice. These people include victims of Timbercorp who received dodgy advice, had their lives destroyed and are now facing massive loan repayments.
Other countries including Britain have a compensation scheme and ASIC raised the concept in a submission to the Financial System Inquiry.
If one message comes out of the raft of financial services scandals, it is that it affects too many lives, has caused too much pain and is too important to be swept under the carpet.
