The basis of this paper was in response to the failure of Trio Capital Limited (Trio), an investment scheme which collapsed in dubious circumstances in 2011 costing around 6,090 Australian investors’ funds.

As a result of the Trio collapse, APRA applied for compensation under section P23 of the SIS Act and the ruling government enacted its power to force compensation via a levy over APRA regulated superannuation funds. SMSFs were neither compensated nor levied in regard to this matter.

The Parliamentary Joint Committee into Corporations and Financial Services (PJC) inquiry into the Trio collapse found that SMSFs that had invested into Trio were unaware they were not covered for compensation under the SIS Act in the event of fraud or theft.

CP216 seeks to invoke a massive raft of added disclosure and warnings in respect to the advice provided to SMSF trustees that they are not covered for compensation under P23. It also seeks to give opinion about the relative cost to fund investment size in respect to the viability of SMSFs.

So, is this a good idea?

I take the view that this paper is perhaps the greatest waste of regulator time I have ever seen and a further example of over-regulation that is strangling the advice profession, driving up cost and confusing consumers.

In the first instance, I would submit that not only would SMSF trustees be unaware of compensation arrangements under SISA, but nor would 99.9% of the population.

I’m not sure how often compensation has been granted under P23, but I don’t remember any other than Trio. I don’t think it’s fair that superannuation fund members be levied to compensate for a failure of regulation or the failure of investors to make appropriate decisions.

Let’s be clear, Trio was not a superannuation investment scheme. It was a managed investment scheme for both superannuation and non-superannuation investors. It is inappropriate in my opinion to use this for a superannuation related regulation paper when the ramifications are far wider and apply to the investing public at large.

The enactment of P23 in regard to Trio was as a result of the failure of regulation to protect investors interests through the absence of adequate compensation arrangements under the Corporations Act relative to Managed Investment Schemes. It also resulted from poorly researched advice which may have been encouraged by commissions paid to advisers by Trio. Again, compensation should have been available via the existing Financial Services Reform (FSR) regulation as part of the Corporations Act.

Financial advice is already heavily regulated under the FSR and adding further risk warnings and regulatory baggage will only serve to confuse consumers.

The Future of Financial Advice (FoFA) regulation introduced by the former government bans product based commissions paid to financial advisers. This will go a long way towards reducing the temptation for financial advisers to recommend investments outside the mainstream without justifiable reason.

In my opinion we need more robust and effective sanctions and compensation arrangements to protect the public interest than simply burying clear concise and effective advice in more pages of potentially ineffective regulatory warnings.