The proposed compensation scheme of last resort (CSLR) must be “broad-based” so that it will cover all victims of financial misconduct, the Financial Planning Association (FPA) says.

FPA says the draft version of the planned scheme, as set out in a Treasury consultation under the previous Morrison government, has a very limited scope.

Vast segments of the financial industry, including managed investment schemes, are excluded from the proposed scheme, meaning many victims of financial misconduct will likely be left without redress.

The peak body says the scheme’s limitations have again been demonstrated by the Australian Securities and Investments Commission’s (ASIC) recent call urging former Dixon Advisory clients to register any complaints they have with the Australian Financial Complaints Authority (AFCA).

“The CSLR needs to be urgently established,” FPA CEO Sarah Abood said. “Yet the drafting we saw in the previous term of government, which lapsed in April this year, would not have covered managed investment schemes.

“This would leave financial planners to foot most of the bill for a scheme that would have left the majority of affected consumers unprotected.”

Earlier this month ASIC said lodging a complaint with AFCA is a necessary step for ex-Dixon clients to preserve their possible eligibility under a potential future CSLR.

But it cautioned even if a complaint is lodged, a compensation outcome is not guaranteed due to a number of factors. These include Dixon Advisory being in voluntary administration, with the outcome of the administration process potentially affecting clients’ eligibility to compensation.

ASIC says another factor affecting compensation eligibility relates to the CSLR set-up. It says a CSLR has not yet been established and so the scheme’s final parameters remain uncertain at this time.

Ms Abood says it is “clear that the CSLR must extend across AFCA’s remit to achieve its aims of ensuring that victims of financial misconduct can be compensated where the firm involved has become insolvent”.

“It’s also critical that the scheme be funded equitably, so that the current smaller number of financial planners, many of whom are small business operators, are not left bearing the full costs.”