Most ‘know your client’ issues resolved early: AFCA


Natalie Cameron

Consumers who believe they’ve been given inappropriate advice or advice not in their best interest account for one in four Investments and Advice complaints but most of these complaints are resolved by agreement or do not go any further, data released by the Australian Financial Complaints Authority (AFCA) shows.

Since AFCA’s inception in November 2018, it has received 11,355 Investments and Advice complaints. The ombudsman service says 2,788 of these fell into two categories that could be regarded as “know your client” issues: claims of inappropriate advice or failure to act in the client’s best interest.

Of the 2,252 complaints that had been closed, 40 per cent were resolved by agreement at an early stage, after AFCA brought the parties together, the data shows. A further 24 per cent were assessed as falling outside AFCA’s Rules, meaning they went no further.

Only 15 per cent of complaints went on to be the subject of a decision in favour of the complainant at the “preliminary assessment” or final determination phase.

The bottom line is that 333 complaints of this type – just 3 per cent of all Investments and Advice complaints since AFCA opened its doors – resulted in a decision against a financial adviser, Lead Ombudsman for Investments and Advice, Natalie Cameron, said.

“The average adviser has little chance of ever having an AFCA decision against them,” Ms Cameron said, noting though that AFCA’s work helps the industry by tackling the behaviour of the small number of advisers who harm the sector’s reputation.

“At AFCA, we take every opportunity to secure a resolution that’s fair for both parties,” she said. “If we can bring the parties together so they reach agreement themselves, then that’s the ideal outcome for us.”

AFCA uses both informal and formal methods to secure resolution of a dispute. First, it refers complaints back to the financial firm to see if the firm can resolve the issue directly. AFCA then seeks to help the parties reach agreement through negotiation and conciliation. Next, it can provide a preliminary assessment of the merits of a complaint for the parties to consider. If there is still no resolution, the final step is for AFCA to make a binding decision, also known as a determination.

While most advisers get it right most of the time, there are still lessons to be learned from the cases handled by AFCA.

AFCA’s Senior Ombudsman for Investments and Advice, Shail Singh, said it was always good to see documents that had been tailored to a client’s financial literacy – such as clear, concise and effective statements of advice that use everyday language in setting out goals and strategy.

He recommends checking that all templated forms and documents are appropriate to the client in this way.

“It’s difficult for us to be convinced an adviser has selected the right strategies and financial products for a client, or even if they have, that they have adequately conveyed this to a client if documents contain pro forma jargon, complex concepts or excessive amounts of irrelevant material,” he said.

Mr Singh also highlighted the value of being able to provide documents created at the same time as advice when addressing a complaint. “These usually carry more weight than later recollections of what was said or done,” he says.

AFCA shares complaints data publicly via the AFCA Datacube.

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