AFCA has issued its annual review for the financial year 2022/23 and it makes interesting reading for those in the financial investments and advice sector.
Complaints numbers are up
The 2022/23 financial year has been the busiest in AFCA’s history, with a total of 96,987 complaints received – an increase of 34% since the previous period. A total of $253,809,943 in compensation was awarded to consumers through AFCA’s dispute resolution processes.
The most complaints (53,638) related to banking and finance products, followed by general insurance (27,924) and superannuation (6,957). Interestingly there was a 50% increase in general insurance complaints to AFCA. While these complaints have occurred during the period of major floods in South-East Queensland and NSW, 89% of general insurance complaints were not directly linked to such events.
AFCA had more complaints about personal transaction accounts than credit cards – the most significant shift since credit cards have been the most common complaint product since AFCA commenced. This change has been influenced, in part, by a 46% rise in serious financial crime and scam-related complaints, now averaging more than 500 a month.
Investment and advice complaints
Only 4,840 complaints were made against those in the investments and advice sector, that is, 4.9% of total complaints. Of this amount 1,720 (36%) and 654 (14%) related to two financial firms (Dixon Advisory and Best Leaders). In the absence of these complaints, the overall number of investment and advice complaints would have totalled 2,466, which is 22% lower in 2022/23 than in the previous period and the continuation of a reduction over the last three years. Excluding complaints from those two firms, the top three products for complaints in 2022/3 would have been shares (24%), superannuation funds (12%) and cash management accounts (9%). The top five issues for complaints that did not relate to these two firms were service quality; failure to follow instructions/agreement; failure to act in the client’s best interests; incorrect fees/costs; and inappropriate advice.
On a subsector basis, there were 313 complaints against stockbrokers during 2022/23 – a 5% increase from last year.
Compensation scheme of last resort
AFCA is setting up the CSLR as an independent, not-for-profit company with its own board and funding arrangements established by the government. The government intends for consumers to be able to lodge claims against the scheme from April 2024. Decisions on eligibility will be made by the operator of the CSLR which will be independent of AFCA.
From April 2020, AFCA paused complaints against insolvent financial firms while awaiting the details of the scope and timing of the scheme. AFCA has now commenced reviewing the status of the paused complaints to determine eligibility for the scheme. AFCA has 4,905 open complaints involving 57 financial firms impacted by insolvency. Consumer claims in these cases are estimated as over $696 million, not all of which will be eligible for the scheme.
AFCA has 44,958 members. Of these approximately 77% (34,512) are authorised credit representatives and 23% are financial firms or financial service providers. Most AFCA members are small and medium enterprises such as mortgage brokers, finance brokers, financial advisers/planners, credit providers and accountants.
Only a small number of AFCA members (16% or 1,716) had complaints made against them in 2022/23.
In 2021 AFCA undertook a review of its funding model to develop a new one with a particular focus on a user-pays approach that reduces the burden on smaller members and those members who are not heavy users of AFCA, thereby minimising cross-subsidisation. For the 2022/23 year 95% of financial firm members only paid the annual registration fee of $375.55. Of these, approximately 14% received the free complaints (up to five) and had no other charges except for the annual registration fee. This resulted in approximately 88% of AFCA members seeing a decrease or no change in their total annual fees. Accordingly, AFCA considers that its new ‘user-pays’ feature is functioning as expected with the heaviest users paying their fair share.