AFCA a difficult environment for defending complaints

A new report that analyses AFCA complaints data provides important insights to financial advice firms on how best to deal with client complaints and highlights how difficult complaints are to defend.

The report by Fourth Line reviewed over 1,100 complaints determined by AFCA that related to financial advice from 2012 to 2020. These represented approximately 12% of all complaints received and resolved by AFCA.

Some of the key themes highlighted in the report concerning financial advice complaints were:

  • Over $14.6 million in claims for financial advice complaints was paid in 2020, a significant increase over prior years, with $8.6 million paid in 2019.
  • In 2020, the majority of complaints determined by AFCA related to superannuation advice, followed by investment advice and then insurance advice.
  • There has been a significant increase in superannuation complaints determined in recent years. The largest increase in superannuation-related complaints came from advice provided on SMSF’s, real property and limited recourse borrowing arrangements. SMSF complaints determined now make up 91% of all superannuation complaints determined, reflecting a continuing trend over the past three years.
  • While investment complaints appear to be trending up, they have not reached their previous peak from 2013 when GFC-related complaints were prevalent for high-risk and illiquid products.
  • The chance of a financial services provider successfully defending a complaint is an average of 36% of all complaints determined by AFCA, with superannuation (29%) and investment (22%) related complaints less likely to be successfully defended.

The average claim paid for complaints about shares was $127, 452 with the chance of successfully defending such claims standing at 32%.

Unsurprisingly, for those offering MDA services, while MDAs make up a very small proportion of complaints, the chance of successfully defending an MDA compliant is 25%, well below the 2012-2020 AFCA average.

The complaints that had the lowest chance of being successfully defended involved:

  • Non-APL product
  • Incomplete fact-find
  • Failure to provide an SOA in a timely manner
  • Costs of products
  • Inappropriate SMSF
  • No SOA
  • Vulnerable clients.

The stand-out complaints were those involving non-APL products and incomplete fact-finds. Firms had 0% changes of successfully defending these claims. Claims involving non-APL products often involved unlisted funds or property development funds where the complainant lost everything.

The key issues involved in incomplete fact-finds were:

  • No fact-finds being completed
  • Incorrectly assuming the advice was general advice
  • Incorrectly assuming retail clients as sophisticated investors.

The report also includes references to a number of case studies, including one highlighting the importance of a contemporaneous written record.

In case study number 6 (at page 55 of the report), the complainant had 20 years’ experience in equities research; however, complained about losing money in a structured product. While the complainants denied they had completed the risk assessment themselves, they had signed on the last page of each document that outlined the risks involved in the relevant products. AFCA found in favour of the firm on the basis of the signed risk assessments demonstrating the complainants had agreed with their risk profile. In doing so, AFCA gave weight to the written records created when the alleged misconduct took place on the basis that contemporaneous evidence is more likely to accurately reflect what took place.

The report AFCA Insights by Fourth Line can be downloaded here.

This article is general information only.

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