2020–21 Annual Review

Investments and advice complaints

Between 1 July 2020 and 30 June 2021

Complaints received

3,888 complaints received

33% resolved at Registration and Referral stage

Top five investments and advice complaints received by product 1
Product Total
Shares 950
Foreign exchange 431
Contracts for difference 417
Superannuation fund 302
Self-managed superannuation fund 272
Top five investments and advicecomplaints received by issue 2
Issue Total
Service quality 674
Inappropriate advice 534
Failure to act in client's best interests 525
Incorrect fees/costs 331
Failure to follow instructions/agreement 229
Complaints closed

3,465 complaints closed 3

Average time to close a complaint 114 days

Stage at which investments and advice complaints closed
Stage Total
At Registration 1,148
At Case Management 938
At Rules Review 584
Preliminary Assessment 333
Decision 462
Average time taken to close investments and advice complaints 4
Time Total
Closed 0–30 days 19%
Closed 31–60 days 22%
Closed 61–180 days 39%
Closed 181–365 days 14%
Closed greater than 365 days 5%

 

AFCA can consider complaints about the following investments and advice products:

  • derivatives
  • financial product advice and services
  • managed investment schemes
  • securities
  • self-managed superannuation funds.

The types of issues and problems AFCA can resolve include:

  • advice that wasn’t in the complainant’s best interests
  • incorrectly applied fees, commissions or other charges
  • misleading product information
  • failure to correctly follow a complainant’s instructions
  • unauthorised transactions.

Investments and advice received a total of 3,888 complaints in 2020–21, which was 6% of the total complaints received by AFCA.

There were 3,465 investments and advice complaints closed during the year.

Of the complaints closed, 33% were resolved at Registration and Referral, 27% were resolved at Case Management and only 13% proceeded through to Decision.

Over half of these complaints were closed within 90 days. However, the average time to resolve a complaint was 114 days, which reflects the complex nature of cases in the investments and advice space.

The most complained about financial firms were financial advisers/planners (748), followed by foreign exchange dealers (572) and derivatives dealers (469). Although, it should be noted that, overall, complaints against financial advisers/planners only made up approximately 1% of the total complaints received by AFCA.

Shares (950), foreign exchange (431) and contracts for difference (417) were the most complained about products.

The top issues raised were service quality (674), inappropriate advice (534) and failure to act in the client’s best interests (525). Advice that is inappropriate, or not in the client’s best interests, is, by far, the biggest issue in the investments and advice area.

Complaints about cryptocurrency

While we have seen an increased number of cryptocurrency disputes from previous years, the number is still a small proportion of investments and advice disputes. This includes complaints about funds being lost, due to transfers from wallet providers to unregulated third parties; wallet providers not clearly disclosing the real costs of conversion from one cryptocurrency to another; and consumers being confused about whether they are investing in a cryptocurrency or a derivative.

Additionally, AFCA is only able to consider complaints against financial firms that are members of AFCA. At present, cryptocurrency or digital asset providers are generally not required to hold an AFSL or Australian Credit Licence (ACL), or otherwise required by law to be an AFCA member, in relation to these products. In recent times, a small number of these providers have, however, become voluntary members of AFCA or have joined as a condition of their voluntary industry code.

AFCA has a significant number of investments and advice complaints that are paused, pending legislation to establish a Compensation Scheme of Last Resort. This is due to the insolvency of the financial firm and/or the failure to pay compensation in accordance with an AFCA determination. There were also a significant number of cases delayed during the year while AFCA reviewed its jurisdiction following the DH Flinders Pty Limited v Australian Financial Complaints Authority decision. See AFCA Rules change to provide certainty for more information about this judgment.

Case study

The financial firm is part of a group of companies that provides financial management services (the group). The complainant first became a client of the group in, or around, 2002 and remained so until December 2017.

Over the course of the relationship, various personnel from the group provided the complainant with financial and tax advice. Mr R and Mr K were authorised representatives of the financial firm. Mr F was the complainant’s accountant and worked for another company within the group. Mr T was a mortgage broker who also worked for another company within the group.

The complainant said Mr R ‘sold’ him an inappropriate property investment strategy. The complainant said Mr R (and then Mr K who took over from Mr R) should have warned them of the risks of the strategy. The complainant also said the financial firm had a conflict of interest in recommending two lines of credit for the investment properties.

The financial firm said that while Mr R would have most likely discussed wealth creation strategies with the complainant, if a client of the group decides to invest in direct property, the group is not licensed to advise on property selection. Rather, its advice is limited to how to finance the investment in a tax-effective manner and undertake an initial assessment of cashflow. The firm said it has no obligation to advise on the risks of any such strategy in these circumstances.

Findings and outcome

AFCA concluded that while Mr R most likely did discuss wealth creation strategies with the complainant, which included property investment, there was no evidence that either Mr R or Mr K made a specific strategy or property investment recommendation to the complainant, or otherwise induced him to purchase the properties. It was, ultimately, the complainant’s decision to invest in the properties following discussions with his neighbour who was a property developer selling house and land packages.

Mr K’s loan advice to maximise deductible debt and minimise non-deductible debt was, and remains, a tax-effective strategy. The Statements of Advice provided to the complainant over the course of the relationship clearly explained the limitations on the services the financial firm could provide, and did not require Mr K or Mr R to advise the complainant on the risks of the strategy. Due to these findings, AFCA found in favour of the financial firms.

Case studies are used to demonstrate AFCA’s approach to an issue and have been simplified for length and clarity.

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Case study

The complainant was the administrator of the estate of her late husband, Mr P. Before he died, Mr P was a client of the financial firm. In June 2018, an adviser from the financial firm recommended Mr P rollover his existing superannuation and replace his life and $500,000 total and permanent disability (TPD) cover within a new superannuation fund. The insurer declined the new insurance application due to Mr P’s existing medical conditions and Mr P tragically died in an accident on 29 April 2019, without insurance.

The complainant said that the adviser should have recommended Mr P retain his existing insurance cover while new cover was arranged. The financial firm said Mr P was aware that the insurer had declined his new insurance application, but decided to proceed with the rollover knowing his existing insurance would be cancelled in any event. This was on the basis of the financial firm’s advice that he could apply for insurance again in two years. The financial firm argued that it was not required to advise the complainant to retain the insurance, in circumstances where he had an opportunity to apply for cover again in future.

Findings and outcome

This matter was determined by an AFCA panel, composed of an ombudsman, a financial planner and a consumer representative. The panel found that the adviser breached their best interests duty to Mr P, by not recommending he maintain his previous insurance until the new insurance was underwritten.

While the panel accepted that the complainant was aware his application for new insurance had been declined, it found the adviser failed to advise him of the significance of this decision. The panel assessed that in the circumstances of this case, the financial firm was required to recommend the existing cover be retained until new cover was placed.

The panel found there was a real risk that the late Mr P may have had difficulty obtaining insurance in the future and, if he did, he may have faced other changes like premium loadings relating to pre-existing conditions. In allowing the existing insurance to lapse without warning about the risks of doing so, and without undertaking further investigations into the late Mr P’s health, the adviser failed to adequately advise the late Mr P of the significance of his insurance being allowed to lapse.

The panel awarded the complainant the benefit amount under the policy less premiums, totalling $457,759.12.

Case studies are used to demonstrate AFCA’s approach to an issue and have been simplified for length and clarity.

1 One complaint can have multiple products.

2 One complaint can have multiple issues.

3 This includes 1,178 complaints received before 1 July 2020, and 2,287 received from 1 July 2020 to 30 June 2021.

4 Percentages have been rounded and, as a result, do not total to 100%.

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