All eligible financial advice firms must now report internal dispute resolution (IDR) to ASIC, even if they have faced no action.
The action had been enforced in three tranches in order for smaller firms to prepare for the obligations, with the final one applying from 1 January 2024 to cover the six-month period from 1 July to 31 December 2023.
The first tranche affected 97 firms and the second affected 260 firms.
All Australian financial services licensees (AFSLs) and Australian credit licensees (ACLs) with a retail authorisation must now submit this data which covers each complaint received by the firm made during or open during the reporting period.
If a firm has received no complaints during the period, they must still submit a “nil submission” to ASIC confirming there are no complaints.
Failure to submit a report means the firm will be in breach of IDR reporting and may involve penalties.
In a speech last year, ASIC deputy chair, Karen Chester, said: “The framework is a culmination of detailed consultation with industry to improve and standardise the quality of IDR data. Collection of IDR data will improve ASIC’s capabilities as a data-driven regulator. This data will give greater visibility of where consumers experience problems or where harms may be occurring within firms.
“It will be an invaluable resource for ASIC, industry, consumer groups and ultimately consumers themselves.”
Michael Miller, director at Capital Advisory, said there have already been several instances of cases referred to the Financial Services Credit Panel this year which could have come from an internal dispute report.
“There have been a number of decisions which have applied relatively light or no sanctions which might suggest it was more a failure of process than outright poor advice. This would indicate ASIC might be collecting more insight into what’s happening in the IDR process – which would give them the ability to more broadly see if there are similar issues/trends across the sector or if one AFSL is experiencing disputes that are atypical.”
However, the news has not been welcomed by all, acknowledging advisers already have a long to-do list of compliance tasks.
Steve Blizard, investment adviser at Roxburgh Securities, said: “The rule should be that, in the event an adviser’s firm has had an IDR complaint, only then should the firm have to submit said report to ASIC. Submitting these online reports is not simple, as it requires special log-ins, and wastes time working out how to log in every time.
“The cost of this ASIC reporting time waste is then imposed on our clients which increases inflationary costs on consumers.”
Miller said: “At the individual planner level, it shouldn’t create much burden, but the trend for more small practices to hold their own AFSL certainly means it’s another requirement to be met, even where there’s nothing to report.”
Submissions must be completed by 29 February 2024, and ASIC is expected to publish data on the results following this.
The IDR appears to be a multipurpose vehicle for improving both the quality of advice, and the quality of delivering the service upon which the advice is communicated.
Take the following example: a client was advised from the past on suitable risk coverage with appropriate research done in line with BID structure to ensure appropriate advice was recommended and implemented.
However, the ‘quality of delivering the service’ upon which the advice was delivered, also included a system to ensure suitable communication with regard to premium renewals.
The ‘system’ in place by the principal of this AFSL consisted of being notified by the client if there was a problem with anything to do with the premium renewal or the present UW loading changes. As you can imagine, this ‘system’ relied 100% upon the client to notify the principal – in a timely matter so as to action the problem before the expiry deadline the insurance company had imposed if the problem had not been corrected – and resulted in a lapsed policy which formed the cornerstone of his risk strategy.
Underwriting gone, pre-existing medical history no longer covered, it was a mess.
The client complained, and under the new IDR regime, this would form a valid complaint to which ASIC may even choose to follow up with, at least on the Standard 12 of the Code of Ethics, in that suitable management was not adhered to.
What caused this problem? Ultimately a failure by the principal to:
1/ document a process to mitigate this type of risk under the Client Management strategy
2/ a resistance against engaging a tech response to build reporting to make Standard 12 in this instance a lot easier to manage
3/ ultimately, relying upon the client to notify the principal if there was a problem, noting that the principal had also received notification of this, but it got lost, or may have simply been ignored at the time in favour of more ‘pressing’ priorities to attend to.