AFCA's inbuilt moral hazard for financial advisers

Financial advisers are being exposed to moral hazard because of the rules around consumer complaints lodged with the Australian Financial Complaints Authority (AFCA), according to the Financial Planning Association (FPA).

According to the FPA, the moral hazard exposure stems from the fact that, under the rules, consumers who lodge a complaint are not exposed to any financial risk while the financial advisers against whom they are complaining are.

The FPA has told the Treasury’s current review of AFCA that all the risk is being carried by the defendant – the financial planning firm.

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Explaining that “frivolous, vexatious and malicious complaints significantly divert resources”, the FPA claims the adverse consequences for advice providers can be devastating including “loss of face, financial costs, time diverted away from servicing clients and a significant impact on professional indemnity (PI) insurance premiums”.

The FPA is arguing that there are potential steps which could be injected into the AFCA processes where frivolous, vexatious or malicious complaints could be stopped.

“However, there appears to be a lack of judicial restraint applied to such complaints if the consumer is not willing to come to a resolution,” it said.

In an effort to address the problem, the FPA is suggesting that, amongst other things, AFCA could incorporate into its fee model “an appropriate methodology for the sharing of fees for frivolous, vexatious and malicious complaints across the relevant industry sector”.

It also suggests that AFCA could consider the introduction of a dispute lodgement fee where a consumer disagrees with the initial AFCA assessment and requests escalation of the complaint.

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So spot on by the FPA. AFCA proudly say we hardly ever dismiss complaints as frivolous - one thing FPA didn’t say is they have a conflicted business model - more complaints progress the more money.

While there maybe some truth with this, when you examine AFCA's public datacube record, the bulk of claims by consumers to AFCA involve complaints against institutions, not advisers. It seems that that the FPA is very good at stringing along retail advisers, while continually protecting intra-fund "advisers" & their institutional employers. Games up - retail advisers are tired of being everyone's strawman to hide behind.

Under Hayne's recommendation for a SINGLE Disciplinary Body, financial advisers shouldn't be subject to AFCA at all. AFCA should only apply to product providers.

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