Paperwork and communications the key to winning in front of AFCA

Good paperwork and client communications will likely sit at the heart of how well financial advisers navigate the Australian Financial Complaints Authority (AFCA) regime in the event of a dispute with clients over advice given in the context of uncertainty generated by the COVID-19 pandemic.

That is the bottom line assessment of AFCA ombudsman, Shail Singh who told Money Management’s Retirement Incomes webinar that the dispute resolution authority was well aware of the manner in which events such as the pandemic or, indeed, the Global Financial Crisis (GFC) could drive disputes between clients and financial advisers.

“The GFC is a great comparison and we did get lots of disputes. I think when the market turns south we see lots of complaints,” he said while emphasising that communicating clearly with clients was a key for advisers in the current environment.

“We find that the ones that communicate with their clients rather than changing strategy or taking a knee-jerk reaction tend to do best,” Singh said. “Often disputes end up with AFCA due to a relationship breakdown which comes from not communicating and having the meeting in the first place.”

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However, Singh made clear that if clients were simply complaining purely about relative investment performance they were unlikely to get a significant hearing from AFCA  

“If the dispute is about investment performance only we must exclude it under our rules,” he said. “But people will complain and if we’re convinced it is not purely about investment performance we’ll then look to determine whether the best interest duty was satisfied – whether they [advisers] adequately understood the client, the risk profiling was correct, the goals were correct, and the advice was correct.”

Singh said that AFCA ombudsmen such as himself understood the context of the environment within which financial advisers were currently trying to work “that it is a very, very difficult time for advisers at this time but we are also conscious that people will point to the adviser unfairly sometimes”.

“The short answer is we’re conscious of the environment in which financial advisers are operating at the moment, we know that people will turn and point the finger at the advisers and sometimes unfairly in cases of poor investment performance,” he said.

“What we’ll be doing is looking at the basics – seeing whether they knew the client, whether they had risk-profiled them correctly, whether the advice was in line with the goals and objectives of the particular person.”