The new Australian Financial Complaints Authority (AFCA) has taken up the mantra of the former Financial Ombudsman in calling for the imposition of a compensation scheme of last resort on the basis that bannings and other actions imposed by the regulator don’t ensure consumers get their money back.
In doing so, AFCA pointed to $16 million in unpaid determinations affecting 246 consumers, with more than half the issues (52 per cent) relating to financial advisers.
In a submission filed with the Senate Economics Legislation Committee, AFCA said the current reality was that some consumers who took complaints to external dispute resolution (EDR) were awarded monetary compensation but ended up not being paid.
“This occurs typically when the financial firm has gone into liquidation or administration or their compensation arrangements fail to respond,” the submission said. “For example, the firm’s professional indemnity insurer may deny indemnity if there are a large number of disputes about similar conduct, conduct may fall within a point exclusion or the excess carried by the firm may be too high.”
It said AFCA could respond to a financial firm’s default by reporting the firm to ASIC and terminating its membership of AFCA but that “neither of these responses assists the unpaid consumer however”.
“An EDR mechanism is clearly not satisfactory if binding awards of compensation are not paid,” the AFCA submission said. “Consumers must have confidence that when things go wrong, they will be compensated when there is a decision made in their favour.”
“What can often get lost in this discussion is the impact that losses and unpaid compensation awards have on the lives of individual consumers, their families and small businesses. We consider that there needs to be a workable and acceptable compensation scheme of last resort to provide access to justice for consumers who do not receive awarded compensation for financial loss and fill the structural gap in the existing dispute resolution framework.”
Comments
Another disgrace for the financial planning/advice industry yet there are still idiots saying "most advisers are good people". Just a baseless one liner.
CPD , there are over 15,000 planners in Australia, this relates to a very small percentage of that amount. This does not prove most planners are not good people, so get off the high horse please, before you fall off it and hurt yourself.
it will be interesting to see what happens there are no planners left to balme for everything and everything is done direct and at the customers peril without the layer of protection offered by advisers. There wont be a need for compensation schemes at all because the client has only been given general advice (general, targeted, incomplete and selective bits of information tailored to mislead the client and make the sale at all costs).
Of course clients have the time, knowlegde and levels of intelegence to assess all their options and weigh the advantages of one investment/insurance policy against the next and will all make prefectly rational decisions when deciding their financial future. They wont be swayed by flashy commercials or paid for advertising on A Current Affair for get rich quick schemes.
Why would anyone want an adviser anyway, when I can get stock tips for free at the pub, the union officials will handle my super and ill get my insurances from those companies offering no medical questions on the TV.
I would love to know the percentage breakdown between 'IFA's and 'Aligned' Planners that have amounts outstanding.
I'm not a betting man but I'd think the short odds would be that the bulk of unpaid determinations would be on IFAs who are supposedly 'better' than aligned. There is a bit of extra security that comes with being aligned.
There sure is - your overlord insto has deep pockets, flushed from flogging product to consumers, hence a Royal Commission. They pay out your complaint before it goes any further. As for IFA’s yes we are better, we don’t sell, we advise and we don’t get a bonus.
Hi Felix,
I think you've just proved my point.
Aligned advisers complaints don't make it to FOS/AFCA due to 'deep pockets', but IFA complaints to and when they get a determination they don't pay.
Tell me - who gets the better experience out of this - the IFA client or the aligned client?
Also, please remind me of how good the IFA's poster boy in Sam Hendo went at the RC?
Hi Ted,
I wouldn't call Sam Henderson a poster boy for anything, having met the man several times I was never overly impressed by anything he had to say.
It was the insto's that got us into this mess in the first place, flogging products to clients which has created your deep pockets. That's a horrid model and a terrible outcome - and to your point I'd argue that if there is a need to settle a complaint before it gets to FOS, no one has had a good experience anywhere along the way.
Remind me how good IOOF, AMP, NAB, CBA, Westpac and to a lesser extent ANZ are looking right now? Let us not forget Don Nguyen, the poster boy for aligned complaints - $160m and counting.
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