The Australian Financial Complaints Authority (AFCA) has been admonished by a NSW Supreme Court judge over the manner in which it appeared to have stepped beyond its remit by encouraging a complainant to file a complaint against a financial services firm, DH Flinders.
At the same time, the judge also established a significant legal precedent by making clear that firms should not be held responsible for the actions of their corporate authorised representatives if those representatives are acting outside of or beyond their authorisation.
Justice James Stevenson of the NSW Supreme Court held that DH Flinders could not be held responsible for the actions of its corporate authorised representative, Equitable Financial Solutions Limited (EFSOL) with respect to products with which DH Flinders had no connection and no knowledge.
Those products were the EFSO Ameen Investment Program which saw EFSOL placed into liquidation in late 2019 but gave rise to 127 complaints and debts of $21.8 million.
The court had heard that a number of complaints had been raised against EFSOL but that some of those complaints were only directed towards DH Flinders when an AFCA staffer drew the attention of complainants to DH Flinders’ status as has having granted authorised corporate representative status to EFSOL and suggested they join the company in the their complaints.
The court heard that the complainants would not have known of the DH Flinders corporate authorisation in the absence of having been informed of it by an AFCA representative who then suggested “as discussed, you may lodge a complaint against DH Flinders and I can assist you with lodging that complaint”.
Justice Stevenson said that “this was hardly behaving in a manner procedurally fair to DH Flinders nor in a in manner which was impartial”.
His honour suggested that counsel for DH Flinders had “was correct to submit that AFCA had here ‘entered the fray’ and was acting in an advisory relationship with the complainants”.
Justice Stevenson found that AFCA did not have contractual authority, jurisdiction or power to determine the complaints.
Comments
the judge has highlighted exactly why financial planning is such a disaster everyone acting beyond the remit of their authority, from dealer groups, regulators, product manufacturers etc who think what they are doing is the requirement of the law when clearly it is not the LAW.
AFCA, Choice, ASIC and Industry Super have all driven Adviser Regulation beyond the stratosphere and thus the costs too.
With Loonie Left wing ideology that clients know absolutely nothing and should never be allowed to lose a cent if anything ever goes wrong.
It’s always advisers fault for everything.
Paternalistic, unrealistic REGS are the result.
Great job AFCA, Choice, ASIC and Industry Super you should all have your wings seriously clipped.
Actually this is all going to their plan; ensuring IFA's become an extinct species and that the vertically integrated union super funds (and associated entities like IFM etc) have a clear run with no opposition and continue to charge their numerous levels of fees from member benefits. Aside from this one small slap on the wrist to AFCA, they all are viewing their progress to date as going along smashingly.
A licencee is responsible for the actions and activities of its AR's. If DH Flinders had no idea what EFSOL was doing, then it was not properly supervising its AR.
You have highlighted the big problem with the AR licensing model. It is impossible in practice for an AFSL holder to meet all their supervisory requirements over a completely separate business. The whole AR concept should be scrapped.
All representatives of an AFSL holder should be direct employees. Only then is the licensee likely to have sufficient control in relation to recruitment, standards setting, training, systems, monitoring, supervision, etc.
Totally agree with you Anon. Many of the so-called failures by financial advisers have been created by non authorised "advisers" such as property spruikers. There was no AFSL to supervise these. Real advisers are now responsible for the advice that they give and there no longer exists any real need for an AFSL to exist. We should all be "self-licensed" and will never be a professional until we are.
On a side note, this week a Professional Standards Officer from my Licensee agreed with an argument that I put to him on a client scenario that went outside our normal rules. He told me that I was well justified in exercising my professional judgement to go around the licensee's rules. I found this attitude very refreshing.
I agree with you.
I have a m fin plan, am a cfp(r), and passed the fasea exam. I don't need approval from the professional standards officer from my licensee to exercise my judgment which is based on substantial education, experience, and training I have received to determine what is and is not in the best interest of my client.
I alone should be the judge of that, as the expert, not some afsl licensee or their professional standards officer who doesn't have any education even remotely comparable to me. they don't know anything about the client or their personal circumstances, needs, goals, and objectives.
having to do that is indignation, and I am not prepared to suffer these fools any longer.
why do I need their authority or approval? this must change immediately.
easy tiger. tone down the bravado.
the AFSL regime is not going to go for a long while. and the AFSL's won't give up so easily, because they can continue to push the product.
unfortunately, their lobbying is so much more effective than (read they have a lot more money than us) than ours.
until the government, and those it nominates to conduct reviews actually understand the system we are not going to get any change.
I agree with you principally, that financial advisers should be licensed individually and there is a role for AFSL holders to play in providing us the service like what happens with Accountants as an example. but we will have to fight to get our independence, they won't let us go easily.
I'll take your post as OUR emancipation proclamation, but you know that it was very bloody.
they won't let us go easily, my friend. until then we are enslaved to the AFSL holders. they own us.
"enslaved to the AFSL holder" come on now. Why haven't you become Self Licensed now? The only advisers that should not be self licensed now are those 1) about to retire, within 3 years 2) just entered 3) Dodgy, can't follow a licensee policy and or want to double gear into a SMSF 4) have nil formal education 5) getting some kickback on a business cost in return for using a product . Which are you? Let me guess, you're too busy using that white label platform or some other subsidized business cost I suspect, but unhappy with an audit report about a spelling mistake on page 400 of a SoA.
Not a good model for an adviser. Something I sense they didn't tell you at AMP Academy.
This is the same game that FOS played. Hopefully, a legal smack around the ears might pull AFCA into line and actually show some impartiality when dealing with consumer complaints.
Unfair for the little guy, how are they supposed to know about the litigation against DH Flinders?
Good to see AFCA's eyes light up as soon as they see AFSL. They know an AFSL has PI cover, and will encourage people to take advantage of that. Clients are like "I didn't understand the advice" and get paid out. AFCA trying to implement FASEA standards is only going to exacerbate the situation too.
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