Record 96,987 complaints lodged with AFCA
Financial advice firms are "problematically" sidestepping compensation payments after the Australian Financial Complaints Authority (AFCA) hands down a decision, using the excuse that they do not have professional indemnity insurance (PII).
Out of 5400 decisions AFCA delivered in the 2023 financial year, there were 40 instances of non-compliance.
While this is not a high portion, more worrying is that the instances are prevalent in financial advice, AFCA lead ombudsman for investments and advice Shail Singh told yesterday's PritchittBland end of financial year event.
The lack of PII is generally the reason advisers are not paying up, Singh stated, and is telling of a system that is not working because once the decision is final, AFSLs must pay the complainant.
"A financial advice firm will say that it can't pay [AFCA] because it doesn't have the PI coverage. And PII isn't required to be members of AFCA. It's problematic."
Sometimes the advice firm will end up in liquidation and then "phoenix into something else". It is then reliant on ASIC to take action by way of withdrawing licences.
"But even then, [advisers] can turn up elsewhere who have engaged in this sort of conduct. So that's another problem in the system I think we really need to work on trying to improve."
During FY23, AFCA received 4840 investment and financial advice complaints, up 51% year on year.
However, 1726 related to bad advice from Dixon Advisory and 656 came from foreign exchange-related complaints for Best Leader Markets.
Stripping these out, there were 2458, investment and advice complaints, representing a total decrease of 23%. About 450 related to financial advice.
Investment and advice complaints capture financial advice, managed funds, timeshare, stockbroking, horseracing syndicates, and crypto.
"The relatively low number of complaints received by AFCA relating to advice is reflective of the maturity of the industry, in particular post-Hayne Royal Commission," Singh says.
"Over the past few years, AFSLs have come to see dispute resolution as an essential part of the system in which they operate. And pleasingly, some of the big operators who used to take a very adversarial approach to us, now work with us and actually try to learn from the decision.
"In fact, they invite us to talk to the determinations so they can learn from it. Now, there are still a handful that take a litigious approach. It doesn't work because it just slows things down. And it makes it more costly for the financial firm, but that's getting less and less."
Scams, financial difficulty claims on the rise
The number of complaints that arose from the superannuation sector soared 31% to 6957.
A large chunk of the complaints stemmed from super funds and insurers delaying the payment of death benefits. This rose a whopping 136% annually.
Singh commented that many super funds still make it difficult for members to find basic information.
"Some of the information still remains obscure. It's very hard to see for example, what your returns were over the last year, over the last six months."
As an example, a farmer came to AFCA furious thinking he'd lost money, when the opposite was true.
"He was making a profit. When we explained that to him the dispute disappeared."
On a brighter note, life insurance complaints trended down 24% to 1898, while general insurance complaints skyrocketed 50% to 27,924.
From the total 96,987 complaints AFCA registered in FY23, the impact of the cost-of-living crisis was most prominent, especially in the last three months. Complaints involving financial difficulty rose by 9% year on year to 4849. These shot up 31% in the June quarter.
Home loan complaints rose 10% annually but grew 19% quarter on quarter. Credit card complaints rose 15% year on year and more than doubled at 34% quarter on quarter.
Buy now pay later (BNPL) complaints were up 57% annually and jumped 56% the June quarter.
Personal transaction accounts had the lion's share of the total complaints (13,781), overtaking credit cards (10,555).
AFCA received 6048 scam-related complaints, a 46% rise on the previous year, averaging 504 complaints a month.
All in all, $253.81 million in compensation was paid in the period.
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