Causes of complaints

The latest AFCA snapshot of investment-related complaints shows that the most frequent issues are:

• Misleading product/service information;
• Inappropriate advice;
• Failure to follow instructions/agreement;
• Failure to act in client’s best interests;
• Service quality.

AFCA has not provided an analysis of these issues but by looking at past AFCA decisions and ASIC Enforceable Undertakings as well as the FASEA Code of Ethics  it is possible to make some observations.

FASEA Code of Ethics

These issues indicate a failure to follow the FASEA Code of Ethics which requires financial advisers to act in a way that demonstrates, realises and promotes the following five values:
(a) Trustworthiness;
(b) Competence;
(c) Honesty;
(d) Fairness; and
(e) Diligence.

FASEA’s Code of Ethics Guidance says “diligence” requires a financial adviser to exercise due care and skill in the way they:

• engage each client;
• understand each client;
• diagnose each client’s needs and issues;
• scope or limit the professional services they will provide each client;
• develop strategy solutions and recommendations for each client;
• develop product and service solutions and recommendations for each client;
• ensure the strategy and product solutions they provide to each client are fit for purpose and are
intended to improve their client’s financial well-being;
• make required disclosures to each client in their Financial Services Guide, Statement of Advice and
Record of Advice and in providing Product Disclosure Statements and Investment Memoranda;
• implement agreed recommendations;
• engage each client to deliver on-going services (including reviews) if appropriate;
• undertake record-keeping in respect of the professional services they provide each client; and
• meet their obligations in the law in respect of the advice they provide to each client including:
• best interests’ duty;
• appropriateness of advice;
• prioritisation of client’s interests;
• additional requirements for product replacement recommendations; and
• Australian Taxation laws.

Communication problems

Most complaints result from the adviser not having a client-focused mindset. This is evidenced by poor communication and defective relationship management. It can involve compliance breaches, failure to complete tasks, conflicts of interest and duty, failure to manage expectations, failure to return calls, defensive behaviour and procrastination. All of these can cause stress and anxiety for clients, leading to complaints.

Record-keeping

Often complaints arise from poor record-keeping and lack of evidence about fact-finding and research. Advisers are accountable for the advice they give and therefore must understand the client’s objectives and tailor their advice accordingly. They must satisfy their Know Your Client obligations.

Advisers must make reasonable enquiries into clients’ relevant personal circumstances prior to giving advice, consider and properly investigate the subject matter of the advice, and provide advice that is appropriate to the clients.

They must conduct a reasonable investigation into alternate financial products that might achieve and meet clients’ objectives and needs most.

They must provide the service their client agreement says they will provide.

Advice

Giving advice involves explaining the risks, the process, the timeframe, the outcomes, the options and the costs.

They need to tell the client all the things the adviser would want to know if they were the client.

Advisers must not recommend the services of a related party to create extra revenue for themselves.

In the case of long-term clients, it is important to review their objectives yearly and keep a record of any changed advice and circumstances.

Consequences

As well as the financial adviser paying the costs of an AFCA complaint AFCA can report matters to ASIC which could require an Enforceable Undertaking, impose conditions on their licence or cancel their licence.

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Author: David Jacobson
Principal, Bright Corporate Law
Email:
About David Jacobson
The information contained in this article is not legal advice. It is not to be relied upon as a full statement of the law. You should seek professional advice for your specific needs and circumstances before acting or relying on any of the content.