Annual Review 2021–22
Contents
- About this Annual Review
- Year at a glance
- Acknowledgement of country
- Board Chair message
- Chief Executive Officer and Chief Ombudsman message
- Organisational overview
- AFCA Independent Review
- Complaints
- Who complained to AFCA?
- Overview of complaints
- Open cases
- Closed cases
- Banking and finance complaints
- Buy now pay later
- Financial difficulty complaints
- Scams
- Small business complaints
- General insurance complaints
- Significant events
- Life insurance complaints
- Superannuation complaints
- Investments and advice complaints
- Cryptocurrency
- Complaints lodged by consumer advocates and financial counsellors
- Legacy complaints
- Complaints outside AFCA’s Rules
- Systemic issues
- Code compliance and monitoring
- Previous schemes
- Engagement, awareness and accessibility
- Corporate information
- AFCA General Purpose Financial Report 2021–22
- Appendix 1
- Glossary
Investments and advice complaints
Between 1 July 2021 and 30 June 2022
3,207 complaints received
33% resolved at Registration and Referral stage
Investments and advice complaints received
Percentage of investments and advice complaints resolved at Registration and Referral stage
Top five investments and advice complaints received by product
|
Product |
2018–19 1 |
2019–20 |
2020–21 |
2021–22 |
|---|---|---|---|---|
|
Shares |
226 |
528 |
950 |
669 |
|
Contracts for difference |
59 |
124 |
417 |
646 |
|
Superannuation fund |
171 |
451 |
302 |
272 |
|
Foreign exchange |
845 |
759 |
431 |
260 |
|
Self-managed superannuation fund |
228 |
345 |
272 |
259 |
Top five investments and advice complaints received by issue
|
Issue |
2018–19 1 |
2019–20 |
2020–21 |
2021–22 |
|---|---|---|---|---|
|
Interpretation of product terms and conditions |
78 |
76 |
100 |
654 |
|
Service quality |
118 |
380 |
674 |
570 |
|
Failure to follow instructions /agreement |
701 |
575 |
229 |
332 |
|
Failure to act in client's best interests |
212 |
469 |
525 |
281 |
|
Inappropriate advice |
323 |
585 |
534 |
241 |
1 AFCA commenced on 1 November 2018. The 2018–19 financial year covers an 8-month period (from 1 Nov 2018 to 30 Jun 2019). Year-on-year changes between 18–19 and 19–20 have been calculated pro rata using monthly averages.
2,890 complaints closed
Average time to close a complaint 106 days
Investments and advice complaints closed
Average time to close a investments and advice complaint in days
Stage at which investments and advice complaints closed
|
Stage |
2018–19 1 |
2019–20 |
2020–21 |
2021–22 |
|---|---|---|---|---|
|
At Registration |
443 |
1,056 |
1,148 |
966 |
|
At Case Management |
354 |
1,102 |
938 |
717 |
|
At Rules Review |
217 |
1,308 |
584 |
630 |
|
Preliminary Assessment |
54 |
328 |
333 |
235 |
|
Decision |
27 |
467 |
462 |
342 |
Average time taken to close investments and advice complaints
|
Time |
2018–19 1 |
2019–20 |
2020–21 |
2021–22 |
|---|---|---|---|---|
|
Closed in 0–30 days |
303 |
658 |
666 |
595 |
|
Closed in 31–60 days |
317 |
975 |
779 |
731 |
|
Closed in 61–180 days |
466 |
1,798 |
1,352 |
1,047 |
|
Closed in 181–365 days |
9 |
653 |
499 |
267 |
|
Closed in in more than 365 days |
0 |
177 |
169 |
250 |
1 AFCA commenced on 1 November 2018. The 2018–19 financial year covers an 8-month period (from 1 Nov 2018 to 30 Jun 2019). Year-on-year changes between 18–19 and 19–20 have been calculated pro rata using monthly averages.
AFCA can consider complaints about the following investments and advice products:
- derivatives
- financial product advice and services
- managed investment schemes
- securities
- self-managed superannuation funds.
The types of issues and problems AFCA can resolve include:
- advice that wasn’t in the complainant’s best interests
- incorrectly applied fees, commissions or other charges
- misleading product information
- failure to correctly follow a complainant’s instructions
- unauthorised transactions.
Key insights:
- With a couple of notable exceptions, investments and advice complaint numbers have continued a downward trend.
- The trend is particularly evident in the financial planning area.
- The areas that have seen an increase in disputes are contract for differences and cryptocurrencies.
- Increases in complaints are most likely due to the increased uptake of these products during COVID-19 lockdowns and increased publicity in the media about cryptocurrencies.
AFCA received a total of 3,207 investments, and advice complaints in 2021–22, which was 4% of the total complaints received by AFCA.
There were 2,890 investments and advice complaints closed during the year.
Of the complaints closed, 33% were resolved at Registration and Referral, 25% were resolved at Case Management and only 12% proceeded through to decision.
Forty-six per cent of complaints were closed within 60 days. However, the average time to resolve a complaint was 106 days, which reflects the complex nature of complaints in the investments and advice space.
The most complained about financial firm types in relation to investment and advice products were foreign exchange dealers (568), followed by financial advisers/planners (506) and derivatives dealers (417).
Shares (669) and contracts for difference (646) were the most complained about products.
The top issues raised were interpretation of product terms and conditions (654) and service quality (570).
The industry can continue to reduce complaints overall by effective communication with clients, and ensuring consumers understand the products they are entering. In the contracts for differences space, AFCA has a number of disputes regarding ASIC’s Regulatory Guide 227 Over-the-counter contracts for difference: Improving disclosure for retail investors.
Financial firms should continue to work on their procedures to ensure consumers are suitable to trade these complex products.
There continues to be significant improvements in the financial advice area as standards have lifted; however, some firms continue to resist cooperative engagement with AFCA, which leads to detrimental outcomes for consumers and the relevant firm alike.
Many of the disputes in this area are due to systemic issues with a business model, often involving a conflict.
“You did an incredible job with my case, as I didn’t think I was going to get any money back, so thank you again for your hard work and dedication in pursuing my case and having an amazing outcome for me.”
Case study
Background
The complainant held a cryptocurrency trading account with the financial firm. He said he was the victim of an initial coin offering (ICO) scam orchestrated by an organisation named Company K.
He said he used the financial firm’s platform to transfer the equivalent of AUD119,550 worth of bitcoin to Company K, believing he was investing with a legitimate company. Since the transfer, Company K stopped responding to the complainant and the funds are no longer available.
The complainant said the financial firm should have alerted him to the potential scam and should not have allowed the transfer of his bitcoin to Company K. He is requesting compensation for his losses of AUD119,550.
The financial firm said that due to the anonymous nature of cryptocurrencies, it is unable to identify recipients that are not using its platform and is unable to identify the owners of cryptocurrency addresses. Further, it says, it warns against transfers to unknown recipients and provides adequate security recommendations to its customers.
Findings and outcome
The relationship between the complainant and the financial firm is contractual. The financial firm is not the complainant’s fiduciary and does not have an obligation to make investigations on the complainant’s behalf to ensure the legitimacy of investments he wishes to make. The Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) does not impose such an obligation either.
The financial firm’s obligation to act with due care and skill when executing client instructions requires that it not turn a blind eye if it is on notice of a real possibility of fraud. However, this does not place an obligation on the financial firm to have data scientists and analysts in place to monitor transactions and identify unusual transactions.
The ombudsman accepted the transactions may have reflected unusual account activity for the complainant. She found, however, that this alone did not place the financial firm on notice of the possibility of fraud. The judgment of when a financial firm is on notice must be established on the facts of a particular case and may rely on a range of factors, in particular, circumstances that gives rise to a legitimate suspicion. The ombudsman was not satisfied there were sufficient factors to have put the financial firm on notice in this instance.
While the ombudsman noted the financial firm had access to alerts, such as scamwatch.gov.au , there was no information to support a finding that this would have put the financial firm on notice of the real possibility of fraud occurring. Company K did not appear on this alert at the time of the complainant’s transactions.
Further, the ombudsman found that when the complainant queried the financial firm’s knowledge of Company K, it responded that it had no knowledge and the complainant would need to conduct his own due diligence. The ombudsman was satisfied that this clearly alerted the complainant that the financial firm did not endorse or know of Company K. The complainant held concerns about the legitimacy of Company K at the time of instructing the transfer, but still elected to proceed. The complainant’s decision to proceed with the transaction was not the responsibility of the financial firm.
Case studies are used to demonstrate AFCA’s approach to an issue and have been simplified for length and clarity.
Case study
Background
Mr K and Mrs K were individual complainants as well as directors of a self-managed superannuation fund (SMSF) corporate trustee company, collectively known as the complainants. The complainants said the financial firm provided them with inappropriate advice.
In July 2015, the complainants sought personal advice on retirement planning from the financial firm. The financial firm advised the complainants to:
- establish an SMSF
- partially roll over superannuation funds invested in APRA-regulated funds
- borrow to purchase a property within the SMSF.
The complainants agreed to proceed with the financial firm’s advice and established the SMSF, as advised, with a balance of $140,000. They then entered a contract of sale and paid a $39,500 deposit for a property known as ‘Illuminate’.
When construction of Illuminate was completed around October 2016, the complainants were unable to obtain finance to settle to the purchase.
The financial firm said the strategy was appropriate, and only failed because the complainants resigned from their respective employment. This meant they were not able to secure financing. The complainants also withdrew $44,225 from their SMSF in February 2017, which resulted in a smaller balance.
The financial firm was able to find another buyer for Illuminate and obtained a refund of the initial deposit back on behalf of the SMSF. The complainants were not satisfied and sought $95,000 in compensation.
Findings and outcome
The Ombudsman found that the financial firm’s advice was inappropriate because:
- the advice was based on unclear goals
- an SMSF was not a cost-effective vehicle for the complainants
- the complainants had no need for an SMSF
- gearing to invest in a single asset was inconsistent the complainants’ risk profiles
- the SMSF property was highly leveraged
- the strategy lacked diversification.
Further, the Ombudsman found that in circumstances where the members of an SMSF have different risk profiles (Mr K had a ‘growth’ profile and Mrs K had a ‘moderate’ profile), the advice needs to be appropriate and have regard to the risk tolerance of each member. This did not occur.
In reaching their conclusion the Ombudsman also had regard to ASIC guidance (Information Sheet 205, published July 2015), which recommends that an SMSF have a minimum balance of $200,000 to be cost-effective (the complainants had a balance of $140,000).
The Ombudsman found that ‘but for’ the inappropriate advice, the complainants would have remained in their previous funds. While the financial firm had already returned the complainants’ deposit, the Ombudsman found the complainants were entitled to $29,526 additional compensation based on the better performance of their previous APRA-regulated funds.
Case studies are used to demonstrate AFCA’s approach to an issue and have been simplified for length and clarity.
