Annual Review 2023-24
Contents
- About this Annual Review
- Year at a glance
- Board Chair message
- Chief Executive Officer and Chief Ombudsman message
- Organisational overview
- Complaints
- Who complained to AFCA in 2023–24?
- AFCA Engagement with First Nations peoples
- Overview of complaints
- Open cases
- Closed cases
- Banking and finance complaints
- Buy now pay later
- Scam complaints
- Financial difficulty complaints
- 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
- Complaints outside AFCA’s Rules
- Systemic issues
- AFCA’s Code compliance and monitoring function
- Engagement, awareness and accessibility
- Corporate information
- AFCA General Purpose Financial Report
- Glossary
Between 1 July 2023 and 30 June 2024
Investments and advice complaints received
Top five investments and advice complaints received by product
|
Product |
2019-20 |
2020-21 |
2021-22 |
2022-23 |
2023-24 |
|---|---|---|---|---|---|
|
Shares |
528 |
950 |
669 |
703 |
905 |
|
Self-managed superannuation fund |
345 |
272 |
259 |
1,696 |
678 |
|
Mixed assets fund/s |
430 |
254 |
228 |
215 |
430 |
|
Cash management accounts |
54 |
87 |
143 |
233 |
218 |
|
Superannuation fund |
451 |
302 |
272 |
328 |
217 |
Top five investments and advice complaints received by issue
|
Issue |
2019-20 |
2020-21 |
2021-22 |
2022-23 |
2023-24 |
|---|---|---|---|---|---|
|
Inappropriate advice |
585 |
534 |
241 |
1,662 |
706 |
|
Failure to act in client’s best interests |
469 |
525 |
281 |
534 |
565 |
|
Failure to follow instructions/agreement |
575 |
229 |
332 |
951 |
304 |
|
Service quality |
380 |
674 |
570 |
371 |
298 |
|
Interpretation of product terms and conditions |
76 |
100 |
654 |
116 |
223 |
Investments and advice complaints closed
Average time to close an investments and advice complaint in days¹
Stage at which investments and advice complaints closed
|
Stage |
2019-20 |
2020-21 |
2021-22 |
2022-23 |
2023-24 |
|---|---|---|---|---|---|
|
At registration |
1,056 |
1,148 |
966 |
863 |
988 |
|
At case management |
1,430 |
1,271 |
952 |
848 |
1,041 |
|
At rules review |
1,308 |
584 |
630 |
337 |
1,809 |
|
Decision |
467 |
462 |
342 |
209 |
280 |
Time taken to close investments and advice complaints
|
Time |
2019-20 |
2020-21 |
2021-22 |
2022-23 |
2023-24 |
|---|---|---|---|---|---|
|
Closed in 0-30 days |
658 |
666 |
595 |
494 |
597 |
|
Closed in 31-60 days |
975 |
779 |
731 |
602 |
479 |
|
Closed in 61-180 days |
1,798 |
1,352 |
1,047 |
675 |
564 |
|
Closed in 181-365 days |
653 |
499 |
267 |
289 |
505 |
|
Closed in more than 365 days |
177 |
169 |
250 |
197 |
1,973 |
¹ This excludes complaints that were inactive for an extended period, for example, complaints that were paused because the financial firm was insolvent or due to court proceedings, and complaints that were previously closed and then re-opened.
Key complaint trends
Investment and advice complaints decrease
In 2023-24, AFCA received 3,559 complaints in this category, marking a 26% drop compared to the previous financial year.
All time low in complaints
Excluding complaints about Dixon Advisory and Superannuation Services, investment and advice complaints reached an all-time low at 2,709 complaints. This reflects the positive impact of enhanced education standards and increased professionalism within the industry, leading to fewer disputes.
Inappropriate advice remains the top issue
Despite the overall downward trend in advice complaints, inappropriate advice was the most complained about issue, accounting for 706 complaints (20% of the total).
Resolution and timeframes
Significant volume of complaints closed
AFCA closed 4,118 investment and advice complaints in 2023-24, more than the total amount we received for the year and helping reduce our backlog of complaints. This was an 82% increase in closures in comparison to last year. A large number of the closed cases related to the Dixon Advisory and Superannuation Services collapse.
Rules Review the top type of resolution
A significant portion of complaints (44%) were resolved at the rules review stage, where complaints are assessed against AFCA’s jurisdiction and procedural rules, often requiring more complex decision-making. This complexity is reflected in the average time to resolve complaints which was 129 days over the time period.
Industry trends and challenges
Issues with retail and wholesale classification
In both Contract for Difference (CFD) and advice areas, misclassification of clients as wholesale remains a recurring problem. Many CFD providers fail to adequately assess client suitability, resulting in inappropriate risk exposure. Wholesale clients do not benefit from ASIC’s product intervention orders, leading to increased risks, including excessive leverage for those who may be better suited as retail investors.
Confusion around Self-Managed Superannuation Funds (SMSF) classification
There is ongoing confusion in the advice space regarding the classification of SMSFs as wholesale. Some advisers incorrectly apply thresholds of $2.5 million in net assets or $250,000 income, instead of the $10 million limit specified in the Corporations Act 2001 for superannuation products. This misclassification exposes clients to unsuitable advice.
SMSF suitability concerns
Advice for clients with low balances to establish SMSFs continues to be a significant issue, often involving inappropriate recommendations and lack of diversification between asset classes. These disputes highlight the need for greater attention to the suitability of SMSF structures.
Life insurance advice disputes remain notable
While smaller in volume, disputes related to life insurance, TPD, Trauma, and Income Protection policies make up around 5% of all advice disputes.
Market volatility and complaint trends
Investment and advice disputes are often influenced by market conditions, and upcoming US and Australian elections may lead to increased volatility, likely resulting in a higher number of complaints in the near future.
Case study – Incorrect classification of SMSF as wholesale client
Background
The corporate trustee of a SMSF enrolled in a managed discretionary account (MDA) service, which was only available to wholesale clients. This service allowed financial firm X to carry out margin FX trading on behalf of the SMSF.
To facilitate the trading, a margin FX account with 1,000:1 leverage was opened with financial firm Z, under the SMSF trustee’s name.
The SMSF deposited $615,000 into this account, and financial firm X conducted the trades using a limited power of attorney granted by the SMSF. Unfortunately, the trading led to significant losses.
Complaint
The SMSF sought compensation, arguing that it should not have been classified as a wholesale client and should not have been allowed to trade with such high leverage.
Outcome
An AFCA panel found that the SMSF was wrongly classified as a wholesale client, as it had less than $10 million in assets and should have been treated as a retail client.
As a result, the SMSF should not have had access to the MDA service or a margin FX trading account with leverage above 30:1.
The panel determined that the SMSF suffered a loss of $442,520. However, due to the SMSF trustee’s director contributing to the loss by not acting with due care, the compensation was reduced by 33.3%, leaving $295,013.34 to be paid.
Case study – Documenting financial advice
Background
The complainant, who sought financial advice from a firm, was presented with options concerning their superannuation. The adviser recommended withdrawing a lump sum of $392,176.04 from their superannuation account and commencing an indexed pension.
At that time, the complainant had the choice of receiving a lump sum, a non-indexed pension, or a combination of both.
The complainant chose to follow the adviser’s recommendation to take the lump sum and start the indexed pension.
However, they later argued that this advice was inappropriate and that they should have been advised to start the pension without withdrawing a lump sum.
They claimed that this decision led to financial losses amounting to $290,208 and questioned the appropriateness of the advice given their long-term financial needs.
Complaint
The complainant alleged that the advice provided was unsuitable and that the financial firm failed to disclose all options accurately. They also sought a refund of fees paid for the advice.
Outcome
AFCA’s review determined that the financial advice provided by the firm was appropriate given the complainant’s circumstances and preferences at the time.
The firm had thoroughly documented discussions with the complainant, which indicated a clear preference for a lump sum to meet immediate capital needs, such as purchasing items and maintaining a cash reserve. The advice to withdraw a lump sum and commence an indexed pension was found to align with the complainant’s stated objectives, including generating sufficient annual income and meeting capital requirements.
The firm was also found to have adequately disclosed the available options and their implications, despite a minor inaccuracy in the Statement of Advice regarding the non-indexed pension amount. AFCA noted that while the advice could have been clearer, it did not impact the complainant’s decision to withdraw a lump sum.
Additionally, the firm had already refunded part of the fees previously paid by the complainant. AFCA concluded that the financial firm had met its obligations and that no further refund of fees was justified. The outcome was deemed fair as the advice provided was consistent with the complainant’s goals and the financial firm’s service standards.
