FAAA says advisers perceive AFCA bias

Mike Taylor

Managing Editor and Publisher

6 December 2023

The Financial Advice Association of Australia (FAAA) has told the Australian Financial Complaints Association (AFCA) that many advisers perceive AFCA’s process as being “very much biased in favour of the consumer”.

As well, the FAAA has said that perception extends to advisers feeling that when a product fails, “advisers are often the last party standing and thus bear a disproportionate share of the cost of complaints.”.

In a submission responding to AFCA’s proposed approach to determining compensation in complaints involving Financial Advisers and Managed Investment Schemes, the FAAA has made clear that AFCA should consider advisers’ negative perceptions and seek to address the issue.

Providing background to AFCA, the FAAA submission states:

“The practical reality is that a very small percentage of advisers have experienced a complaint that proceeds to AFCA. Based on AFCA matters that proceeded to a decision in the 2022/23 year, it is likely that less than 1% of financial advisers were impacted by this experience.

“Despite the very limited exposure to the AFCA complaints process, many advisers have a perception that the process is very much biased in favour of the consumer, and that when a product fails, advisers are often the last party standing and thus bear a disproportionate share of the cost of complaints. Financial advisers predominantly work in or operate small businesses, and as a result, losing a case at AFCA can have a huge financial impact on them (despite the contribution from PI insurance, given increasingly large deductible levels). Having a matter go to AFCA can also cause a great deal of stress and reputational damage, regardless of the outcome.”

“For all these reasons, it is important that documents like the draft approach provide as much context as possible and avoid the inclusion of statements that will be misunderstood. As it stands, how AFCA operates is not well understood by the advice profession, so a high level of understanding should not be assumed. It is certainly better for all stakeholders that advisers have a much better understanding of the AFCA complaints process and confidence in how AFCA operates. We have set out below, some suggested changes to improve the meaning and clarity of the draft approach to assist in achieving this outcome.”

The submission goes on to state that the AFCA discussion paper references the following matters that are not apportionable at law in relation to advice complaints:

• Failure to act in the clients best interests
• Inappropriate advice
• Failure to prioritise the client’s interests.

“As these matters make up the bulk of advice complaints, there would be very few advice complaints where the loss would be apportionable under the law. This feeds the perception that all compensation payable in an AFCA complaint will be borne by the adviser, regardless of fault by another party. It is vital that the application and scope are clear in AFCA’s approach to complaints involving financial advice and MISs,” it said.