Fund collapses fuel spike in AFCA advice complaints

The fallout from the Shield Master Fund and First Guardian Master Fund collapses has been further reflected in the latest complaints data from the Australian Financial Complaints Authority’s (AFCA’s) Annual Review 2024-25, with investment and advice complaints up by 18 per cent from the year prior.

According to the review, these complaints mainly revolved around the business models and practices used by financial firms including cold calling and pressured sales tactics, as well as the delivery of conflicted advice and “undiversified and common product recommendations to… [the] firm’s clients”.

Of the 4,193 investment and advice complaints received by AFCA more than 30 per cent were regarded as a failure to act in a client’s best interests, representing a year-on-year increase of 124 per cent. The authority partially attributed this result to its oversight of more Compensation Scheme of Last Resort (CSLR) cases in the last financial year, particularly related to financial advisers not acting in the best interests of their clients.

Self-managed super funds (SMSFs) and shares were also the subject of a large number of complaints (1,323 or 32 per cent and 1,168 or 28 per cent, respectively), which AFCA also connected to the spike in complaints regarding superannuation wrap platforms and managed investment schemes (MISs) as a result of the Shield and First Guardian fund collapses.

“Our complaints data points to systemic issues in advice models, particularly where conflicts of interest and inappropriate use of SMSFs are involved,” Chief Ombudsman and Chief Executive Officer, David Locke, said.

“This underscores the importance of the Compensation Scheme of Last Resort to ensure consumers have access to redress when financial advice fails to be in their best interest.”

The review also stated that the inaugural year of the CSLR had accounted for 24 per cent of AFCA’s investment and advice complaint-related decisions, with the authority confirming all complaints part of the scheme had been settled in the last financial year except those related to Dixon Advisory – “which [still] remains the largest batch of complaints AFCA has ever received”.

AFCA said 49 per cent of CSLR-eligible complainants were found in favour and received compensation totalling $117 million, while two per cent of insolvent and ineligible complaints were found in favour and awarded $6.8 million.

“Inadequate and conflicted financial advice models are a key driver of more decisions against insolvent financial firms and we are seeing more of this in high‑profile failures. Addressing these conflicted business models requires an industry‑wide response to reform the sector,” the review said.

“Complaints against insolvent investment and advice financial firms continued to grow, making 2024‑25 the second‑highest year on record, following the peak in 2022‑23 driven by the collapse of Dixon Advisory.

“To meet this growing demand, AFCA has expanded its workforce and streamlined its services. For complaints involving insolvent financial firms, we have worked closely with insolvency practitioners to obtain the information needed, reducing the burden on consumers.”