Lawyer seeks fairness for advisers, urges AFCA to adjust complaints process

The Australian Financial Complaints Authority (AFCA), which is the non-government ombudsman service that provides dispute resolution services to individual consumers and small businesses when they are not able to resolve complaints directly with financial firms, launched a consultation on proposed changes to its official rules and operational guidelines in March.

In a submission to the consultation, director of Halsey Legal Services, Fiona Halsey, urged AFCA to exclude all wholesale advice clients from its complaints process.

“There is a mistaken view that is widely held within the financial services industry that non-retail clients cannot make a complaint to AFCA,” Ms Halsey said.

Non-retail clients include wholesale clients (people who have a certificate from their accountant, stating that they have either gross income in each of the last two years of at least $250,000; or net assets of at least $2.5 million), sophisticated investors (i.e. considered to have sufficient experience to make their own decisions), and professional investors (have $10 million, or in general terms, carry on some kind of financial services business).

According to Ms Halsey: “All of these people should be excluded from making complaints to AFCA.”

“The general idea with AFCA to start with was supposed to be a low value, simple claims resolution procedure for retail clients,” she told ifa.

The independent review into AFCA was tabled in Parliament in November 2021, which included 13 recommendations for the ombudsman that largely focus on its “decision‑making processes” in areas that include fairness, independence, efficiency, timeliness, jurisdiction, funding, transparency, and accountability.

Recommendation 6 of the review stated: “AFCA should exclude complaints from sophisticated or professional investors, unless there is evidence that they have been incorrectly or inappropriately classified.”

As things stand currently, there is a lack of consistency in the way that advice clients can pursue complaints.

If an Australian financial services licensee (AFSL) has only a wholesale authorisation, it is not required to be a member of AFCA and none of its clients, whether they are wholesale, sophisticated or professional, can make a complaint to AFCA.

However, if an AFSL has a retail and wholesale authorisation, it is required to be a member of AFCA. That means that all its clients (retail, wholesale, sophisticated, and professional) can make a complaint to AFCA.

AFCA currently has discretion to exclude a complaint from a non-retail client, however, at the time the review’s final report was handed down, the body had never exercised this discretion.

The final report added that the review “does not consider it appropriate that AFCA be required to exclude all wholesale investors”.

“Where possible, AFCA should look to more actively exercise its existing discretion to exclude wholesale complaints in appropriate circumstances. As they stand, the operational guidelines are more restrictive of AFCA’s discretion than they should be,” the report said.

“If a complaint is lodged by an apparent wholesale client, and AFCA has made sufficient enquiries to rule out that they have been incorrectly or inappropriately classified by the financial firm, AFCA should have the discretion to exclude the complaint.”

As part of AFCA’s proposed amendments, the ombudsman said it would “clarify its existing approach to the exercise of discretion” and that its rules do not require change in order to implement the recommendation.

However, Ms Halsey said this does not go far enough.

“The average member of AFCA is a small business. Quite often, you find that the complainant has more assets than the business, and the planner is completely at the mercy of what’s happening here,” she told ifa.

Ms Halsey added that “AFCA appears to propose that it will consult more with parties in respect of complaints by sophisticated and professional investors before excluding the complaint”.

“AFCA itself says that there are few complaints by sophisticated and professional investors. It proposes no change at all in respect of wholesale clients (i.e. those with an accountant’s certificate), who make up the bulk of non-retail clients,” she said.

Ms Halsey also said that it is important to consider the human cost of advisers going through the complaints process.

“An AFCA complaint often has a bad effect on a small financial firm,” she said.

“It is not unusual for the cost to a financial firm of a complaint to be between $25,000 and $50,000 in terms of AFCA fees and legal representation, even when AFCA finds in favour of the financial firm.

“It has an effect on morale and saps the proprietors’ and staff time.”

Importantly, under Ms Halsey’s proposed changes, wholesale clients would still have access to the courts, which she said are the appropriate forum for disputes between financial firms and non-retail clients.