Investigating adviser guilt goes beyond SOAs

The Australian Financial Complaints Authority (AFCA) takes into account “the whole picture” when determining an adviser’s guilt or innocence, said AFCA’s lead ombudsman for investments and advice Shail Singh.

Speaking on a recent podcast, he explained that AFCA’s investigation actually extends well beyond a statement of advice (SOA).

“We absolutely have to look at the whole picture,” Mr Singh said.

“I think people fall into this trap of saying, ‘Well, the SOA said that so therefore that’s definitive’, and whilst it may be, you do need to look behind that, you need to see the history of how we got to the SOA.”

Back in May, asked about the Quality of Advice Review and the changes it recommends to SOAs, Mr Singh said while SOAs are important, overly long documents can reduce clarity.

“If you get a 120-page version of the SOA, it can be very hard to understand what the advice was and certainly to get to the key point of the informed consent by the consumer to understand what is being recommended to them, and the risks involved,” Mr Singh said.

“Records of advice, not records of advice in the legislative sense, but some sort of record of what was stated is important and will continue to be important when we look at the steps.”

The government has since announced that the new-look SOA will adopt a “principles-based advice record” but will need to address four key principles: the subject matter/scope, the advice – such as product recommendations and strategies, the reasons for the advice, and the cost of advice to the client and/or benefits received by the adviser.

‘AFCA needs to evolve’

Mr Singh also explained that while AFCA generally only deals with a handful of bad eggs, sometimes “a good adviser will have a dispute and we have to deal with it”.

He revealed that there are some 500 advice-related complaints made to AFCA per year.

“We do get a lot more in the investments and advice area, but it’s only about 500 at the moment in advice, so it’s great story for advisers.”

Moreover, the ombudsman stressed the need for AFCA to evolve with advisers.

Mr Singh said that while he is not criticising the previous Financial Ombudsman Service (FOS), AFCA is very different from its predecessor.

AFCA was launched on 1 November 2018 following the 2017 Ramsay review, which recommended the establishment of a single scheme to handle disputes formerly handled by the FOS, the Credit and Investments Ombudsman, and the Superannuation Complaints Tribunal.

According to Mr Singh, this needed to happen because the “the adviser of today is very different to the adviser 13 years ago”.

“I’m not criticising the previous FOS, but AFCA is new, AFCA has a different way of looking at things, and under my leadership, I would like a balanced approach. I think that’s what’s required at the moment,” he said.

Last month it was reported that over its five years in operation, AFCA received a total of 402,346 complaints and secured $1.18 billion in compensation or refunds for consumers and small businesses.