Australian financial services licence holders have many obligations, including an overarching responsibility to improve what they do continually and ensure that their staff are appropriately trained in all aspects of their business, including complaints.

Client complaints represent one of those areas where there are a number of lessons for everyone who deals with clients, no matter what the outcome.

The difference between just whinging and making a complaint

Recently, I was in a practice’s office as part of a regular compliance committee meeting. One of the advisers in the business asked me to have a look at a file that belonged to another adviser who was out of the office. The adviser in question had decided that a client was crazy and they were not going to deal with them anymore.

The client was making a lot of noises, was highly emotional and had not articulated their position well. The adviser had reacted to the client’s emotional outbursts by refusing to acknowledge the existence of this client or deal with the client. Worse still, the adviser had used plenty of colourful language when they told the rest of the office that the client should find another adviser. In this instance, the client was making a complaint and the adviser in question was going to ignore it, which would have been a breach of one of the conditions of an AFSL. Fortunately, this complaint was caught 41 days into the 45-day period to respond.

As a result of this discovery, we spent a lot of time at that meeting reviewing and testing the business’s internal dispute resolution processes and procedures to ensure they were in line with what was documented in its policies. We also had to make sure the staff were across their obligations.

What went wrong

An AFS licence holder is expected to know the difference between a complaint and an expression of dissatisfaction. Upon reflection, someone who was not emotionally invested in the file should have contacted the client right away and asked if they were making an expression of dissatisfaction about the markets or were unhappy about the advice they received (as it turned out, this was a complaint about performance). This process would be documented for the AFSL’s records (another condition for AFSL holders) so that in the event the matter escalated further, the licence holder could demonstrate to the Financial Ombudsman Service (FOS) that they were making attempts to address any potential concerns.

Fortunately, this matter was caught before it ended up at FOS, but that was good luck, rather than good practice. Had the AFS licence holder ignored this client and the client had gone to FOS, it could have exposed the licence holder to potential scrutiny from FOS and even from the Australian Securities and Investments Commission.

An AFS licence holder’s dispute resolution processes are defective if it is unable to identify and respond to a complaint, or refer the client to FOS in the event the complaint could not be resolved internally. Approaching this issue with clients is not always easy. Sometimes, clients clearly state that they want to make a formal complaint; however, when a client is not being direct, things become more difficult. Experience has told us that periods of volatility can bring out a client’s true risk profile. Some advisers feel that asking a client if they want to complain is inviting trouble but that is not always the case.

How to tell when a complaint is coming

Some of the warning signs that a complaint may be on the horizon include the following:

  • You are receiving a high number of emails from a client, compared with your other clients, in which the client appears to be in a panic and questioning your advice or the strategy
  • The client starts to request old statements or history about their investments
  • The client wants to depart from the strategy and drive the direction of the investments themselves.

The FOS has previously stated that if a client is worrying about an investment to the point that they cannot sleep, this will need to be addressed or reviewed to ensure the client is invested appropriately and in line with their risk profile. We are more likely to ensure a better outcome for everyone by getting on the front foot early, rather than writing off the client or ignoring the matter and hoping it will go away. Advisers who don’t do this will probably fall short of a number of obligations to their clients.

If this has got you thinking about the processes in your business, maybe it’s time to do something about it before this happens to you.

Rhett Das is a director of Integrity Compliance.


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