June Smith at the Professional Planner Licensee Forum

The Australian Financial Complaints Authority has responded to research released by ASIC highlighting the need for improved complaints processes by reminding advisers it will be monitoring internal dispute resolution closely and reporting any compliance breaches.

The regulator’s report, released last week, looked at the “barriers and difficulties people face in approaching and navigating the complaints process” and contained several key findings, including:

  • Just 45 per cent of complainants who received an unfavourable outcome got an explanation of the decision the firm made against them
  • Only 21 per cent of complainants whose complaints were not resolved in the timeframe ASIC’s guidance sets had the external dispute resolution (EDR) process explained to them.

June Smith, who is the lead ombudsman for investment, advice and superannuation at AFCA, says the latter point is a big problem.

“We are concerned by the timeliness of decisions coming out of internal dispute resolution [IDR] and the reasons being given to consumers as well,” Smith revealed.

There is no excuse, she says, for not explaining to clients how the internal and external dispute resolution processes work.

“Firms should have thought about training their staff on what AFCA is and the EDR process,” she says.

Smith is adamant that the transition from three complaints bodies to AFCA, which was completed on November 1, is no excuse for advice firms to lag behind.

“We know that there has been a transition period from the traditional EDR schemes to AFCA,” Smith says, “but it should absolutely be easier now to explain to clients that there should be one single scheme for financial service complaints and that will simplify and strengthen access to free EDR for consumers.”

The real questions

Smith says ASIC’s report indicates “deep-seated problems” with the way firms deal with complaints and suggests there are “cultural issues” behind it.

Of all the people who considered making a complaint, 92 per cent did not go through with it, ASIC states. Of those, almost half “did not think [complaining] would make a difference or it was not worth their time”, which is something Smith says should make firms ask some questions about just how good their complaints process is.

“What’s the culture within your business?” Smith asked. “Are you actually open to our receiving concerns from your clients? Are you acknowledging those concerns and acting on them quickly and effectively?”

The full ASIC report identifies customer service, along with fees and charges, as the main things people complain about.

“To me, that raises the question are we adequately explaining our fees and charges to clients and do they understand how they’ll be applied as we provide services to them,” Smith says.

Three golden rules

Smith explains that AFCA will be taking a more proactive approach, working with firms to improve their IDR framework and reporting back to the regulator on systemic issues and “the root causes of complaints”.

“The AFCA board has been very clear that it won’t just be in the business of resolving individual disputes, but will very much be helping members and industry improve internal dispute resolution practices so they can minimise disputes coming through,” she says.

Smith explains that there are three things advice firms need to focus on to ensure compliance.

“The first thing we want to see is an effective complaints register; not just a recording that there has been a concern, but what that concern was about and how it was resolved,” Smith says. “Then, in EDR letters that explain to the client how the outcome was reached, we’d expect to see adequate reasons for those decisions as well. And, thirdly, clear explanations of the rights a consumer has when it comes to AFCA if they are still not satisfied with the outcome.”

Tahn Sharpe is a Sydney-based financial services journalist with a background in financial planning. He writes on advice, superannuation, investment, banking and insurance issues, is a certified SMSF Adviser and holds an Advanced Diploma of Financial Planning.
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