David Locke

The majority (94 per cent) of investment and advice members will either experience reduced or the same total annual fees under the proposed funding model for the Australian Financial Complaints Authority (AFCA).

The model aims to reduce the burden on small members like financial planning firms through its user-pays approach.

This means under the new system that 16 per cent will see a decrease in total annual fees, while 78 per cent will see no change.

AFCA has put this new model out for consultation which proposes including a single registration fee, a “simplified” complaints fee structure and the introduction of five free complaints per year to all members.

Under this model, 66 per cent of fees will be recovered from 2.5 per cent of AFCA members that represent 66 per cent of all complaints.

Overall, 98 per cent of advice firm members of the AFCA external dispute resolution (EDR) scheme will only pay their annual registration fee each year which is estimated to be $376.

AFCA chief ombudsman David Locke said in a media release the user-pays model will give firms control over the fees they pay by managing their complaints well.

“It’s a fair, transparent and equitable model that is supported by strong data and modelling. We have listened to what you have told us over the past few years, and this has been used to design a model that rewards good performance and early resolution, and apportions fees fairly based on use of AFCA’s services.”

Positive recognition for advice

The user-pay system benefits the advice sector which accounted for only 1,238 of the 70,510 total complaints (1.8 per cent) received by AFCA from 1 July, 2020 to 30 June, 2021.

AFCAs lead ombudsman for investments and advice Natalie Cameron said last November advice complaints continued to trend downwards.

“I’m please to say that looking at this early stage [we’re expecting] about a 33 per cent reduction,” she said.

Since AFCA’s inception over three years ago, complaints relating to inappropriate advice or advice that isn’t in client best interests have only resulted in a decision against an adviser just under 15 per cent of the time.

Last year Treasury conducted a review of AFCA which found the authority is “performing well in a difficult operating environment and a changing regulatory landscape”.