How to reduce the risk of an AFCA ruling
Taking immediate action to rectify a complaint can stand in an advisers’ favour with the Australian Financial Complaints Authority (AFCA), even if the complainant rejects the offer.
According to the latest AFCA determination results data for cases in the fourth quarter of 2022, one particular case hinged on a firm’s efforts to ‘make good’ with a client.
In this determination, the Queensland wealth management firm sold a client’s shares without authority. The decision indicated the firm may have intended to provide a record of advice but executed the transaction before any advice could be provided.
On realizing the error, it offered the buy back the shares and cover all associated costs including brokerage fees and tax liabilities.
However, the option was rejected by the client and he later made a complaint to AFCA to seek compensation of $98k to reflect the capital appreciation, dividend payments and associated tax credits he had missed out on, had the shares not been sold.
Stating its outcome, AFCA ruled in favour of the financial organisation as the complainant firstly, rejected the firm’s offer and secondly, did not opt to buy the shares back himself.
AFCA said: “While the financial firm breached its duty, it made an immediate offer to rectify the situation which was declined by the complainant. Combined with the likely CGT liability had the complainant retained the bank shares and later sold at a higher unit price, the complainant is in a better position than he would have otherwise been.
“As the complainant did not accept [the firm’s] buyback offer on 21 May, 2020 or take any further steps to mitigate the loss arising from the unauthorised sales, it would not be fair to require the financial firm to compensate the complainant for future capital gains, lost dividend income or associated imputation tax credits.”
AFCA also noted it expected complainants to take reasonable steps to minimise or mitigate their own losses and the compensation could be reduced if they did not do so.
Therefore, instead of the $98k that the complainant was seeking, AFCA ruled the firm should pay around $5k to cover the complainant’s accrued tax liability.
Commenting on the case, Michael Miller, financial planner at Capital Advisory, said: “This shows exactly what you should do when you make a mistake and how that can impact a later complaint.
“The complainant declined the offer and this was an important factor in seeing the complainant’s claim for future share returns from those shares denied.”
Last week, it was announced that 75% of advice and investment complaints to AFCA related to the collapse of Dixon Advisory.
AUTHOR
Laura Dew
Recommended for you
Having sold Madison to Infocus earlier this year, Clime has now set up a new financial advice licensee with eight advisers.
With licensees such as Insignia looking to AI for advice efficiencies, they are being urged to write clear AI policies as soon as possible to prevent a “Wild West” of providers being used by their practices.
Iress has revealed the number of clients per adviser that top advice firms serve, as well as how many client meetings they conduct each week.
Morningstar has made two business development appointments to drive the growth strategy of its financial advice software, AdviserLogic.
The only way to win at AFCA is to do what Dixon's is doing. Wind up, declare bankruptcy and then pass the liability onto all good honest advisers to fund any claims under the CSLR. Otherwise AFCA is a kangaroo court, who work closely with the client to ensure they can find against the adviser.
So the point being there is no disincentive against consumers trying their luck to get more with AFCA? and no incentive to reasonably resolve things by the FF? - because the outcome would have been the same - unless AFCA admits penalising the client for wasting everyone's time?
This is actually a poor reflection on AFCA and in this media driven clown word no one can see it. AFCA should have decided early on that it was simply vexatious and the matter had been resolved reasonably by the Fin Firm.