Australian consumers have little knowledge of the compensation avenues open to them following financial services misconduct and have little faith in financial advisers and regulators, according to a study by the Australian Securities and Investments Commission (ASIC).
ASIC’s Consumer Advisory Panel says the research was commissioned to ‘better understand the personal consequences of investors not being fully compensated and to help inform submissions to the Government’s review into whether a statutory compensation scheme should be introduced in Australia.’
Conducted by an external research firm, the report investigated examples of misconduct leading to financial losses, such as inappropriate advice, fraud, defective disclosure and misleading or deceptive conduct.
According to the study, ‘investors had little knowledge of existing avenues of redress, such as their financial service provider’s internal dispute resolution system or the external dispute resolution scheme they belonged to.’
It also found that those investors who suffered monetary loss said they lacked confidence in the Australian financial system, financial advisers, the government and regulators including ASIC.
ASIC Senior Executive Leader, Consumer, Advisers and Retail Investors, Delia Rickard, said the report highlights the importance of ASIC in helping clients get proper compensation. “Encouragingly, the report reveals that where ASIC took legal action on behalf of investors, they were compensated more fully in terms of more cents in the dollar back and more quickly,” Ms Rickard said.
The report also found that those investors who suffered monetary loss said they lacked confidence in the Australian financial system, financial advisers, the government and regulators including ASIC.
FPA CEO Mark Rantall said his association believed strongly that consumers do deserve protection and reiterated its call for the term financial planner/financial adviser to be enshrined in law.
“The impact of financial planning, when it works really well, which it does in the vast majority of cases, can be extraordinarily rewarding and really sets people up for life. But there are also some proof points when it doesn’t work so well. And this is what this research paper is about,” he said.
Ms Rickard added that failing to appropriately manage disputes represented a breach of licensing obligations.
“Financial advisers must properly respond to complaints, especially when markets are turbulent. Licensees should also advise their clients of the right to complain to external dispute resolution schemes on their websites, in disclosure documents and more crucially when handling complaints,” she said.
In an example of this, ASIC has issued a release announcing it had cancelled the Australian Financial Services License of a New South Wales business for failing to maintain adequate compensation arrangements.
Allan Joyner, trading as Peter Joyner and Associates, was found to be in breach of a number of financial, reporting and other obligations as a financial services licensee.
In addition, the investigation deemed that the company had provided information regarding its compensation arrangements for retail investors to ASIC that was misleading or deceptive.
“It’s essential consumers have confidence that the financial advisers they deal with are fully complying with their legal obligations and AFS licence conditions,’ said Ms Rickard.
“Licensees who fail to maintain adequate PI insurance expose retail clients to the risk that they go uncompensated in circumstances where a licensee has insufficient funds to meet client claims,” she said.
