Fourth Line has undertaken a review of financial advice complaints submitted and determined by AFCA (& FOS) from 2012-2020.
Some key findings from the Fourth Line “AFCA Insights Report 2020” indicate when a complaint goes all the way to a determination, then:
In 36% of the complaints, the Judicator (AFCA or FOS) found in favour of the Financial Adviser:
87% of determined complaints relate to “advice” (as opposed to 13% for issues relating to the implementation phase of the advice);
In 56% of the cases, Advisers were able to successfully defend a complaint related to insurance;
91% of determined claims that related to superannuation were paid in favour of the client;
The “high risk” advice areas involved Self-managed Super Funds (SMSFs), especially when the advice includes Limited Recourse Borrowing Arrangements (LRBAs). This is not surprising given the significant increase in Advisers and Licensed Accountants recommending the establishment of SMSFs over this period.
The Fourth Line “AFCA Insights Report 2020” details all the risks Advisers face and, for each risk, the likelihood a Financial Adviser can successfully defend a complaint.
In reviewing the top 5 reasons Financial Advisers were likely to be unsuccessful in defending a claim, many of these centred around a lack of proper engagement with the client through the advice process.
Conversely, the Report highlights the top 5 reasons Financial Advisers were successful in defending a claim. It is evident from the data and analysis that Advisers who were able to successfully defend a claim were able to demonstrate they had engaged with the client throughout the advice process. Advisers were able to demonstrate they had reasonable grounds and evidence to be satisfied the client understood the advice being provided.
The Report allows licensees and advisers to look retrospectively to identify and consider issues, trends, and opportunities with the aim to minimise any potential future risk of facing a claim that will go to determination under AFCA.
The 15 case studies detailed in the Fourth Line “AFCA Insights Report 2020” help put in to context the issues advisers face in the real world, and how they might mitigate these risks through improved advice processes and procedures.
Fourth Line utilises these risks and insights in its algorithms to enable licensees to understand where high risk advice is being given, and using Fourth Line’s unique bionic review process, whether the advice has been appropriately delivered.
You can DOWNLOAD a copy of the Fourth Line “AFCA Insights Report 2020” here
Fourth Line is a rigorous RegTech risk management and compliance system for advice practices, dealer groups and other wealth management participants. Fourth Line uses algorithmic approaches to simplify the complexity in advice reviews whilst maintaining human oversight, empowering compliance teams to coach and develop strong advice behaviors through data driven insights from advanced analytics for adviser, practice/dealer group and industry benchmark comparison with centralised document storage and access to meet regulatory needs.