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B ad Pr actice

A lison M aynar d, I nvestments, L ife I nsur ance & Super annuation Ombudsman, F inancial Ombudsman Ser vice TOGETHER WE’RE

raising THE BAR. FPA 2011 NATIONAL CONFERENCE. 16 – 18 November. Brisbane Convention & Exhibition Centre.


FOS Basics      

External Dispute Resolution Scheme Approved by ASIC (RG139) Condition of AFSL if dealing with retail client Not for profit company limited by guarantee Paid for by industry via fees and levies Resolve disputes by negotiation, advice, conciliation, recommendations and decisions

TOGETHER WE’RE

raising THE BAR. FPA 2011 NATIONAL CONFERENCE. 16 – 18 November. Brisbane Convention & Exhibition Centre.


FOS Basics 

RG139 Requirements for an EDR Scheme include:  Independent & fair  Accessible  Free to Applicants  Able to make binding decisions  Obligation to accept disputes up to $500,000  $280,000 compensation cap for all disputes by 1 January 2012

TOGETHER WE’RE

raising THE BAR. FPA 2011 NATIONAL CONFERENCE. 16 – 18 November. Brisbane Convention & Exhibition Centre.


FOS Basics Member Obligations  Constitution /Terms of Reference/ Membership Agreement  Must have compliant IDR process (RG165)  Must advise complainants that they may complain to FOS  Must cooperate with process  Must observe timeframes  Must comply with Determination if accepted by consumer  Must pay fees/levies TOGETHER WE’RE

raising THE BAR. FPA 2011 NATIONAL CONFERENCE. 16 – 18 November. Brisbane Convention & Exhibition Centre.


Case Study#1: 18959 - Facts  Applicant had a SMSF  Advisor recommended three separate investments into Basis Yield Fund totalling $130,000  Applicant claimed  That the advice received was inappropriate for needs;  Nature of the investment was misrepresented; and  That the advisor breached the service agreement in place and that the standard of service was poor

 Applicant sought $103,382.21 ($130,000 invested, less earnings) TOGETHER WE’RE

raising THE BAR. FPA 2011 NATIONAL CONFERENCE. 16 – 18 November. Brisbane Convention & Exhibition Centre.


Case Study#1: 18959 - Decision Panel’s Decision  The advisor had failed in  Preparing;  Implementing; and  Reviewing the applicant’s strategy

 Investment not suitable to the client  Compensation awarded TOGETHER WE’RE

raising THE BAR. FPA 2011 NATIONAL CONFERENCE. 16 – 18 November. Brisbane Convention & Exhibition Centre.


Case Study#1: 18959 – Reasons for Decision  The asset allocation was made on generic basis  Not tied to the risk profiling outcomes

 No real understanding of the product  In particular, the effect of the product manager’s discretion; and  The advisor did not understand impacts of internal gearing in the product and how this affected risk and performance

 The product was therefore treated as a defensive asset – when it was not  Further the advisor’s efforts to monitor and review the investment were in breach of the service agreement TOGETHER WE’RE

raising THE BAR. FPA 2011 NATIONAL CONFERENCE. 16 – 18 November. Brisbane Convention & Exhibition Centre.


Case Study#1: 18959 – Lessons Learned 1. Know your client  Risk profiling tools are useful  Must justify with reasons if deviating from the risk profile  Must not use tools that are weighted towards prejudged outcomes  Must do more than just use a risk profiling tool TOGETHER WE’RE

raising THE BAR. FPA 2011 NATIONAL CONFERENCE. 16 – 18 November. Brisbane Convention & Exhibition Centre.


Case Study#1: 18959 – Lessons Learned 2. Know your product  The advisor must understand the product him/herself  Research is a vital part of the picture  But out of date research is not useful  Must be able to explain the product and its risks, in terms the client can understand

TOGETHER WE’RE

raising THE BAR. FPA 2011 NATIONAL CONFERENCE. 16 – 18 November. Brisbane Convention & Exhibition Centre.


Case Study#1: 18959 – Lessons Learned 3. Fixed Interest All fixed interest investments cannot automatically be put into the ‘safe’ part of the portfolio  Not all fixed interest products carry the same level of risk  Some fixed interest products carry a risk of total loss. TOGETHER WE’RE

raising THE BAR. FPA 2011 NATIONAL CONFERENCE. 16 – 18 November. Brisbane Convention & Exhibition Centre.


Case Study#2:19060 - Facts  Ms M sought advice regarding her retirement planning  Ms M was subsequently classified as a Balanced investor  The advisor’s recommendations included an investment into the Basis Yield Fund TOGETHER WE’RE

raising THE BAR. FPA 2011 NATIONAL CONFERENCE. 16 – 18 November. Brisbane Convention & Exhibition Centre.


Case Study#2:19060 - Claim  Ms M claimed that her adviser:     

Failed to complete a needs analysis Inappropriately classified her as a balanced investor Provided inappropriate advice Failed to adequately disclose fees, costs, charges Acted without authority.

 As a result Ms M is claiming a loss of $62,131.77 on her portfolio – accountable to the Basis Yield Fund. TOGETHER WE’RE

raising THE BAR. FPA 2011 NATIONAL CONFERENCE. 16 – 18 November. Brisbane Convention & Exhibition Centre.


Case Study#2:19060 – FSP’s Position     

Advisor held four separate meetings with Ms M Ms M was correctly classified as a balanced investor The fees were clearly explained Despite no signed authority it is clear Ms M authorised the advisor to proceed The advisor recommended a well diversified portfolio of 11 managed funds  Basic Yield Fund was 10% of portfolio  Basic Yield Fund had highest research rating  Advice was appropriate  Know your client rule was satisfied  Loss was caused by market conditions and specific product failure

TOGETHER WE’RE

raising THE BAR. FPA 2011 NATIONAL CONFERENCE. 16 – 18 November. Brisbane Convention & Exhibition Centre.


Case Study#2:19060 – Decision  Advisor provided a good level of service, but failed in relation to the provision of some documentation  However, these failures do not mean FSP is automatically liable to compensate Ms M for her loss  Complaint really about Investment performance  Complaint was not upheld

TOGETHER WE’RE

raising THE BAR. FPA 2011 NATIONAL CONFERENCE. 16 – 18 November. Brisbane Convention & Exhibition Centre.


Case Study#2:19060 – Reasons for Decision (1)  The SOA provided good disclosure and a good discussion/explanation of risk  Did not downplay the risks  The SOA said “If you are not comfortable with this allocation or do not understand what it means do not proceed”  There was proper disclosure of fees and charges TOGETHER WE’RE

raising THE BAR. FPA 2011 NATIONAL CONFERENCE. 16 – 18 November. Brisbane Convention & Exhibition Centre.


Case Study#2:19060 – Reasons for Decision (2)  The advisor knew his product and matched it to his client - He understood the product  He had read the PDS  He had read research reports  He had twice met with the Business Development Manager of the Fund - The fund was recommended as a medium term investment – research reports support this recommendation TOGETHER WE’RE

raising THE BAR. FPA 2011 NATIONAL CONFERENCE. 16 – 18 November. Brisbane Convention & Exhibition Centre.


Case Study#2:19060 – Lessons Learned  Failure to fulfil certain obligations does not necessarily mean a claim is upheld  Know your product and your client. Advisors must make efforts to really understand the product and then recommend it appropriately.  Documentation must be clear and disclose key information  Specific risks (don’t down play them)  Fees TOGETHER WE’RE

raising THE BAR. FPA 2011 NATIONAL CONFERENCE. 16 – 18 November. Brisbane Convention & Exhibition Centre.


Myth-busting Statistics

Disputes Received

2009

2010

1/1/11-30/6/11

Investments

1913

2136

806

Margin Loans

160

54

34

TOTAL

2073

2190

840

TOGETHER WE’RE

raising THE BAR. FPA 2011 NATIONAL CONFERENCE. 16 – 18 November. Brisbane Convention & Exhibition Centre.


Investments & Margin Lending Disputes Disputes Resolved 1 Jan 2010 – 30 Jun 2011 Disputes Resolved

%

Outside Terms of Reference

334 (15)

Discontinued

484 (22)

Agreed Resolution

961 (41)

Decision in favour of Applicant

230 (10)

Decision in favour of FSP

156 (7)

Other

54 (2)

TOTAL

2,219 (100)

TOGETHER WE’RE

raising THE BAR. FPA 2011 NATIONAL CONFERENCE. 16 – 18 November. Brisbane Convention & Exhibition Centre.


Outcome Amounts Outcome Amounts for decisions in favour of Applicants (1/1/10- 30/6/11) 0-50,000

134

50,000 – 100,000

32

100,000 – 150,000

20

150,000 – 200,000

4

200,000 – 250,000

1

400,000 – 400,000

1

No Claim Amount recorded

24

TOTAL

216

* Excludes 14 margin loan disputes not included in table

TOGETHER WE’RE

raising THE BAR. FPA 2011 NATIONAL CONFERENCE. 16 – 18 November. Brisbane Convention & Exhibition Centre.


Outcome Amounts Outcome amounts for disputes resolved by agreement. 0 - 50,000

456

50,000 – 100,000

45

100,000 – 150,000

11

150,000 – 200,000

1

200,000 – 250,000

3

250,000 – 300,000

1

450,000 - 500,000

2

No outcome amount recorded

953

TOTAL

1,472

TOGETHER WE’RE

raising THE BAR. FPA 2011 NATIONAL CONFERENCE. 16 – 18 November. Brisbane Convention & Exhibition Centre.


T hank You TOGETHER WE’RE

raising THE BAR. FPA 2011 NATIONAL CONFERENCE. 16 – 18 November. Brisbane Convention & Exhibition Centre.


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