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 Who can I complain to? - Eureka Report article 
Who can I complain to?
By Scott Francis
June 24, 2009

PORTFOLIO POINT: The last thing investors need in the current climate is bad advice. There are places to turn.

Last financial year complaints against financial planners and managed investment schemes dealt with by Financial Ombudsman Service rose sharply - by 55% and 152% respectively. The total number of complaints was not huge, but the increase shows more Australians are dissatisfied with their investments or advice. And that they are prepared to take action.

This increase in complaints was in the year before Storm Financial collapsed, before many mortgage funds "shut the gate" on redemptions, MFS and the MFS Premium Income scheme all but collapsed and the agricultural schemes of Timbercorp and Great Southern moved into limbo. So it is not unreasonable to expect the number of complaints will increase over the coming 12 months.

The Financial Ombudsman Service, since merging with the Financial Industry Complaints Scheme, has become the central complaints point for consumers unhappy about banking, investment or insurance advice and products.

Given the pressures many investors are finding themselves under, there are likely to be more people than ever questioning whether they have received the right advice or invested in the right product. If they feel that the advice or product was not appropriate they might be thinking of taking some action.

Both the ASIC consumer website FIDO and the Financial Ombudsman Service offer guides on how to put together a complaint.

They talk though the steps as being:

  • Set out a written complaint to your financial services provider (eg, your financial planner) and see if it can be resolved at that point.
  • Ask for a copy of the financial service provider's complaints process, and lodge a formal complaint.
  • Make a complaint with the external complaints scheme - usually the Financial Ombudsman Service.

Before you take any action, be clear on who the complaint is against, the basis of the complaint, and the damage that this has caused you (the financial figure).

FICS has a list of ?Determinations and Adjudications' on its website and if you are planning on making a complaint this would be a good starting point. They show you how complaints are structured and a decision might be arrived at. Further to this, it makes sense to seek an independent expert who might be able guide you in articulating and structuring your complaint.

The following is a list of reasons that a complaint might be made.

  • Fees have not properly been explained in a simple format.
  • Some payments to the financial planner or financial planners firm were not properly outlined (eg, ongoing commissions, "volume bonuses" or "marketing rebates").
  • Risks of investments that have not properly been outlined (as was the case in the Westpoint).
  • Investments did not meet your requirements (eg, as an investor you outlined that you were not prepared to lose capital and yet the recommended investment has fallen in value or has no value).
  • You emphasised that you had a low level of risk tolerance and were recommended an aggressive strategy.
  • The investment did not suit your particular situation.

People who manage their own DIY fund have to prepare and keep up to date an Investment Strategy document, to deal with important investment issues such as risk and return, diversification and liquidity. These are cornerstone principles of investment that, if they have not been properly considered, might lead to a complaint.

The following are three case studies from the Financial Ombudsman Service and FICS websites. (It should be noted that these are very basic summaries of quite long proceedings - and may not represent all issues of importance).

A stockbroking trade

A client of an online stockbroking firm places a trade for 120,000 shares. 1.2 million shares are purchased. The client alleges the problem is with the broking firm's software. The online broking firm alleges the client made a mistake entering the trade. The complaint was not upheld.

A broker's advice

A retired husband and wife were advised by a stockbroker to sell property, borrow money and allow the stockbroker to trade options for them. The coupled complained about the suitability of this advice. The firm was ordered to repay losses and interest of $37,000 with the complaints scheme finding that:

  • Risks had not been property explained to the couple, even though information had been provided.
  • The clients had not properly been informed of the trades being undertaken.
  • The option trades were inappropriate for the clients' needs and circumstances.

Mezzanine risks

Investors, as trustees of a DIY fund, complained of the poor advice they received, which led them to make a significant investment in Westpoint. It was found that:

  • The financial planning firm and the financial adviser did not understand the risks associated with mezzanine finance.
  • Therefore the investor was not properly informed of the risks of such an investment.

The complaint was upheld, and the investor was to receive $100,000 for the investment in Bayshore Mezzanine, less any money received from the liquidation process, and $50,000 from Mount Street Mezzanine, less any money received.

It's a tough enough time to be an investor without being given poor advice. Some of the poor advice over the past three years or so - putting people into Fincorp, managed agricultural investments and aggressive gearing strategies - has left many investors questioning the quality of the advice they have received.

It's important that investors feel empowered enough to take the first step. There are avenues for consumers to make complaints and, with thoughtful preparation, these processes can be navigated without undue complexity.

Scott Francis' articles in the Eureka Report 

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