The Australian Financial Complaints Authority (AFCA) has announced that consumers in dispute with financial firms lodged a record 104,861 complaints over the 12 months to 31 June 2024, which is an increase of 8 per cent on the previous financial year.
According to the AFCA 2023–24 Annual Review, 60,076 banking and finance complaints were received, alongside 29,335 general insurance complaints and 7,325 superannuation complaints.
The complaints authority’s annual review, however, showed a significant drop in the number of complaints related to investments and advice.
Namely, AFCA received 3,559 complaints in the investments and advice category, marking a 26 per cent drop compared with FY2022–23.
However, the authority noted that there was still a large number of complaints directed at collapsed advice firm Dixon Advisory and Superannuation Services in FY23–24. Excluding those complaints, the number drops to an “all-time low” of 2,709.
“This reflects the positive impact of enhanced education standards and increased professionalism within the industry, leading to fewer disputes,” AFCA said in its review.
AFCA cancelled Dixon Advisory’s membership of the complaints scheme at the end of June, marking an end to the ability of clients that lost money to lodge complaints with AFCA.
In an update in July, AFCA said that as at 30 June 2024, AFCA has registered 2,773 complaints against Dixon Advisory.
“AFCA cannot accept any new complaints about Dixon Advisory. This is because AFCA can only accept complaints about firms that are current members of the AFCA scheme,” the complaints authority said at the time.
“The expulsion of Dixon Advisory does not prevent AFCA from considering and finalising complaints received on or before 29 June 2024.”
During FY23–24, AFCA said it closed 4,118 investment and advice complaints, a large number of which it attributed to Dixon cases.
It added that this has helped reduce its “backlog of complaints” and represented an 82 per cent increase over the previous financial year.
Among the areas that AFCA highlighted as a trend were issues with retail and wholesale classification.
“In both contract for difference (CFD) and advice areas, misclassification of clients as wholesale remains a recurring problem,” the review said.
“Many CFD providers fail to adequately assess client suitability, resulting in inappropriate risk exposure. Wholesale clients do not benefit from ASIC’s product intervention orders, leading to increased risks, including excessive leverage for those who may be better suited as retail investors.”
Speaking at a parliamentary joint committee on corporations and financial services inquiry hearing into the wholesale investor and wholesale client tests earlier this month, lead ombudsman for investments and advice at AFCA, Shail Singh, said AFCA can only investigate consumer harm related to wholesale clients where they have been misclassified.
“AFCA’s jurisdiction is limited to investigating and resolving complaints from retail consumers. This extends to issues with retail consumers that have been incorrectly classified as wholesale or sophisticated investors,” Singh said.
“However, where we see complaints from consumers that have been classified correctly as wholesale investors, we exercise our discretion to exclude those complaints from the AFCA service.”
Inappropriate advice still tops the list
AFCA noted that complaints may have decreased overall but inappropriate advice remains the most complained-about issue and accounted for 706 complaints. This was substantially lower than the 1,662 inappropriate advice complaints received in the previous financial year.
Other common topics included failure to act in the clients’ best interest (565), failure to follow instructions (304), service quality (298) and interpretation of product terms and conditions (223).
There was a notable improvement in complaints about failure to follow instructions, which dropped from 951 in FY22–23 to 304.
Regarding specific products, 905 complaints were received about shares, 678 about self-managed superannuation funds (SMSFs) and 430 about mixed asset funds.
AFCA specifically highlighted two recurring issues with SMSFs regarding classification of SMSFs as wholesale products which had different thresholds to retail ones and establishment of SMSFs for low balance clients.
“There is ongoing confusion in the advice space regarding the classification of SMSFs as wholesale. Some advisers incorrectly apply thresholds of $2.5 million in net assets or $250,000 income, instead of the $10 million limit specified in the Corporations Act 2001 for superannuation products. This misclassification exposes clients to unsuitable advice,” it said.
“Advice for clients with low balances to establish SMSFs continues to be a significant issue, often involving inappropriate recommendations and lack of diversification between asset classes.”
