Just ahead of Christmas, the Australian Financial Complaints Authority (AFCA) published four lead decisions related to the funds, with each providing a blueprint for how the body will handle complaints related to MWL Financial Services, Financial Services Group Australia (FSGA), United Global Capital (UGC), and combined UGC and Next Generation Advice complaints.
In a video explaining the lead decisions, lead ombudsman for investments and advice Shail Singh said that as of late December, AFCA had received more than 1,800 complaints relating to Shield and First Guardian.
This is around 300 complaints more than than the 1,559 complaints as of 10 November.
“To ensure fairness and consistency, we’re grouping complaints by firm and progressing them in the order they were received within each group,” Singh said.
“Dedicated teams are focused on each firm, such as United Global Capital, Next Generation Advice, MWL, Financial Services Group Australia and InterPrac, so we can address the unique issues and themes that arise in each group.”
The lead decisions, he added, are determinations that the complaints authority has made on a complaint that is “representative of a group of similar complaints”.
“When we receive a large number of complaints with common facts or issues, we group them together and select a case that best represents the group we investigate decide that case first, and the outcome, called the lead decision, sets a clear direction for how similar complaints will be resolved,” Singh explained.
“This approach helps us resolve large numbers of similar complaints more efficiently and fairly, ensuring consistency for everyone involved.”
According to the lead ombudsman, this will allow AFCA to continue its work more efficiently.
“For firms that are solvent, we’re encouraging them to settle outstanding complaints in line with the lead decision,” he added.
“For other firms, our teams are working through the remaining matters as quickly and fairly as possible.”
While InterPrac was the main licensee that had advisers putting clients in the funds, it is not among the first set of lead decisions that AFCA published just before Christmas. However, Singh said AFCA expects to publish this, along with a second MWL decision, soon.
The lead decision for FSGA, which is the licensee that was controlled by Ferras Merhi, describes an advice process that left the fact find process entirely up to a “referral partner” – i.e. a lead generator.
The advice saw an anonymised Mr C from 5 Point Financial Planning, which was authorised by FSGA, provide the complainant with a Statement of Advice that recommended she rollover her $241,994.03 in super from Aware to New Quantum Super and invest it all in the 5 Point High Growth Fund.
This fund comprised 60 per cent of its holdings in Shield and First Guardian.
According to the determination, Mr C “failed to make genuine inquiry into the complainant’s personal circumstances, provided no detail of the underlying investments he was recommending to the complainant, and failed to show how the recommended strategy provided any additional benefit to the complainant, particularly given its significantly higher cost”.
“There was no basis for the recommended superannuation switch,” it added.
The determination added that, according to the SOA, the adviser relied on a third party to understand the complainant’s personal circumstances and objectives and it was not based on any direct communication between Mr C and the client.
“Rather, Mr C relied on information he had ‘been passed’ from the financial firm’s ‘referral partner’, otherwise known as a lead generator (who received 70 per cent of the initial advice fee the complainant paid, and 40 per cent of ongoing advice fees),” it said.
“This company did not operate under an Australian Financial Services license (AFSL), and were therefore not licensed financial planners.”
AFCA added: “The panel is satisfied Mr C relied entirely on the lead generator’s inquiries to establish the client’s relevant circumstances. This is despite the lead generator not operating under an AFSL. Given this, it is unclear whether the lead generator was equipped and qualified to understand what relevant inquiries to make.”
As a result, AFCA determined that the inappropriate advice caused the complainant a direct loss of $196,249.17, ordering the firm to compensate the client that amount “less any return received in the financial firm’s liquidation and the wind up of Shield and First Guardian”.
The CSLR levy should not increase. ASIC failed to stop these crooked operations. APRA failed to stop these crooked operations. And these weren’t new strategies. There have been many similar failures in the past. Remember Estate Mortgage, Pyramid Building Society, Elm Debentures, Allco Finance, City Pacific Mortgage Fund, Lift Capital, Australian Capital Reserve, Law Mortgages and Elderslie Finance, to name a few. All ASIC and APRA had to do was look back at these past failures and they would have known what to look out for and prevent.
Obviously they didn’t, so they should pay for their failures. They were wasting their time on minor technical issues that didn’t cost investors anything and failed to stop the crooked schemes that caused major losses for investors.