Once a complaint is received by the Financial Ombudsman Service (FOS), AFS Licensees need to be prepared to deal with FOS inquiries and requests, in many cases while still providing financial services to the client who has lodged the complaint.
Section 912A of the Corporations Act requires AFSL holders who provide services to retail clients to be a member of an External Dispute Resolution Scheme (EDRS) approved by the Australian Securities and Investments Commission (ASIC).
For a majority of licensees this means maintaining membership with FOS. The only other organisation that has been approved by ASIC is the Credit Ombudsman Service Limited (COSL). However, this tends only to be relevant for providers of credit services (e.g. mortgage brokers).
FOS is an independent body, governed by its own Terms of Reference. Essentially, a consumer who has a complaint about an AFS Licensee can make it to FOS if they are not satisfied with the outcome of the complaint.
When FOS delivers a recommendation, this is binding on the AFS Licensee.
Given FOS is essentially the only EDRS approved by ASIC at present for financial planners, the most effective way to proceed is to be aware of the issues around the dispute and aware of how FOS operates.
ARE YOU RESPONSIBLE FOR THE COMPLAINT?
Upon receiving a notice from FOS advising that a dispute has been lodged against the licensee, it is crucial that licensees confirm they are in fact responsible for the complaint. For example, a complainant may lodge their dispute with FOS based on false information or documentation they have received, such as a falsified disclosure document which contains your AFSL number. In this case, the complainant genuinely believes that you are the responsible licensee, based on false information.
Alternatively, the complainant may be misguided as to what their issue is – and therefore whom they should be complaining to FOS about. For example, there may be an issue with the product that your client owns, yet because this product has simply been advised by you, they mistakenly believe that it is your responsibility.
We suggest checking the following:
- Has your AFSL number been quoted?
- Are there any sales or customer service representatives referred to in the complaint? Are these people referred to employed by you?
- Do you have records of the complainant on your system?
- In the event the complainant has received disclosure documents containing your AFSL number, consider searching for these documents online
IS THE COMPLAINT WITHIN FOS’ TERMS OF REFERENCE?
FOS operates under its own Terms of Reference, and it’s important for AFSL holders to familiarise themselves with this document, specifically the section which outlines the jurisdiction of FOS.
Reasons why and types of dispute that may fall outside the terms include:
- the claim exceeds $500,000;
- disputes about privacy obligations;
- disputes about arrangements between licensee and client that do not constitute provision of a financial service;
- where the dispute has been lodged with and is being dealt with by another EDRS;
- the dispute has previously been dealt with by FOS;
- where the dispute raises the same events and facts and is brought by the same applicant as a dispute previously dealt with by FOS;
- the dispute has been dealt with by a court; and
- the dispute has been lodged outside of six years of the complainant first becoming aware that they have suffered loss.
If your dispute is not within the Terms of Reference, other methods for resolving the complaint are available, including arbitration or court proceedings.
HOW MUCH WILL IT COST?
FOS provides its services free to the consumer, which means the AFSL holder, as a FOS member, is ultimately responsible for the fees. FOS charges members a user fee and case fees for disputes handled by FOS.
FOS does not publish the case fees and therefore licensees should ensure that they regularly log in to their FOS member account to check the fees in relation to each dispute. This may be a significant factor in decisions around settlement discussions between the licensee and the client.
IS THE DISPUTE LIKELY TO BE WIDESPREAD IN YOUR BUSINESS?
It’s important to carefully consider the issues in dispute and the effect of these issues on other clients. AFSL holders may be at risk of additional FOS complaints in the event that the issues affect the provision of the financial service.
These issues may be technical or customer service-related but regardless, licensees should consider the impact on other clients. We suggest reviewing blogs and other online forums to ensure you are aware of any connections between your clients and possible collective action by clients who have also been affected by the issues in dispute.
TIPS FOR AVOIDING A FOS DISPUTE
As FOS is required to offer AFSL holders the opportunity to provide an Internal Dispute Resolution (IDR) response to the complainant, establishing and conducting robust IDR procedures will prove effective in reducing the costs incurred as a result of a FOS dispute.
These procedures may include:
Acknowledging the concerns of your client when they are first raised with you – this will reduce their sense of needing an external party to be properly heard
Keeping electronic records or thorough written notes of client phone calls – this is especially important when a client first makes a complaint to you as there are ASIC requirements for the time taken to respond to complaints. This will also help to ensure FOS does not to take an unfavourable view of you because you don’t meet these requirements
RECORD KEEPING
FOS is not bound by any rules of evidence and therefore licensees will likely be asked for further details regarding the dispute.
These may include:
- account opening documentation;
- disclosure documents – PDS, FSG, SOA, Client Agreements;
- correspondence between the licensee and the complainant; or
- data relating to the provision of the financial service.
Maintaining accurate, easily accessible records will ensure you can provide responses to FOS within the specified timeframe and may expedite the dispute. We also suggest licensees ensure their representatives keep all correspondence with clients, including email and records of telephone calls.
About Sophie Gerber and Alicia Pevely
Sophie Gerber is director and Alicia Pevely is a consultant at Sophie Grace Compliance and Legal.
