In its submission to the Australian Financial Complaints Authority (AFCA) on its proposed changes to the AFCA Rules and Operational Guidelines, the Financial Advice Association of Australia (FAAA) urged the watchdog to adopt the Australian Securities and Investments Commission’s (ASIC) classification of financial advisers for alignment.
The FAAA expressed its concern regarding the classification of financial advice within AFCA’s system, wherein it falls under the headers of “wealth management” or “investment services” rather than being explicitly categorised as financial advice.
“From a consumer’s perspective, the channel through which the consumer purchased the products or services is not wealth management or investment services; it is financial advice,” the FAAA wrote.
“ASIC’s Financial Adviser Register (FAR) and information on its consumer website, MoneySmart, refers to financial advice and planning. It does not use the term ‘wealth management’ or refer to financial advice as ‘investment services’. Similarly, the AFSL issued by ASIC authorises the licensee to ‘carry on a financial services business to … provide financial product advice’. It does not authorise the licensee to provide wealth management or investment services. Representatives are also authorised to provide general or personal financial advice,” the body continued.
“The use of different definitions and language by different oversight bodies (that is, ASIC’s FAR listing and AFCA’s product classification system) creates confusion for both consumers and industry.”
The FAAA stressed that consistency is key to “enhancing consumer understanding” and navigation of “Australia’s complex financial system and the protections within it”.
“Adopting the existing financial advice definitions commonly used within the industry (processes and systems) and by ASIC can assist with simplifying the system for consumers, government and industry,” the FAAA explained.
Moreover, it noted that the issue of AFCA’s complaint categorisation has become critical with the pending establishment of and proposed model for the Compensation Scheme of Last Resort (CSLR).
Under the legislation, the CSLR will provide compensation to consumers as a last resort when AFCA has made a determination in favour of the consumer and the financial institution has not paid in accordance with the AFCA determination (typically because of insolvency). The limited scope of the proposed scheme means the CSLR will only apply to unpaid AFCA determinations involving financial misconduct in relation to the following four types of financial products and services: personal advice on relevant financial products to retail clients, credit intermediation, securities dealing for retail clients, and credit provision.
“Complaint classification that is unclear and inconsistent with consumer and industry understanding and expectations, and other regulatory categorisations, will impact the effectiveness of the CSLR,” the FAAA said.
As such, it recommended AFCA undertake a review of its complaints classification system.
“We suggest the classification included in the ASIC Cost Recovery model and include specific and separate complaint classifications for financial advice should be considered. This should include separate categories for personal financial advice and general financial advice.
“This will ensure that a complaint about a product provider who is authorised to provide general advice will be appropriately categorised, even in instances where personal advice is provided outside the authorisation or the licensee.”
