Transcript Effective Management of PI Disputes at FOS

Effective
Management
of PI Disputes
at FOS
Sydney 8 November 2011
Melbourne 9 November 2011
Presented by
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Alison Maynard - Ombudsman, Investments, Life
Insurance & Superannuation
Amie Cousins, Manager Conciliation Team
Maxine Tills, Sparke Helmore
Ewen McKay, Assetinsure (Melbourne)
Melinda Cavalieri, Conciliator (Melbourne)
Cathie Thompson, Vero (Sydney)
Alexandra Sidoti, Conciliator (Sydney)
Introduction and Welcome
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Alison Maynard - Ombudsman, Investments, Life
Insurance & Superannuation
Introduction and Welcome
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The role of FOS
What’s new at FOS?
The FOS Process
What FOS needs from PI Insurers
PI Insurer Perspective
Representing PI Insurers at FOS
Outcomes of FOS Disputes
Myth-busting statistics
Questions
The role of FOS
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Alison Maynard - Ombudsman, Investments, Life
Insurance & Superannuation
The role of FOS
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External Dispute Resolution Scheme
Approved by ASIC (RG139)
Condition of AFSL if dealing with retail client
Independent/accessible/fair/accountable/efficient and
effective
Free to consumers
Paid for by industry via fees and levies
Resolves disputes by negotiation, advice and
conciliation
Makes decisions binding on Members.
The role of FOS
Member Obligations
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Constitution /Terms of Reference/ Membership Agreement
Must have compliant IDR process (RG165)
Must advise complainants that they may complain to FOS
Must cooperate with process
Must observe timeframes
Must comply with Determination if accepted by consumer
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Must pay fees/levies.
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The role of FOS
Decision making criteria (RG139.183)
“In determining the extent of loss or damage
suffered by a complainant, the scheme should
have regard, not only to relevant legal
principles, but also to the concept of fairness
and to the relevant industry best practice.”
The role of FOS – TOR 8.2
Decision making criteria - FOS
“….. FOS will do what in its opinion is fair in all the
circumstances, having regard to each of the following:
a) Legal principles
b) applicable industry codes or guidance as to
practice
c) good industry practice; and
d) previous relevant decisions of FOS or a Predecessor
Scheme (although FOS will not be bound by those)”
What's new at FOS ?
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Alison Maynard - Ombudsman, Investments, Life
Insurance & Superannuation
New Terms of Reference
Some significant changes
 Monetary limits and caps
 Consequential and non-financial loss
 Time limits
 Recommendations and determinations
Compensation Caps
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A “cap” is the maximum value of the remedy FOS
may award for a “claim” (excluding costs and
interest)
Monetary limit for a claim is now $500,000
Different caps apply for different types of claims
Some caps will increase on 1 January 2012
Caps will be indexed
Amount of caps
Compensation
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Direct financial loss
Consequential (indirect) financial loss capped at
$3,000 per claim
Non-financial loss capped at $3,000 per claim
Legal or other professional costs or travel costs
incurred by Applicant capped at $3,000 (unless
exceptional circumstances apply)
Time limits
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Dispute must be lodged with FOS:
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within 6 years of date when Applicant first became
aware (or should reasonably have become aware)
they suffered the loss; and
where Applicant received “IDR response” within 2
years of the date of that IDR response
In exceptional circumstances, FOS may consider
dispute lodged outside these time limits
Recommendation
Recommendations have been introduced as the
first stage of the decision-making process.
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A case will proceed to determination by an
Ombudsman or Panel if either party rejects the
recommendation.
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What is a claim at FOS?
For the purposes of applying monetary limit/cap.
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A set of facts when put together give the Applicant a
right to ask for a remedy (cause of action)
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FOS cannot aggregate claims just because they arise
out of an ongoing relationship between the Applicant
and the Financial Services Provider
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FOS interpretation based on Finkelstein J. in
Financial Industry Complaints Service v Deakin
Financial Services [2006] FCA 1805.
What is the practical effect?
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Multiple parties – e.g. husband, wife, husband and
wife jointly, SMSF – will all be entitled to make a
separate claim
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Multiple separate instances of advice (usually
evidenced by separate Statements of Advice) may
also give rise to separate claims.
NB: FOS looks at the amount of the loss, not the total
amount invested.
How does FOS calculate loss in
financial advice disputes?
LOSS
● Direct
● Consequential (limit $3,000)
● Too remote
OBJECT
● To put the Applicant in the position they would have
been in, but for the breach of duty.
How does FOS calculate loss in
financial advice disputes?
Direct loss usually calculated by reference to the performance of
suitable investments in comparison with the performance of the
unsuitable (disputed) investments.
FOS may look at:
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Suitable investments the Applicant has switched to (where the
Applicant has switched from the unsuitable investment);
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The suitable benchmark asset allocation used by the FSP;
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The suitable industry benchmark allocation;
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Suitable investments that were actually recommended by the
FSP to the Applicant; or
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Other investments or indices that represent suitable
investments.
Contributory Negligence and Mitigation
of Loss
Compensation awarded may be reduced where
Applicants fail to take reasonable care of their
own interests and are regarded as contributing to
their own loss.
The compensation awarded will be reduced to
the extent that the Applicant has deviated from
the standard of care a reasonable person in the
Applicant’s position would have taken.
FOS will look at
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When did the FSP’s breach of duty or contract occur?
When did the Applicant become aware of the FSP’s
breach or should have become aware?
Were there any actions the Applicant could have
taken to avoid or minimise the consequences of the
FSP’s breach?
Were the actions what a reasonable person in the
Applicant’s position would have done?
The FOS Process
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Amie Cousins, Manager Conciliation Team
Process
Lodging a dispute
● Disputes lodged by several means including online
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dispute form, email, letter
Registration occurs where an Applicant lodges a dispute
before first complaining to the FSP or within 45 days of
first requesting the FSP to remedy the matter
FOS registers a dispute by notifying the FSP that dispute
has been lodged and it has up to 45 days (or balance) to
resolve the dispute directly with the Applicant
FOS may extend or reduce the 45 day period in special
circumstances
FOS may deal with an urgent dispute immediately
Where FSP has not resolved dispute
A dispute will proceed and jurisdiction will be
assessed where:
● An Applicant has previously complained to the
FSP and has received a response which does not
resolve the dispute; or
● More than 45 days has passed since the
Applicant contacted the FSP and the dispute
remains unresolved. at the time the dispute is
lodged with FOS
Dispute handling
● If a dispute is within jurisdiction FOS notifies the
FSPs of the dispute and provides copy of the
dispute material
● FSPs are provided with 28 days to provide initial
dispute response and all relevant information to
FOS
● After receiving initial FSP response to a dispute
FOS considers most appropriate means of
progressing and resolving a dispute
Dispute handling (2)
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FOS is focused on assisting FSPs and Applicants resolve
disputes by agreement
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New TOR and dispute process provide for variety of
dispute resolution methods including:
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negotiation
conciliation
initial assessment of merits
FOS has been increasing its use of conciliation and
negotiation to resolve disputes and this will continue to
expand in next 12 months
Dispute handling (3)
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Voluntary
Confidential
Quick and efficient
Offers creative and commercial outcomes
High satisfaction rate
Control with the parties (outcomes/authority)
Conciliator can provide information and reality
test.
Dispute handling (4)
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To assist in consideration of dispute, FOS can require a
party to:
- take action
- provide necessary information
- attend interview
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FOS can appoint independent expert to report to FOS
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If FOS obtains expert advice, it can require FSP to pay or
contribute to expert’s reasonable fees limited to $3,000
per dispute unless circumstances are exceptional
Decision making process
FOS has a new two step decision
making process:
 Recommendation
 Determination
Recommendation
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A Recommendation is a comprehensive assessment that sets out:
– all the relevant facts of the dispute
– the information relied on
– the view reached by FOS about how the dispute should be
resolved, and
– the reasons for that view
A Recommendation is made by a FOS caseworker who is authorised
by the Chief Ombudsman to make Recommendations
Decision making process
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A Recommendation can be accepted or rejected
within 30 days
If both parties accept Recommendation, it is
binding and dispute is resolved
If either party rejects the Recommendation, a
Determination will be made
Determination is final decision and if accepted by
Applicant within 30 days is binding on FSP
In certain circumstances a Determination may be
expedited without Recommendation being made
Decision making process
When considering whether to expedite a dispute to
Determination, FOS takes into account the
circumstances of the dispute, including:
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Any urgency (for example, if an Applicant is
experiencing ill health)
The size of the loss involved
The age of the matter
Whether an FSP has gone into external Administration
Ombudsman or Panel?
● Chief Ombudsman (or delegate) decides whether
to allocate a Determination to Ombudsman or
Panel
● Factors which are taken into account include:
– type of dispute
– expertise required
– significance of dispute
– submissions by parties
Ombudsman or Panel in ILIS?
● Investments & Life Insurance disputes that will
normally be determined by a Panel include:
● claims for >$50,000
● fraud claims
● income protection claims
● complex or new financial products
● complex factual questions
● Further Guidelines on allocation to be developed
over time
Dealing with the FOS process
● Timeliness, timeliness, timeliness! First response due in 28 days.
● Usually correspondence from FOS will give you good information
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on what is required
Raise any jurisdictional arguments as early as possible
Let us know early if you need more time to provide a response (it’s
a lot easier for us to explain it to the applicant then)
Full and complete response with all evidence relied upon supplied.
Our staff are there to assist both parties to resolve the dispute
Consider whether a conciliation conference may assist in
resolution and ask for one to be conducted if you think it can
Make use of the FOS staff member who is handling the dispute –
ring and ask questions.
Refer to the FOS website: www.fos.org.au
Morning Tea
The PI Insurer Perspective
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Ewen McKay, Assetinsure
FOS Seminar for PI Insurers
THE PI INSURER PERSPECTIVE
Ewen McKay - Assetinsure Pty Ltd
Agenda
• The good.
• The not so good.
• The not so good at all.
• The future?
Page 41
The good.
• In reality, the majority of PI claims are not litigated – FOS
is an expert forum for conciliation of disputes/ claims.
• New FOS Terms of Reference (TOR) 2010 include some
improvements, most notably:
 2 stage determination process (in built quasi review mechanism);
 dispute resolution criteria now include “regard” for previous
relevant decisions of FOS and predecessors (although not bound
by same).
• FOS is much more transparent than in the past.
• Regular & ongoing dialogue with PI insurers/ brokers.
Page 42
The not so good.
• Historically, the relationship between PI insurers and
FOS (FICS) could be characterised as “fraught”.
• FOS generally perceived by PI insurers as “applicant”
(claimant) friendly.
• Nature of FOS in conflict with fundamental assumptions
of the “insurance model”:
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no rules of evidence;
not strictly bound by current law (other criteria apply);
limited right to appeal/ review determinations (improved);
not bound by precedent (improved).
• Different approaches to aggregation/ disaggregation of
disputes/ claims.
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The not very good at all.
• Concern about apparent narrow focus of FOS – product/
transaction oriented rather than portfolio oriented.
• Concern about the ability of FOS to adequately deal with
“multi-party” or complex matters esp. where there are
extra-jurisdictional issues:
 consideration of parties who are not members of FOS;
 proportionate liability.
• Concern about proposed new “limit” in 2012 for
investment matters ($280,000 – monetary value of
remedies).
Page 44
The future?
• Increase in limits makes FOS disputes more material to
PI insurers – greater sensitivity to contentious
determinations and procedural issues.
• Scope for PI insurer/ FOS disputes to increase?
• Test case provision (Clause 10 of TOR) – scope to
remove dispute from FOS to court system where:
 important consequences for FS provider or industry; or
 important point of law.
• Any deterioration in claims outcomes will lead to
increased PI insurance premiums/ excesses and/ or PI
insurers exiting market.
• Dialogue will be increasingly important.
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Representing PI Insurers at FOS
● Maxine Tills, Special Counsel, Sparke Helmore
The Financial Ombudsman Service
(FOS)
Presented by:
Maxine Tills – Special Counsel
November 2011
adelaide | brisbane | canberra | melbourne | newcastle | perth | sydney | upper hunter
FOS – From the perspective of ASFL’s
Solicitor
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The Terms of Reference (TOR) of FOS operate as a contract between FOS and its members.
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The types of disputes FOS can consider are extremely broad.
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FOS’s discretion to exclude or continue to determine a dispute is also extremely broad under
clause 5.2 of TOR.
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One reason for FOS to exercise its discretion to exclude a claim is there is a more appropriate
place to deal with the dispute such as a Court, Tribunal or other dispute resolution scheme.
Another is that the Dispute is frivolous or vexatious or lacking in substance.
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If FOS exercises its discretion to exclude a Dispute, the Applicant has a right of review under
clause 5.3(b) if FOS is satisfied that the Applicant’s objection may have substance.
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There is no review or appeal provisions in the TOR for members.
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Increase in Disputes in FOS
 The GFC caused a spike in related claims for at least 2
years following it.
 Currently unclear if there is a substantial number of
GFC related claims yet to be made.
 Increase in FOS monetary jurisdiction from $150,000 to
$280,000 for Disputes lodged after 1 January 2012 may
lead to an increase in Disputes.
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When the claim is made against an AR/AFSL
 Importance of notifying PI insurer early.
 28 day response period from initial FOS letter has
usually expired before instructions from the PI insurer to
act in defence are obtained.
 Need to obtain the client file and a statement from the
AR quickly.
 Often difficult if AR has left the AFSL to obtain either
documents or a statement.
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When the claim is made against an AR/AFSL
(cont.)
 Difficult defending claims when only evidence is
documentary evidence which is incomplete.
 Importance of file notes of client meetings needs to be
stressed.
 TOR in clause 7.4 allows FOS to extend timeframes if
FOS considers this appropriate.
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FOS Process
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Not litigation.
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No litigation risk to claimant.
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No costs consequences to claimant.
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FOS not bound by legal rules of evidence (clause 8.1 TOR).
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Not a commercial process designed to achieve a commercial outcome.
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No ability to test the claimant by cross examination.
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FOS in making a determination may have to make findings of credit.
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FOS Process (cont).
 The claimant’s letter outlining the basis for the claim
against the AFSL usually sets out some relevant facts
and the loss.
 In simple cases this is sufficient to enable the solicitor
for the AFSL to assess liability.
 In more complex cases, particularly where there are
what amount to allegations of misleading and deceptive
conduct, claimants do not address causation issues.
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FOS Process (cont).
 There is often insufficient information provided by the
claimant to assess liability.
 Claimants provide a plethora of submissions most of
which are irrelevant.
 Increase costs for AFSL in reviewing and trying to
respond to submissions.
 Role of case officers in refining claims.
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FOS Process (cont).
 FOS may require a party to a Dispute to provide or produce for
FOS any information FOS considers necessary.
 FOS may obtain expert evidence from a legal expert or industry
expert appointed by FOS. FOS may require the AFSL to contribute
to the cost (not more than $3,000 unless exceptional circumstances
apply).
 Does AFSL need to submit signed witness statements of AR or
expert reports on issues such as whether a particular portfolio was
appropriate for the particular risk profile.
 Increase in costs to ASFL as a result.
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FOS Process (cont.) - Conciliation
 Conciliation is not a commercial process.
 Often only incentive for claimant to settle is time.
 Claimants sometimes do not understand the legal
issues or level of offers.
 Conciliators are not in a position to address legal issues
and ‘reality check’ claimants.
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FOS Process - Conciliation (cont.)
Good commercial settlements achieved through
conciliation where:
» Claimant had legal representation;
» AFSL had liability on my assessment;
» Claimant was commercial and was prepared to
accept a discount for the certainty of a settlement;
» Legal costs reduced as a result.
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FOS Process - Conciliation (cont.)
 Conciliation not successful where:
» Claimant did not understand legal issues;
» Claimant not prepared to settle for less than the
whole claim;
» Liability was not clear on my assessment–
negligence verses market forces.
 In those cases, should AFSL proceed to a
Recommendation without a conciliation conference?
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FOS Process (cont.)
 Calculation of quantum is often difficult.
 FOS article on the website provides guidance.
 Claimant’s inability to assess quantum or understand
why the quantum is not what they think it is, is often a
major impediment to settlement.
 Loss in inappropriate advice claim calculated by
comparing the performance of unsuitable investments
with the performance of suitable investments.
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FOS Process (cont.)
 Loss calculation in misleading or deceptive conduct
claims depends on whether the claim is a no transaction
or different transaction claim.
 In every Dispute, the party submitting that FOS should
take into account suitable investments must provide
evidence in support of the submission.
 Does this put the onus on the ASFL to provide expert
evidence to prove the loss?
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FOS Process (cont). – Quantum Issues
 Assessing quantum where loss has not crystallised is a
problem (i.e. shares/funds not sold).
 Assignment of investments to AFSL.
 Splitting Disputes into ‘claims’.
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Concerns
 With the increased monetary jurisdiction and splitting of
claims, query whether FOS is the appropriate venue for
complex and high value claims from the AFSL’s
perspective.
 AFSL may request FOS exercise its discretion to
exclude the dispute under Clause 5.2(a) TOR.
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Thank you
adelaide | brisbane | canberra | melbourne | newcastle | perth | sydney | upper hunter
www.sparke.com.au
Outcomes of FOS Disputes
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Amie Cousins, Manager Conciliation Team
Case Study#1: 18959 - Facts
● Applicant had a SMSF
● Advisor recommended three separate investments into
Basis Yield Fund totalling $130,000
● Applicant claimed
● That the advice received was inappropriate for needs;
● Nature of the investment was misrepresented; and
● That the advisor breached the service agreement in
place and that the standard of service was poor
● Applicant sought $103,382.21 ($130,000 invested, less
earnings)
Case Study#1: 18959 - Decision
Panel’s Decision
● The advisor had failed in
● Preparing;
● Implementing; and
● Reviewing the applicant’s strategy
● Investment not suitable to the client
● Compensation awarded.
Case Study#1: 18959 – Reasons for
Decision
● The asset allocation was made on generic basis
● Not tied to the risk profiling outcomes
● No real understanding of the product
● In particular, the effect of the product manager’s discretion; and
● The advisor did not understand impacts of integral gearing in the
product
and how this affected risk and performance
● The product was therefore treated as a defensive asset – when it was
not
● Further the advisor’s efforts to monitor and review the investment
were in breach of the service agreement.
Case Study#1: 18959 – Lessons Learned
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Know your client
Risk profiling tools are useful
Must justify with reasons if deviating from the
risk profile
Must not use tools that are weighted towards
pre-judged outcomes
Must do more than just use a risk profiling tool.
Case Study#1: 18959 – Lessons Learned
2. Know your product
 The advisor must understand the product
him/herself
 Research is a vital part of the picture
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But out of date research is not useful
Must be able to explain the product and its risks,
in terms the client can understand.
Case Study#1: 18959 – Lessons Learned
3.
Fixed Interest
All fixed interest investments cannot
automatically be put into the ‘safe’ part of the
portfolio
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Not all fixed interest products carry the same
level of risk
Some fixed interest products carry a risk of total
loss.
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Case Study#2:19060 - Facts
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Ms M sought advice regarding her retirement
planning
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Ms M was subsequently classified as a Balanced
investor
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The advisor’s recommendations included an
investment into the Basis Yield Fund
Case Study#2:19060 - Claim
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Ms M claimed that her adviser:
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Failed to complete a needs analysis
Inappropriately classified her as a balanced investor
Provided inappropriate advice
Failed to adequately disclose fees, costs, charges
Acted without authority.
As a result Ms M is claiming a loss of $62,131.77
on her portfolio – accountable to the Basis Yield
Fund.
Case Study#2:19060 – FSP’s Position
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Advisor held four separate meetings with Ms M
Ms M was correctly classified as a balanced investor
The fees were clearly explained
Despite no signed authority it is clear Ms M authorised the
advisor to proceed
The advisor recommended a well diversified portfolio of 11
managed funds
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Basic Yield Fund was 10% of portfolio
Basic Yield Fund had highest research rating
Advice was appropriate
Know your client rule was satisfied
Loss was caused by market conditions and specific product
failure
Case Study#2:19060 – Decision
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Advisor provided a good level of service, but
failed in relation to the provision of some
documentation
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However, these failures do not mean FSP is
automatically liable to compensate Ms M for her
loss
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Complaint really about Investment performance
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Complaint was not upheld.
Case Study#2:19060 – Reasons for Decision (1)
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The SOA provided good disclosure and a good
discussion/explanation of risk
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Did not downplay the risks
The SOA said “If you are not comfortable with this
allocation or do not understand what it means do not
proceed”
There was proper disclosure of fees and charges.
Case Study#2:19060 – Reasons for Decision (2)
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The advisor knew his product and matched it to
his client
He understood the product
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He had read the PDS
He had read research reports
He had twice met with the Business Development
Manager of the Fund
The fund was recommended as a medium term
investment – research reports support this
recommendation
Case Study#2:19060 – Lessons Learned
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Failure to fulfil certain obligations does not
necessarily mean a claim is upheld
Know your product and your client. Advisors
must make efforts to really understand the
product and then recommend it appropriately.
Documentation must be clear and disclose key
information
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Specific risks (don’t down play them)
Fees
Case Study 3#: 231331- Conciliation
Facts
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Mr P sought financial planning advice in March 2008, following his retirement
and the sale of a property. Mr P had never consulted a financial planner
before.
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Five accounts were set up and funds were placed into superannuation for
pension accounts for Mr P and his wife.
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Mr & Mrs P each subsequently received excess contributions tax bills from
the ATO. They believed this was due to incorrect advice.
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Their claim was for the amount of the tax bills ($13,950) and a refund of fees
paid over a 3 year period ($55,222.16) giving a total claim of $69,172.16.
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During FOS’s handling of the dispute, Mr P was diagnosed with dementia and
his daughter took over his FOS dispute.
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The claim amount was amended several times during the FOS dispute.
Case Study 3#: 231331- Conciliation
Claim
 Mr & Mrs P were dissatisfied with the strategy they had
been put into, claiming it was too complicated and had
attracted excessively high fees. They did not believe the
advice was in their best interests.
 They were novice investors for whom English was a
second language, and they had not understood the
strategy.
 They had lost money on their investment portfolio due to
the assets chosen being too risky.
Case Study 3#: 231331- Conciliation
FSP’s position
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The five accounts were necessary, as first the funds had to be placed into
superannuation, then into individual pensions. This accounted for four of the
accounts.
The fifth account was a joint investment account, which met Mr & Mrs P’s
objective of some capital growth in their investments.
The fees charged were a percentage of funds under management, and the overall
amount would have been the same no matter how many or how few accounts
there were.
The advice given had saved Mr & Mrs P tens of thousands of dollars as it was a
tax-effective strategy.
The FSP could demonstrate that the proper risk profiling and disclosure
processes had been followed and that Mr P had agreed to the strategy willingly.
The FSP disputed that Mr P was a novice investor who required capital protected
investments, due to the fact that, prior to Mr P consulting the FSP’s advisor, he
had approximately $1 million invested in direct shares and had been trading on
the share market for many years. The equities he had selected were far higher
risk than those recommended by the advisor.
Case Study 3#: 231331- Conciliation
At conciliation
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The FSP contact was able to explain to Mr P’s adult children the
rationale behind the strategy, and the benefits that their parents had
enjoyed, as a result of the strategy.
A key stumbling block to resolution was the fact that Mr P’s family had
flown to Sydney at their own expense some months earlier, in an
effort to resolve the complaint, and their interactions with the FSP
contact they met there had led to further misunderstandings.
Following private sessions, Mr P’s family accepted that the strategy
had led to significant savings on their parents’ part. However, they
remained firmly of the view that the FSP staff member in Sydney had
promised to compensate them for the tax bills their parents had
incurred.
Case Study 3#: 231331- Conciliation
Outcome
 Mr P’s family accepted that they could not
substantiate that there had been a loss.
 They remained upset by the way the previous
FSP contact had dealt with their matter.
 In order to achieve a resolution, the FSP offered
to compensate them in the amount of $13,950
which was the amount of the excess tax bills.
 Both parties ended the conciliation satisfied with
this outcome.
Case Study 4#: 235395 - Conciliation
Facts
 In early 2007 Mr T’s parents were tragically killed in an accident. As a result,
he inherited approximately $1 million.
 Mr & Mrs T had never consulted a financial planner before, lived in a rented
home and had never made any investments.
 They were referred to the FSP’s advisor by a friend and an SOA was
provided in August 2007.
 Mr & Mrs T stated that they made it very clear to the advisor that they wanted
to ‘park’ their money somewhere safe for about six months, while they took a
holiday and thought about what to do with their money long term.
 In fact the funds were invested into a market-linked investment immediately
and subsequently dropped in value significantly during 2008.
 Mr & Mrs T stated that they had been pressured into agreeing to this strategy
and that the risks were downplayed in their conversations with the advisor. Mr
& Mrs T felt that the strategy was inappropriate for them and the investments
chosen were too risky.
Case Study 4#: 235395 - Conciliation
Claim





Mr & Mrs T’s claim was $190,519.56, which included interest payments on a home loan
they had taken out. They stated they included this amount because the advisor had
assured them that the investment strategy would provide sufficient income for the
mortgage payments to be covered, and this had turned out not to be the case.
Mr T was of the belief that the true losses were in the order of $300,000 because he
had calculated that if they had put their original investment of $640,000 into a cash
management account, they would have earned a significant amount of interest since
August 2007.
The FSP disputed the claim calculation methodology.
Mr & Mrs T did recall having been asked questions about their tolerance to risk but
stated that the significance of their responses was not explained to them. They were
assessed as ‘growth’ investors and they did not believe that was an accurate reflection
of their attitude to risk.
Mr & Mrs T felt that when they consulted the advisor, they were naive investors and
were in a very vulnerable state of mind due to their recent bereavement. They stated
that the strategy and investments were presented as safe and secure.
Case Study 4#: 235395 - Conciliation
FSP’s position
 The FSP noted that a thorough fact find and risk assessment process was
undertaken, and that the documents had been signed.

Further, the advice was clearly expressed in the subsequent SOA. The FSP
believed the advice had a reasonable basis. Mr & Mrs T were seeking an
analysis of the benefits of a managed portfolio as against residential property.
The advice was provided with clear warnings and disclosures.

The FSP stated that there had been numerous conversations leading up to
and following the provision of advice, that the advice was fully explained, and
that Mr & Mrs T understood and willingly approved the recommendations.

The FSP stated that the losses were due to market downturn during the
global financial crisis and not to inappropriate advice.
Case Study 4#: 235395 - Conciliation
At conciliation

Mr & Mrs T accepted that the documentation did appear to outline the
benefits and risks of the strategy, and that they had signed the
documents of their own free will. However, they strongly felt that, in
his conversations with them, the advisor had significantly downplayed
the risks.

The FSP accepted that it possibly would have been more suitable to
assess Mr & Mrs T as balanced investors, rather than growth
investors.

Discussion was had around the claim calculation methodology, and
eventually the parties agreed to look at a methodology that compared
the performance of a growth portfolio during the relevant period, with
the performance of a balanced portfolio.
Case Study 4#: 235395 - Conciliation
Outcome

Both parties indicated they were keen to settle.

Using the claim methodology of comparing the performance of growth
and balanced portfolios, a figure of $75,000 was agreed to.

The Applicants were satisfied that, taking into account all factors of
their case, the settlement represented the best outcome they were
likely to achieve by any means.

The FSP was satisfied that it had responded appropriately and had
mitigated its risks.

Both parties were glad to close the file.
Myth-busting Statistics

Alison Maynard - Ombudsman, Investments, Life
Insurance & Superannuation
Myth-busting Statistics
Disputes Received
2009
2010
1/1/1130/6/11
Investments
1913
2136
806
Margin Loans
160
54
34
TOTAL
2073
2190
840
Investments & Margin Lending Disputes
Disputes Resolved 1 Jan 2010 – 30 Jun 2011
Disputes Resolved
%
Outside Terms of Reference
334 (15)
Discontinued
484 (22)
Agreed Resolution
961 (41)
Decision in favour of Applicant
230 (10)
Decision in favour of FSP
156 (7)
Other
54 (2)
TOTAL
2,219
(100)
Outcome Amounts
Outcome Amounts for decisions in favour of Applicants
(1/1/10- 30/6/11)
0-50,000
134
50,000 – 100,000
32
100,000 – 150,000
20
150,000 – 200,000
4
200,000 – 250,000
1
400,000 – 400,000
1
No Claim Amount recorded
24
TOTAL
216
* Excludes 14 margin loan disputes not included in table
Outcome Amounts
Outcome amounts for disputes resolved by agreement.
0 - 50,000
456
50,000 – 100,000
45
100,000 – 150,000
11
150,000 – 200,000
1
200,000 – 250,000
3
250,000 – 300,000
1
450,000 - 500,000
2
No outcome amount recorded
953
TOTAL
1,472
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