The number of complaints regarding financial advice, including those related to SMSFs, received by the Australian Financial Complaints Authority (AFCA) fell markedly in the last financial year, but concerns remain about the status of SMSF clients.
The authority this week released its 2023/24 annual review, which stated the number of investment and financial advice complaints received fell from 4840 in 2022/23 to 3559 in the 2024 financial year, a decline of 26 per cent. The review also showed the number of SMSF complaints received fell from 1696 to 678 over the same period, a decline of 60 per cent.
AFCA noted the number of complaints received was at an all-time low of 2709, if those relating to Dixon Advisory and Superannuation Services were excluded, which reflected the impact of enhanced education standards and increased professionalism within the industry.
Despite the decreases, inappropriate advice continued to be the most complained about issue, accounting for 706 complaints, or 20 per cent of complaints received, and this was reflected in some SMSF advice by the misclassification of clients as wholesale investors.
“There is ongoing confusion in the advice space regarding the classification of SMSFs as wholesale,” the review stated.
“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.”
AFCA provided a case study of how this occurred where a corporate trustee of an SMSF was enrolled in a managed discretionary account (MDA) service only available to wholesale clients.
The MDA allowed the related advice firm to carry out margin foreign exchange trading on behalf of the fund using a trading account, opened under the trustee’s name, that had a leverage ratio of 1000 to one.
The SMSF deposited $615,000 into the account and trading conducted by the advice firm led to significant losses, prompting the fund to seek compensation, claiming it should not have been classified as a wholesale client nor allowed to trade at such high leverage.
An AFCA panel agreed with this claim as the SMSF had less than $10 million in assets and should have been treated as a retail client and not had access to the MDA service or a margin trading account with leverage above 30 to one.
While the panel determined the SMSF had suffered a loss of $442,520, compensation was reduced by a third to $295,013.34 as it also noted the director of the SMSF trustee contributed to the loss by not acting with due care.
The AFCA report was released on the same day as the first report on the operations of the Compensation Scheme of Last Resort, which stated 40 per cent of claims related to investment and financial advice were tied to SMSFs.
