THE FOS CIRCULAR
PUBLISHED ON 22 JULY 2015
1.0 CHIEF OMBUDSMAN’S MESSAGE
1.1 As of 15 June 2015 FOS has eliminated the dispute backlog at all stages of our dispute process. This means that there are no disputes that have been unallocated for more than seven days at any stage of the FOS dispute process
1.2 In this issue FOS has included their ten tips for financial advice for FSPs who provide personal advice to retail clients.
1.3 FOS has published two Approach documents explaining how they deal with non-financial loss claims and the award of interest.
1.4 The 2015-2016 Business Plan has now been published and is available for viewing online at www.fos.org.au.
2.0 THE FOS APPROACH
2.1 The FOS approach to Non-Financial Loss Claims
- FOS will only award compensation for non-financial loss where there has been an unusual amount of physical inconvenience.
- FOS expects Applicants to be moderately robust, bear the normal degree of inconvenience experienced when a problem occurs
- FOS will considers the severity and impact of the FSP’s conduct on the particular Applicant.
- The maximum amount FOS can award for non-financial loss is $3,000
- FOS may also decide a non-financial remedy, such as a letter of apology, is appropriate.
- It is not necessary for the Applicant to request compensation for their non-financial loss; FOS can award compensation if it considers it appropriate.
2.2 The FOS Approach to awarding interest in insurance
- Interest will normally be awarded if FOS accepts the consumer is owed a sum of money under the policy.
- Interest is payable from the date it was unreasonable for the FSP to have withheld payment of the amount it was liable to pay.
- FOS may also take into account other factors, such as whether a consumer has unreasonably failed to provide information reasonably requested by the FSP.
3.0 Key Determinations
FOS takes a common sense approach to the meaning of gainful occupation in a mortgage protection policy.
The Applicant was a 53 years old, self-employed bricklayer. He made a claim for disability benefits under the FSP’s Mortgage Protection policy. The policy provided cover for mortgage payments for a period of 12 months from claim lodgement due to the insured’s inability to perform their usual occupation. After this initial period, there was cover for up to a further 18 months, subject to the insured’s total and continuous inability to engage in or attend to any ‘Gainful Occupation’. The policy defined ‘Gainful Occupation’ as any occupation for which the insured may receive a financial reward.
FOS considered it would not be fair to exclude the Applicant from the benefit of the policy in all the circumstances of the Applicant’s disability and the improbability of him obtaining paid work other than physical labour which he is no longer able to do.
4.0 DISPUTE PROCESS REFORM
4.1 The new dispute process involves:
- A new process to fast-track decisions for simpler and low-value disputes
- A new registration and referral process to give financial services providers a final opportunity to resolve their dispute directly with their customers before the FOS investigation begins
- Provision of specialist expertise earlier in the dispute process and the reduction of multiple touch points and process stages
- A more efficient financial difficulty dispute process to enhance and streamline our approach and processes
- New format for decisions that more effectively communicate the outcomes of disputes to both applicants and financial services providers
5.0 FOS’s TOP TEN TIPS FOR FINANCIAL ADVISORS
5.1 Take detailed file notes
Contemporaneous file notes of conversations and actions are solid gold when a dispute comes to FOS
5.2 Clear goals and strategy
FOS does not consider client objectives and instructions written in industry terms that few clients would understand to be a reliable record.
5.3 Turn clients away when appropriate
If your services are not suited to a particular client don’t try to shape the client to your offering.
5.4 Explain the risks to clients who choose to act against your advice
Explain the risks in language the client understands make a contemporaneous file note and have the client sign it.
5.5 Explain what types of service you are providing
Clients don’t know the difference between information, general advice, personal advice and execution-only services.
5.6 Use template forms and documents carefully
Tailor documents to your client’s financial literacy. Statements of Advice must be clear, concise and effective.
5.7 Use risk profiling tools carefully
Remember, risk profiling tools are only tools. They all have inherent flaws that must be recognised and addressed by the adviser.
5.8 Don’t give cookie cutter advice
The best interest’s duty requires that advice be reasonably likely to achieve the client’s goals and that alternatives have been considered.
5.9 Understand and explain the products
Don’t just hand over a Product Disclosure Statement (PDS) You must explain the PDS to your client and record your discussion in the Statement of Advice (SOA)
5.10 Be clear about the advice relationship with clients you know
If you are giving advice to a friend, relative, colleague or employee, it is critical to formalise and document the process as you would for any other client. Declare any conflicts of interest as you would for any other client.
6.0 KEY SYSTEMIC ISSUES
6.1 Premium Increases
Following a Determination issued in December 2014, it was confirmed that the FSP was not entitled to index customer premiums after the age of 55 in certain circumstances. A high level audit of affected customers has now commenced.
6.2 Incorrect claim denial
In a number of disputes the FSP had denied the Applicants’ claims under their Comprehensive Motor Vehicle insurance policies as a result of failure to pay a monthly premium instalment. In addition to denying the claims, the FSP purported to cancel the policies. The disputes were the subject of FOS Determinations.
6.3 Improper collection activity
The FSP had advised that it sent default letters to customers who were meeting their repayment arrangements as a reminder that their accounts were still in arrears. This was despite the customer meeting the repayments. FOS was of the view that this matter did represent a definite systemic issue.
6.4 Compliance with ePayments Code
A dispute illustrated that the FSP did not take the ePayments Code into account when considering complaints about unauthorised transactions. The FSP agreed that it had not properly considered a number of unauthorised transaction complaints. It had relied on the Visa credit card scheme rules rather than the ePayments Code in error.
6.5 Intention to recover FOS costs from Applicant
The FSP was notified that several disputes had been received by FOS in which it had passed on the costs of dealing with a FOS dispute to the applicants in breach of clause 13.1 of our Terms of Reference and also in breach of ASIC’s regulatory guide 165.
IMPORTANT NOTICE
This document is designed to provide helpful general guidance on some key issues relevant to this topic. It should not be relied on as legal advice. It does not cover everything that may be relevant to you and does not take into account your particular circumstances. It is only current as at the date of release. You must ensure that you seek appropriate professional advice in relation to this topic as well as to the currency, accuracy and relevance of this material for you.
Liability limited by a scheme approved under Professional Standards Legislation. Legal practitioners of Radford Lawyers Pty Limited are members of the scheme.
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