The Role of FOS in investment, Life Insurance and Superannuation Disputes. Dr June Smith, Lead Ombudsman, Investments & Advice July 2016

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1 The Role of FOS in investment, Life Insurance and Superannuation Disputes Dr June Smith, Lead Ombudsman, Investments & Advice July 2016 Based on the presentation from Shane Tregillis to FEAL Forum on Wednesday, 3 August 2016

2 Our role FOS Australia offers fair, independent and accessible dispute resolution for consumers and members who are unable to resolve complaints through internal dispute resolution (IDR). We: Share our experience to improve customer service standards across the financial sector through member forums, publications, our National Conference and various industry engagement. Have a tailored approach to each financial services sector. Have over 20 years experience. Have restructured our dispute resolution process to achieve fair, timely and consistent treatment. Have highly specialised staff and multiple ombudsman in superannuation, general and life insurance, investments and advice, banking and finance. Page 2

3 Our key message to industry Effective, efficient and experienced external dispute resolution (EDR) is important for: Maintaining confidence in a trusted service Assisting in the provision of fair, honest and professional financial services providers Providing access to timely, independent, low cost dispute resolution when things go wrong Ensuring fair, efficient and consistent treatment of complaints Effective dispute resolution, whether its internal or external, is good for your business, your reputation and your profession. Client value proposition Client retention Opportunity to resolve matters early and in-house Improve business systems and services through feedback and responding to dissatisfaction Page 3

4 FOS Australia update An update from FOS Australia 13,703 Members 5005 AFS Licensees and 8698 Authorised Credit Representatives 31,895 disputes received in FY 18,253 disputes received FYTD (July 15 - Jan 16) 94% of disputes resolved within 90 days Over 80% of members did not have a dispute in Page 4

5 Superannuation complaints and TOR Similarities & Differences FOS SCT Deals with disputes against decisions of trustees of regulated superannuation funds X Is an independent forum to resolve disputes Deals with disputes lodged by trustees of regulated superannuation funds x Is governed by legislation x Is governed by its Terms of Reference x Is free of charge for consumers (also referred to as members of superannuation funds) Most superannuation-related investment disputes involve the activities of a financial adviser x Deals with disputes against insurers and others who provide superannuation services (certain differences apply) Is funded by industry or through a levy Deals with disputes in a cooperative, efficient, timely and fair manner (for the SCT, this is expressed as fair, economical, informal and quick) Most life insurance disputes handled in were about denial of claims and most of these concerned nonsuperannuation fund insurance policies Is not bound by rules of evidence Is required to comply with the rules of natural justice Is not able to deal with disputes that relate to management of the fund (or scheme) as a whole Can refuse to consider claims if they are frivolous, vexatious or lacking in substance Has a presumption against legal representation Publishes decisions on its website (with the parties names omitted) Deals with the vast majority of disputes on the papers, with the parties rarely appearing in person Its decisions can be challenged in court (in limited circumstances) x Determines what outcome it considers fair at the time of its Determination x Is there a cap on the amount it can award in its decisions? $280,000 $7,500 per month (for income protection) Unlimited Page 5

6 Accepted disputes by product line: July 2015-June 2016 Outside of our jurisdiction, 0.51% Life Insurance, 4.89% Payment Systems, 5.20% Traditional Trustee Services, 0.10% Product line Accepted disputes % Credit 10, % Investments, 5.10% General Insurance, 30.65% Credit, 46.65% Deposit Taking 1, % General Insurance 6, % Investments 1, % Life Insurance 1, % Outside of our jurisdiction % Payment Systems 1, % Traditional Trustee Services % Total 22,376 Deposit Taking, 6.91% Note: Numbers on the table based on issue count.

7 I & A Disputes accepted I&A disputes accepted (Issue count for Investment, Life Insurance and Trustee disputes) July 2015 to June 2016 July 2014 to June 2015 Variance Top 5 products Income Protection % Mixed Asset Fund/s % Shares % Term Life % Self-Managed Funds % Top 5 issues Inappropriate advice % Denial of claim % Failure to follow instructions/agreement % Delay in claim handling % Service quality % Top 5 SSCs Life insurer % Financial advisor / planner % Stockbroker % MIS operator / fund manager % Superannuation fund trustee / advisor % Page 7

8 Outside Terms of Reference Terms of Reference 5.1(h) Trustee decisions Disputes closed from July 2014 to 30 June 2016 with referral forum SCT: 2014/ /16 6 Terms of Reference 5.2(a) More appropriate place to deal with dispute Disputes closed from July 2014 to 30 June 2016 with referral forum SCT: 2014/ /16 FTYD 300 Page 8

9 Top ten tips for advisors 1. Document, document including detailed file notes 2. Know your self know your business model, your service delivery and your competencies 3. Turn clients away or refer where appropriate 4. Explain what service you can and will provide scope the engagement 5. Know the client understand and be clear about goals and strategy and link to advice 6. Use risk profiling tools and analysis carefully it is just one aspect of the information to take into account 7. Understand and explain the financial products you recommend 8. Explain risk in language your client understands 9. Use template forms and documents carefully 10. Avoid cookie cutter advice Page 9

10 An ethical perspective Exercise professional judgment: 1. Client first 2. Keep promises do what you say you will 3. Act with integrity mistakes will happen, identify, fix, remediate, learn 4. Act diligently timely, responsive, communicate 5. Act within your competence know yourself, your business and your service delivery and say no 6. Act objectively - don t be tempted by win/win 7. Be fair in service delivery and dispute handling 8. Professionalism dignity and respectful dealings, cooperation 9. Vocations serve the public interest, the profession and their client Page 10

11 FOS Australia dispute resolution process

12 Interactive dispute process map Now available on FOS secure services Page 12

13 Meet Herman, your robo adviser Automated Financial Product advice Uses algorithms and technology No direct human involvement 24/7 service delivery Immediate updates and access to markets Page 13

14 Disruption by algorithm Benefits Accessible Risks Clarity of service provision In whose interests Convenient Set and forget Low cost Virtual services One size fits all What goes in comes out Whose money/information Page 14

15 Creating a legal playing field with regulation The law is technology neutral Personal or General advice? Organisational competence obligations Monitoring and testing algorithms Reviewing digital advice Page 15

16 The role of culture and accountability Caveat Emptor AVOID The machine knows all SEEK Customer first Ostrich behaviour The Algorithm did it Confidential Fairness Moat theory Who owns the data Accountable Transparent Conflicts of interest One size fits all Trust Page 16

17 Want to know more? Resources available for FOS Australia members Free FOS Member Forums see The FOS National Conference see The FOS Approach documents that explore how FOS approach the issues in dispute The FOS Circular our quarterly newsletter, designed to facilitate dispute resolution by providing practical information and explaining our approach on substantive issues. Membership queries: Ryan Smith Events queries: Claire Beattie More information: or 1800 FOS AUS Page 17