Seminar for Professional Indemnity Insurers Effective Management of PI Disputes at FOS

Transcription

1 Seminar for Professional Indemnity Insurers Effective Management of PI Disputes at FOS Melbourne, 12 October 2010 Sydney, 13 October 2010 Alison Maynard, Ombudsman, Investments, Life Insurance & Superannuation Ewen McKay, Assetinsure Jeremy Peck, Partner, Moray & Agnew Michael Ridgway, General Manager Early Resolutions Amie Cousins, Manager Conciliation Team

2 Introduction and Welcome Alison Maynard

3 Introduction and Welcome PI Insurer Perspective The role of FOS The new Terms of Reference The FOS Process Representing PI Insurers at FOS More on jurisdiction Outcomes of FOS Disputes Myth-busting statistics Questions

4 The Professional Indemnity Insurer Perspective Ewen McKay, Assetinsure

5 The Role of FOS Alison Maynard

6 The Role of FOS 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.

7 The Role of FOS Member Obligations 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 Must pay fees/levies.

8 The Role of FOS Decision making criteria (RG ) 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.

9 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)

10 The new Terms of Reference Michael Ridgway

11 New Terms of Reference Some significant changes Monetary limits and caps Consequential and non-financial loss Time limits Recommendations and determinations

12 Compensation Caps 9.7 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

13 Amount of caps 1 January January 2012 Banking & Finance $280,000 $280,000 General Insurance $280,000, but $3,000 for TP motor vehicle claim $280,000, but $3,000 for TP motor vehicle claim Insurance Broking $100,000 $150,000 Investments, Life Insurance & Superannuation Lump Sum insurance - $280,000 Income stream insurance - $6,700 per month Investment - $150,000 Mutuals $280,000 $280,000 Lump Sum insurance - $280,000 Income stream insurance - $7,500 per month Investment - $280,000

14 Compensation 9 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)

15 Time limits Dispute must be lodged with FOS: 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

16 Recommendation Recommendations have been introduced as the first stage of the decision-making process. A case will proceed to determination by an Ombudsman or Panel if either party rejects the recommendation.

17 The FOS Process Michael Ridgway & Amie Cousins

18 Process

19 Lodging a dispute Disputes lodged by several means including online dispute form, , 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

20 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

21 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 21 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

22 Dispute handling (2) FOS is focused on assisting FSPs and Applicants resolve disputes by agreement New TOR and dispute process provide for variety of dispute resolution methods including: 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

23 Dispute handling (3) To assist in consideration of dispute, FOS can require a party to: - take action - provide necessary information - attend interview FOS can appoint independent expert to report to FOS 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

24 Decision making process FOS has a new two step decision making process: Recommendation Determination

25 Recommendation 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

26 Decision making process 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

27 Decision making process When considering whether to expedite a dispute to Determination, FOS takes into account the circumstances of the dispute, including: 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

28 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

29 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

30 Dealing with the FOS process Timeliness, timeliness, timeliness! First response due in 21 days. Usually correspondence from FOS will give you good information 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) 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:

31 Morning Tea

32 Representing PI Insurers at FOS Jeremy Peck, Partner Moray & Agnew

33 More on Jurisdiction Alison Maynard

34 Meaning of claim RG139 requires FOS to apply compensation caps on a per claims basis. Cannot aggregate separate claims Claim refers to the set of facts that, put together, give an Applicant the right to ask for a remedy One claim or multiple claims may be raised by Applicant Where FOS deals with a number of claims together as a single dispute, the caps apply to each claim within the dispute

35 Outcomes of FOS Disputes Amie Cousins

36 Case Study#1: 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, ($130,000 invested, less earnings)

37 Case Study#1: 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.

38 Case Study#1: 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.

39 Case Study#1: Lessons Learned 1. 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.

40 Case Study#1: Lessons Learned 2. Know your product The advisor must understand the product him/herself Research is a vital part of the picture But out of date research is not useful Must be able to explain the product and its risks, in terms the client can understand.

41 Case Study#1: Lessons Learned 3. Fixed Interest All fixed interest investments cannot automatically be put into the safe part of the portfolio Not all fixed interest products carry the same level of risk Some fixed interest products carry a risk of total loss.

42 Case Study#2: Facts Ms M sought advice regarding her retirement planning Ms M was subsequently classified as a Balanced investor The advisor s recommendations included an investment into the Basis Yield Fund

43 Case Study#2: Claim Ms M claimed that her adviser: 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, on her portfolio accountable to the Basis Yield Fund.

44 Case Study#2:19060 FSP s Position 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 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

45 Case Study#2:19060 Decision Advisor provided a good level of service, but failed in relation to the provision of some documentation However, these failures do not mean FSP is automatically liable to compensate Ms M for her loss Complaint really about Investment performance Complaint was not upheld.

46 Case Study#2:19060 Reasons for Decision (1) The SOA provided good disclosure and a good discussion/explanation of risk 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.

47 Case Study#2:19060 Reasons for Decision (2) The advisor knew his product and matched it to his client - He understood the product 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

48 Case Study#2:19060 Lessons Learned 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 Specific risks (don t down play them) Fees

49 Case Study#3: Facts (1) Dr M approached the advisor for retirement planning advice Fact finding led to set of recommendations built around a seven year investment horizon with a focus for growth SMSF was established and the advisor recommended investments in a unit trust and a cash fund Continuous salary sacrificing and dollar cost averaging also recommended

50 Case Study#3: Facts (2) The markets began to fall and Dr M was concerned with preserving his capital Dr M sought his advisor s advice. A portfolio review was conducted and the advisor recommended that Mr M stick with his strategy of dollar cost averaging and wait for the market to rebound Dr M subsequently went against this advice and transferred the negatively performing funds to his cash fund

51 Case Study#3: Claim Dr M claimed: That his advisor had inappropriately advised him not to transfer his money to a cash fund; His advisor should have reassessed his strategy in light of the market volatility: That he had a reasonable expectation that his advisor would provide advice on market fluctuations and that any advice given should be expected to maximise returns; and That his advisor did not offer an early review despite the falling returns on his investment Dr M claimed $16,940.09, representing the capital reduction from the date Dr M first raised the option of switching to cash to the date Dr M actually switched the investments contrary to the advice provided.

52 Case Study#3: Decision The advice provided was poorly documented and did not comply with ASIC Regulatory Guideline 175 Despite further advice provided, advice documentation was not produced However, this did not make the advice inappropriate for Dr M s circumstances at the time No compensation awarded The failure to provide a compliant Record of Advice is respect of the hold strategy was not the cause of the delay in switching to the cash fund

53 Case Study#3: Reason for Decision (1) The service agreement did not suggest that any realtime continual assessment of Dr M s portfolio would take place Just because the agreement does not specifically state that a service won t be provided, doesn t mean that it will The allegation brought by Dr M primarily refers to the Know Your Client rule Ordinarily an expressed desire by a client to their adviser to move to a more defensive asset is indicative of a change toward the conservative in the consumer s risk tolerance However, Dr M, by his own admission, said that his tolerance for risk had not changed

54 Case Study#3: Reason for Decision (2) The test of the advisor s obligations is not to provide the best advice, or the correct advice given the benefit of hindsight, merely that the advice was appropriate at the time, given the information available. The strategy developed for Dr M was reasonably highrisk in order to try to achieve his agreed upon objectives The risks were disclosed One strategy adopted was to invest over a long timeframe and not react to short-term volatility The hold strategy was in accordance with Dr M s tolerance for risk, needs and objectives at the time of the advice.

55 Case Study#3: Lessons Learned Failure to comply with obligations does not necessarily cause the loss Advisors are not required to provide the best advice, or the correct advice given the benefit of hindsight. They are required to provide advice that is appropriate/justifiable/reasonable at the time, given the information available.

56 Case Study 4# - Conciliation - Facts Mr and Mrs M had a long standing relationship with Mr T and their financial advisor. They invested in AA shares on Mr T s advice that they were appropriate to their super fund. He reserved the shares for them. Initially they did not take up the offer, but were convinced over the course of further conversations.

57 Case Study 4# - Conciliation - Client s Position Mr and Mrs M lost $23,000 on the shares Claimed shares not properly researched Claimed they were pressured by follow up phone calls after they initially declined to take up the offer.

58 Case Study 4# -At Conciliation Mr T: Explained in great detail the research undertaken Apologised that clients felt pressured, and spoke about the degree of service he offered his clients. He was extremely concerned about this perception and reminded the clients of their good relationship to date and the years of good service he had provided.

59 Case Study 4# - Conciliation - Outcome Mr and Mrs M acknowledged that Mr T had not been trying to act as a salesman Although Mr and Mrs M were not happy with the outcome of their investment, they accepted that Mr T had conducted appropriate research and that the investment was a fit with their portfolio Mr T made an ex-gratia offer of $1,500 to Mr and Mrs M to demonstrate that he valued the relationship and this was accepted.

60 Myth-busting Statistics Alison Maynard

61 Investments Disputes Disputes Received 1/7/09 30/9/10 Derivatives/ Hedging 68 3% Managed Investments 1,214 50% Other % Real Property 2 0% Securities % Superannuation % %

62 Investments Disputes Outcomes 1/7/09 30/9/10 Conciliation 74 Assessment 4 Decision in favour of applicant 108 Decision in favour of FSP 70 Discontinued 582 Negotiation 189 Other 1 OTR 410 Resolved by FSP 561 1,949

63 Investments Disputes Outcome Amounts Industry Claim Amount Outcome Amount Financial Planning $60,042, $10,616, Managed Investments $7,847, $488, Stockbroking $6,590, $1,671, Other $985, $205, TOTAL $75,465, $12,982,165.68

64 Questions?

65 Thank You

66 Feedback Forms