Effective Management of PI Disputes at FOS Sydney 8 November
2011 Melbourne 9 November 2011
Slide 2
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) Presented by
Slide 3
Alison Maynard - Ombudsman, Investments, Life Insurance &
Superannuation Introduction and Welcome
Slide 4
The role of FOS Whats 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 Introduction and Welcome
Slide 5
Alison Maynard - Ombudsman, Investments, Life Insurance &
Superannuation The role of FOS
Slide 6
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
Slide 7
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. The role of FOS
Slide 8
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
Slide 9
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) The role of FOS TOR 8.2
Slide 10
What's new at FOS ? Alison Maynard - Ombudsman, Investments,
Life Insurance & Superannuation
Slide 11
Some significant changes Monetary limits and caps Consequential
and non-financial loss Time limits Recommendations and
determinations New Terms of Reference
Slide 12
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
Compensation Caps
Slide 13
Amount of caps
Slide 14
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)
Compensation
Slide 15
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 Time limits
Slide 16
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.
Recommendation
Slide 17
For the purposes of applying monetary limit/cap. A set of facts
when put together give the Applicant a right to ask for a remedy
(cause of action) FOS cannot aggregate claims just because they
arise out of an ongoing relationship between the Applicant and the
Financial Services Provider FOS interpretation based on Finkelstein
J. in Financial Industry Complaints Service v Deakin Financial
Services [2006] FCA 1805. What is a claim at FOS?
Slide 18
Multiple parties e.g. husband, wife, husband and wife jointly,
SMSF will all be entitled to make a separate claim 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.
What is the practical effect?
Slide 19
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?
Slide 20
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: Suitable
investments the Applicant has switched to (where the Applicant has
switched from the unsuitable investment); The suitable benchmark
asset allocation used by the FSP; The suitable industry benchmark
allocation; Suitable investments that were actually recommended by
the FSP to the Applicant; or Other investments or indices that
represent suitable investments. How does FOS calculate loss in
financial advice disputes?
Slide 21
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 Applicants position
would have taken. Contributory Negligence and Mitigation of
Loss
Slide 22
When did the FSPs breach of duty or contract occur? When did
the Applicant become aware of the FSPs breach or should have become
aware? Were there any actions the Applicant could have taken to
avoid or minimise the consequences of the FSPs breach? Were the
actions what a reasonable person in the Applicants position would
have done? FOS will look at
Slide 23
Amie Cousins, Manager Conciliation Team The FOS Process
Slide 24
Process
Slide 25
Disputes lodged by several means including online 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
Lodging a dispute
Slide 26
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
Where FSP has not resolved dispute
Slide 27
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
Slide 28
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 Dispute handling
(2)
Slide 29
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 (3)
Slide 30
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 experts reasonable fees limited to $3,000 per dispute unless
circumstances are exceptional Dispute handling (4)
Slide 31
FOS has a new two step decision making process: Recommendation
Determination Decision making process
Slide 32
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 Recommendation
Slide 33
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
Slide 34
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
Decision making process
Slide 35
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?
Slide 36
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 Ombudsman or Panel in ILIS?
Slide 37
Timeliness, timeliness, timeliness! First response due in 28
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 (its 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.auwww.fos.org.au Dealing with the FOS process
Slide 38
Morning Tea
Slide 39
Ewen McKay, Assetinsure The PI Insurer Perspective
Slide 40
FOS Seminar for PI Insurers THE PI INSURER PERSPECTIVE Ewen
McKay - Assetinsure Pty Ltd
Slide 41
Agenda The good. The not so good. The not so good at all. The
future? Page 41
Slide 42
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
Slide 43
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: 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. Page 43
Slide 44
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
Slide 45
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. Page 45
Slide 46
Maxine Tills, Special Counsel, Sparke Helmore Representing PI
Insurers at FOS
Slide 47
adelaide | brisbane | canberra | melbourne | newcastle | perth
| sydney | upper hunter The Financial Ombudsman Service (FOS)
Presented by: Maxine Tills Special Counsel November 2011
Slide 48
48 FOS From the perspective of ASFLs Solicitor The Terms of
Reference (TOR) of FOS operate as a contract between FOS and its
members. The types of disputes FOS can consider are extremely
broad. FOSs discretion to exclude or continue to determine a
dispute is also extremely broad under clause 5.2 of TOR. 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. 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
Applicants objection may have substance. There is no review or
appeal provisions in the TOR for members. 48
Slide 49
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. 49
Slide 50
50 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.
Slide 51
51 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.
Slide 52
52 FOS Process Not litigation. No litigation risk to claimant.
No costs consequences to claimant. FOS not bound by legal rules of
evidence (clause 8.1 TOR). Not a commercial process designed to
achieve a commercial outcome. No ability to test the claimant by
cross examination. FOS in making a determination may have to make
findings of credit.
Slide 53
53 FOS Process (cont). The claimants 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.
Slide 54
54 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.
Slide 55
55 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.
Slide 56
56 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.
Slide 57
57 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.
Slide 58
58 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?
Slide 59
59 FOS Process (cont.) Calculation of quantum is often
difficult. FOS article on the website provides guidance. Claimants
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.
Slide 60
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? 60
Slide 61
61 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.
Slide 62
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 AFSLs perspective. AFSL may request
FOS exercise its discretion to exclude the dispute under Clause
5.2(a) TOR. 62
Slide 63
adelaide | brisbane | canberra | melbourne | newcastle | perth
| sydney | upper hunter www.sparke.com.au Thank you
Slide 64
Amie Cousins, Manager Conciliation Team Outcomes of FOS
Disputes
Slide 65
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 - Facts
Slide 66
Panels Decision The advisor had failed in Preparing;
Implementing; and Reviewing the applicants strategy Investment not
suitable to the client Compensation awarded. Case Study#1: 18959 -
Decision
Slide 67
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 managers 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
advisors efforts to monitor and review the investment were in
breach of the service agreement. Case Study#1: 18959 Reasons for
Decision
Slide 68
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. Case Study#1: 18959
Lessons Learned
Slide 69
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. Case Study#1: 18959
Lessons Learned
Slide 70
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. Case Study#1: 18959
Lessons Learned
Slide 71
Ms M sought advice regarding her retirement planning Ms M was
subsequently classified as a Balanced investor The advisors
recommendations included an investment into the Basis Yield Fund
Case Study#2:19060 - Facts
Slide 72
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 $62,131.77 on her portfolio accountable to the
Basis Yield Fund. Case Study#2:19060 - Claim
Slide 73
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 Case Study#2:19060 FSPs
Position
Slide 74
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. Case Study#2:19060 Decision
Slide 75
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. Case Study#2:19060 Reasons for Decision
(1)
Slide 76
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 Case Study#2:19060
Reasons for Decision (2)
Slide 77
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 (dont down play them) Fees Case
Study#2:19060 Lessons Learned
Slide 78
Facts 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. Five accounts were set up and
funds were placed into superannuation for pension accounts for Mr P
and his wife. Mr & Mrs P each subsequently received excess
contributions tax bills from the ATO. They believed this was due to
incorrect advice. 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. During FOSs
handling of the dispute, Mr P was diagnosed with dementia and his
daughter took over his FOS dispute. The claim amount was amended
several times during the FOS dispute. Case Study 3#: 231331-
Conciliation
Slide 79
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
Slide 80
FSPs position 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 Ps
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 FSPs 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
Slide 81
At conciliation The FSP contact was able to explain to Mr Ps
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 Ps 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 Ps 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
Slide 82
Outcome Mr Ps 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 3#: 231331- Conciliation
Slide 83
Facts In early 2007 Mr Ts 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 FSPs 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
Slide 84
Claim Mr & Mrs Ts 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
Slide 85
FSPs 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
Slide 86
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
Slide 87
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. Case Study 4#: 235395 -
Conciliation