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Fees refunded after portfolio complaint

An investment adviser has refunded client fees after she complained about an investment that reduced in value while she held it.

Wednesday, March 7th 2018, 6:00AM 4 Comments

by Susan Edmunds

The case was heard by the Insurance and Financial Services Ombudsman Scheme at the end of last year and it has published its case note.

The client met the authorised financial adviser in 1999. When she sold her house in 2003, she added to the investments she held with him.

In 2010, he encouraged her to consolidate her investments in a portfolio-based system with one investment provider.

A year later, a risk profile put her as a moderate investor and she was advised to change her investments from a growth to a moderate portfolio.

In May and August 2012 the portfolio was rebalanced, eventually becoming 22% cash, 37% bonds and 41% equities.

She retired in 2012 and began withdrawing money from her investments shortly afterwards.

In May 2014, her portfolio was reviewed at her request to 31.5% cash, 33% fixed interest and 35.5% shares.

In January 2016, the client and adviser met and she asked to withdraw her money because she was not happy with its performance.

She complained the next March and pulled her funds, saying the adviser had failed to notify her sufficiently of his exclusive arrangement with the portfolio investment service; she had concerns about the choice of the portfolio investment service for his clients; the adviser failed to monitor the portfolio investment service’s performance; one of the investment portfolios was not prudent, as the investment reduced in value over the period of her investment; and the adviser’s advice to her was substandard.

In May last year, the adviser offered a goodwill payment by way of a refund of fees to resolve the complaint but the client took it to IFSO instead.

The IFSO case manager said it could only look at the adviser’s conduct since the Financial Advisers Act came into force. An independent AFA was asked to review the case since 2010 and determined none of the advice was wrong and that a six-step process have been followed “to a reasonable degree”.

The client had concerns that the adviser did not discuss or apply any specific benchmarks to the investments.

The adviser told the case manager that he monitored the investments by having regular meetings with the fund managers and by internally benchmarking the performance of the funds with other similar funds.

The independent adviser noted that the use of benchmarks was not a requirement of a reasonable adviser.

IFSO said its case manager did not believe there was any legal requirement for the adviser to use any specific benchmarks and the adviser had used the care, diligence, and skill that a reasonable financial adviser would exercise in the same circumstances.

The client was told that IFSO would not be able to uphold the complaint in her favour. The adviser restated the offer of payment and the client accepted.

Tags: financial advisers IFSO investment

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Comments from our readers

On 7 March 2018 at 9:28 am Brent Sheather said:
In my opinion the evidence in this case highlights the unprofessionalism and lack of knowledge of the Insurance and Financial Services Ombudsmen scheme and that of the independent AFA who gave evidence. “The advisor noted that the use of benchmarks was not a requirement of a reasonable advisor”. What nonsense. Every fund manager and institutional investor in the world uses benchmarks to assess relative performance. Advisors employ and select fund managers and what other metric is more relevant than the performance of the market. Pathetic.
On 10 March 2018 at 9:45 am Michael Chamberlain said:
This case highlights the flaws in the current regulatory environment. The argument seems to come down to the fact that the advisor followed a six step process which is the standard practice taught to AFAs and not look at whether this process is in fact prudent.

In this case it is unlikely to be, particularly as the person moved from accumulating to decumulating.

So the disputes process tested whether the advisor followed the flawed standard process and not whether the advise was right for the investor or in the investor's best interests.

All parties involved should be embarrassed.
On 12 March 2018 at 11:17 am LNF said:
The whole disputes / complaints thing is a disaster. The Courts would never come to the outcomes of the resolution scheme providers
If you think the ISO is a problem take a look at the case examples on the web site of FSCL. Looks like an "Agony Aunt" column
It is going to get worse. Every time someone doesn't get either what they want, or what they think they should get, here we go again
On 12 March 2018 at 1:23 pm mockingbird said:
hmmm ... not sure what AFAs are taught as six-step, but I know that the CFP's version of six-step includes ongoing feedback and review loop. I'm not sure why the conclusion that a six-step process is flawed? Application perhaps, but not in the process as taught to CFPs. FPSB's sixth step is:

"Review the client’s situation.
The financial planning professional and client mutually define and agree on terms for reviewing and reevaluating the client’s situation, including goals, risk profile, lifestyle and other relevant changes. If conducting a review, the financial planning professional and the client review the client’s situation to assess progress toward achievement of the objectives of the financial planning recommendations, determine if the recommendations are still appropriate, and confirm any revisions mutually considered necessary."

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Last updated: 24 September 2018 8:24am

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