Thirty per cent of determinations made against wealth management firms since 2010 remain unpaid, the Financial Ombudsman Service has revealed.
Twenty-six financial service providers have been “unwilling or unable” to comply with 120 FOS determinations made in favour of consumers between 1 January 2010 and 31 December 2014.
The revelations come in the ombudsman’s January 2015 Circular, which sheds light on the $12.7 million in unpaid determinations as at 31 December 2014.
Adjusting for interest and inflation, the present day value of the uncompensated losses is approaching $15 million, said FOS.
While the ombudsman said only a “very small percentage” of all FOS members are involved, the unpaid determinations represent 30 per cent of all determinations issued in the Investments, Life Insurance and Superannuation category.
Of those, 69 per cent relate to disputes in the financial planning and advice sector, said FOS.
“This is an increase of almost four per cent on the figures for the September quarter, and was caused by the liquidation of a single financial advisory firm being unable to meet its obligations in respect of six determinations totalling almost $1.8 million,” said the ombudsman.
The issue of unpaid determinations currently affects 174 individuals whose claims have been upheld by FOS.
The ombudsman pointed to its submission to the Financial System Inquiry, in which it argued that the current compensation arrangements are “not adequate to provide redress to consumers who have suffered financial loss”.
“Professional indemnity insurance is just not effective. Awards of compensation are not paid to consumers,” said FOS.
“Given that the problem of uncompensated loss continues to arise for consumers, FOS remains an advocate of some form of limited compensation scheme of last resort, which can be implemented at relatively low cost, as the most effective way to deal with the issue of consumer losses,” said the ombudsman.
In addition to the issue of unpaid determinations, FOS has also identified a number of “definite systemic issues” that relate to the conduct of employees and/or authorised representatives (ARs).
The first issue described by FOS relates to an unnamed financial services provider’s inability to oversee a former AR.
“The AR assisted a customer in withdrawing portions of his superannuation despite him being under the preservation age and not entitled to make such a withdrawal.
“The customer was later investigated by the Australian Taxation Office (ATO) which levied penalties,” said the ombudsman.
A second issue identified by FOS relates to a “large number of disputes” stemming from a handful of ARs at the same financial services provider.
“The disputes span a substantial period of time and relate to the conduct of a number of ARs, as well as arising from a variety of acts or omissions which occurred during the provision of financial services to affected customers,” said FOS.
The statistics report in the January Circular noted a slight decrease in the number of complaints received in the final quarter of 2014, down from 8,107 to 7,853.