ASIC has urged dealer groups to have proper complaint handling systems in place, after research found investors had little knowledge of the existing avenues of compensation.
The regulator commissioned Susan Bell Research to conduct a study of the social impact investors experienced when they are not being fully compensated after licensee's misconduct.
"Most of the investors we spoke to did not know about the available avenues of compensation, because they could not contact the scheme owners of funds which were placed into administration or liquidation to enquire or make a complaint," the research said.
"In all but one case, the financial planners provided no information about complaint mechanisms to these investors, refusing to return their calls, or placating the investors by saying that their loss had been caused by the market downturn."
The report said some investors who could have sought compensation for losses did not do so.
"The clients of financial planners had no idea that they had any recourse except to take individual legal action. Only some investors, who had been pushed almost to the limit, initiated legal action," the report said.
"Other investors were unwilling to spend money on getting legal advice when they had lost all their money and were not confident that the financial planner or scheme owner was actually to blame."
"The most popular avenue for compensation was to join a class action because it was free, mostly risk-free and easy to do. Some clients of financial planners did not seek compensation at all because they were unable to contact their financial planner to initiate a complaint."
ASIC senior executive leader of consumer, advisers and retail investors Delia Rickard said the report highlighted the importance of helping clients get proper compensation in difficult cases.
"Financial advisers must properly respond to complaints, especially when markets are turbulent," she said.
"Licensees should also advise their clients of the right to complain to external dispute resolution schemes on their websites, in disclosure documents and more crucially when handling complaints."
"This is part of having a proper dispute resolution system, and failure to do so is a breach of a licensing obligation."
ASIC encouraged financial services providers to review complaints handling processes against the requirements in Regulatory Guide 165, and also called on the Financial Ombudsman Service and the Credit Ombudsman Service to continue to widely promote their dispute resolution services.
