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AFCA / FPA Behaviour

AFCA / FPA Behaviour

Dear Members,

You may recall we assisted a fellow member with an AFCA issue where a client had NOT lost any money but because their direct share portfolio had 2 investments they were not happy with, one 12% of their portfolio lost $15.00, the other 4% of the portfolio lost 50% of its value or $24,000. They had a total of 25 individual investments in the portfolio. The clients then sought AFCA assistance to be awarded circa $114,000 on the basis that it was not in the client’s best interest.

This issue has been discussed at the past 3 conferences where the matter was raised directly with AFCA. You may also recall this member was a member of the FPA and was then subjected to their internal disciplinary process who fined him for not acting in the best interests of the client BEFORE AFCA gave their determination.

The FPA ruled that, even though this was part of an MDA portfolio and the member was not in control of the portfolio, the member was responsible for the client investing in that Portfolio.

Based on this decision, one can only conclude that if ANY client loses money in ANY portfolio conducted by ANY Fund Manager, that individual member can be fined or have action taken against him or her by the FPA – not an appealing scenario with volatile markets on the horizon.

The good news is AFCA recently ruled in favour of the Member for the second time after the Client appealed the first decision but the FPA have not backed off perusing the Member despite the AFCA determination.

You may recall we sought legal advice on the FPA’s disciplinary process after some AIOFP members with either FPA or AFA membership were considering whether to join the proposed new FPA/AFA entity and sought our opinion and counsel.

What members must be aware of is the FPA process has extraordinary powers that fall outside of AFCA, ASIC and the Supreme Court….in other words they can make their own determination despite any of these jurisdiction decisions.

What has also emerged out of this issue is AFCA taking on cases that fall outside of their jurisdiction. Despite the member being cleared twice by AFCA it still cost the practice around $100,000 in costs, legal fees and PI excess as well as years of mental torment to defend themselves over the journey.

This is just so wrong from a number of perspectives and something needs to be done about it.

Lessons to be learnt –

  • Have a real close look at this FPA disciplinary process before getting involved, as things stand all members of the new FPA/AFA entity will be subject to these conditions.
  • We will be formally raising this AFCA jurisdiction matter with Minister Jones, surely it is time for their Independent Authority status to be held to account for decisions they make? Member Bill Mills suggested to Minister Jones at our recent December conference that ASIC should be involved with overseeing the AFCA decision making process, we fully support that notion.

Will keep you informed on progress.


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