When it was first floated by the Ramsay Review that superannuation complaints should be rolled into a new mega-ombudsman scheme, some of us warned super funds of a big change coming.
The Australian Financial Complaints Authority (AFCA) commenced on 1 November 2018 and replaced the Superannuation Complaints Tribunal (SCT), the Financial Ombudsman Service (FOS) and the Credit and Investments Ombudsman (CIO). AFCA deals with existing and new complaints against banks, insurers, financial advisors and credit providers.
It also deals with new superannuation complaints, whilst pre-1 November 2018 complaints are run off by the SCT.
The culture shock for superannuation fund trustees is the funding model of AFCA.
Under the funding arrangements of the SCT, funds paid a levy to the prudential regulator, a (tiny) portion of which was used to fund the SCT’s operations. This has continued, to fund the SCT whilst it is in wind down-until at least the end of 2020.
However, AFCA operates under a fee-for-service model similar to that of FOS and CIO. Members pay a hybrid of upfront membership fees, “frequent-flyer” fees, and fees per complaint.
It is the second and third of those fees that represents the culture shock that is only now hitting home to superannuation fund trustees.
Frequent flyer fees are calculated based on the number and perhaps type of complaints lodged against a financial services provider over a preceding period. Along with other measures such as publication of complaints data, they are in part designed to incentivise members to improve their systems and reduce the number of complaints in the future.
However, given that AFCA has only been in operation since November 2018, the full impact of such fees is yet to be felt. So far, the fee-for-service model only applies to superannuation “look back” complaints. Other superannuation complaints are currently quarantined under a levy model, but this may well change.
The penny is, however, dropping on the fees per complaint structure. Members typically pay a fee to AFCA when a complaint is lodged against them. Further fees are payable when a complaint passes through stages of a complaint process such as conciliation, recommendation and final determination.
Like FOS and CIO, AFCA does not publish its user-pays a fee structure, presumably to discourage consumers from gaming the system by lodging unmeritorious complaints. However, complaint fees do run into the thousands of dollars and, apparently, fees under the “look-back” scheme are in excess of $10,000.
Again, the user pays model is in part designed to encourage members to resolve complaints early i.e. either at internal complaint stage or earlier in the AFCA process.
However, as trustees are now learning, this model can be problematic for small value complaints where it may not be commercially viable for trustees to maintain a position on a complaint, even when it considers the complaint to be without merit.
Whilst this is not such a problem for disability or death benefit complaints where the amounts in dispute tend to be well in excess of the per complaint fees, the same cannot be said of administrative or service complaints e.g. about fees charged or conduct.
As data from the SCT and now AFCA has shown, administrative complaints are the largest category of superannuation disputes. Many border on being classified as complaints about management of the fund as a whole, which is outside the jurisdiction of AFCA.
The SCT, which has the same jurisdictional limit, has repeatedly knocked out such complaints under its remedial powers. However, at least anecdotally, AFCA has to date been reluctant to do so. It may be that the Federal Court, which has the power to review AFCA superannuation decisions on questions of law, will be called on to define the limits of such administrative complaints to AFCA.
In the scheme of things, the number of complaints lodged against superannuation funds is minuscule given the number of accounts, the compulsory nature of superannuation and the complexity of the products.
However, complaints can be complex, lengthy and expensive and can grind the gears of trustees whose mindset is they always act in members’ best interests.
Cutting cheques to AFCA for what they consider to be unmeritorious and sometimes trivial complaints will only add to the annoyance levels and is a culture shock to some trustees.
It will put added pressure on internal dispute processes to resolve disputes before they escalate to AFCA. The way AFCA deals with and prices small value complaints will also need close attention.