Inappropriate SMSF Advice Leads To Payout, Says AFCA

AFCA’s findings determined the advice to be inappropriate, leading to awarded compensation.

Complaint

The complainants alleged that they received inappropriate financial advice from Mr M, an authorised representative of Infocus Securities Australia Pty Ltd between 1 October 2003 and 23 March 2012.

In December 2009, Mr M advised the complainants to:

  • establish a wealth creation strategy using a line of credit on their home, an investment loan and a margin loan to help fund investment via a managed fund and
  • set up self-managed superannuation (SMSF)

This advice was initially given to the complainants personally, and then again in 2009 in their capacities as trustees of the SMSF.

The complainants said that this advice was inappropriate as Mr M failed to adequately disclose the key risks of the strategy and overstated the benefits and profits they would make. They sought compensation of $130,000 due to the ongoing impact on their personal finances in paying down the loans.

The financial firm said that the advice was appropriate and they made the required disclosures. The financial firm said the complainants were fully informed and the strategy was thoroughly discussed. They have declined to pay compensation.

AFCA’s Findings

AFCA determined that the advice was inappropriate and compensation was awarded based on the amount of direct loss caused by the conduct of Mr M between January 1st 2008 and June 28th 2012.

AFCA calculated the loss suffered by the complainants by factoring in the following:  

  • personal concessional contributions for each complainant  
  • an assumed mid-tier marginal tax rate of 30%  
  • the Medicare levy  
  • the 2012 Flood levy (applicable over $50,000)  
  • the performance of the “but for‟ hypothetical portfolio for a balanced fund

The outcome compensated the complainants for the reasonably ascertainable losses suffered as a direct result of the financial firm’s inappropriate advice while not requiring the financial firm to compensate losses that were not established.

Determination

This determination was in favour of the complainants. The financial firm was required to pay the complainants:

  • An amount of $40,983.92 plus compounding interest
  • $34,014.92 in compensation for the financial loss arising from the inappropriate investment advice
  • $6,969 for the initial establishment fees and charges  
  • $4,371 in compensation for 2011 SMSF fees plus compounding interest
  • $5,348 in compensation for 2012 SMSF fees plus compounding interest

Getting Legal Help for Bad Financial Advice

Contact us if you’re questioning the advice you received from a financial advisor and are thinking about taking steps against them. We are committed to ensuring our clients receive the best possible advice and guidance on their situation, especially in financial matters. You can contact us online, call us at 1300 433 533 or email us at enquiry@fdlegal.com.au.

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