Stockmarket crash compensation? Upset investors pursue payment

A string of cases before the Australian Financial Complaints Authority is testing whether ­financial advisers could be liable for their role in last year’s stunning 30 per cent sharemarket downturn.

Could you be compensated for a sharemarket crash?

Well, you could certainly try to reclaim your losses, especially if there was a row with your financial adviser.

A string of cases before the Australian Financial Complaints Authority is testing whether ­financial advisers could be liable for their role in last year’s stunning 30 per cent sharemarket downturn.

In one particularly contentious case where a couple lost heavily on the markets and blamed it on the inactivity of their adviser, AFCA has rejected compensation for money lost but awarded compensation for “non-financial loss” due to “stress and inconvenience”.

The case involved a couple who had told their adviser in August 2019 they wished to move their assets into cash. However, uncertainty over what cash option to settle upon and related difficulties ended with the couple losing $200,000 when the markets crashed in April last year.

In the case made against Financial Wisdom Limited, AFCA says the adviser (who left the firm in February 2020) “did fail to act on the complainant’s instructions”. AFCA has determined the advisory group is required to pay to the complainant and his wife $5000 for non-financial loss.

In a separate case – against Bridges Financial Services Limited – where no compensation of any kind was made, an investor says he asked to switch funds from “moderate growth to conservative” in November 2019 (conservative funds would be expected to lose less in a market downturn).

However, the advice firm says that on the same date “discussions with the adviser confirmed that he understood his current asset allocation and was happy to maintain it”. The investor claims he would have been better off by $95,000 if his instructions were followed.

In a third case on March 10 last year (determination no 777222, no company name available), an investor met an adviser and had their funds changed from balanced to conservative.

Two days later, on March 12, the investor made a new request to switch to cash. However, the second request was declined as the earlier switch transactions were still pending. The adviser also required a verbal confirmation, which was not acquired until March 24. No compensation was awarded over this case either.

The cases – and more to come – highlight the traps for investors and advisers during intense bouts of market action when emotions run high, says Michael Miller, ­financial adviser at Wealth Market who is also author of a new book, titled Ethics and Professional Practice in Financial Planning.

“We have to get beyond this level of dispute,” Miller says.

“Before we see anything like this again, financial advisers should initially establish the process with a client that they will never recommend to ‘go to cash’ as a result of market movements.

“Of course, when you get a dramatic downturn a client is most likely to have their risk tolerance tested. At the same time, product providers will likely be experiencing higher levels of demand so they may be slower to respond than usual.”

Although more than 90 per cent of complaints received by AFCA are settled without going to determination, the last few months have seen the regulator making a range of determinations related to events around April 2020, when the market fell 30 per cent. (It has since recovered to a higher point than in early 2020.)

The latest AFCA reports were for the six months to June 30 this year. “There will always be quite a lag on dispute determinations. I expect we have yet to see the bulk of the actions relating to last year’s crash coming through the system,” Miller says.

AFCA will not comment on individual determinations made by the regulator.