Legal Comment by Mark Illidge

November 2009 

The Financial Ombudsman Service (“FOS”) provides an independent dispute resolution service for most financial services disputes in Australia, free of charge for consumers. Disputes, through this service, increased by 68% during the last financial year.

You would assume that if your financial adviser breached his/her legal obligations, and you suffered a loss on your investment, you would be entitled to restitution. This is not necessarily the case.

In a recent decision, the FOS determined that even though a financial adviser had failed to fully explain the risks involved in the investment and did not provide a Product Disclosure Statement, the investor was not entitled to compensation because the loss suffered was not a direct result of the advice received. Furthermore, the investor had not provided sufficient evidence to prove that he would not have invested if he had been informed of the risks involved.

Generally if the FOS finds that an adviser or financial services provider has been at fault the FOS seeks to put the investor back into the position they would have been if the investment had not been made or the advice had not been given.

It is expected that the financial adviser knows their client, knows their product, explains the risks and gives full disclosure. If you have received advice and any of those things haven't happened, you may have a reasonable basis for a complaint to the FOS. Generally these disputes result in an agreed resolution. However, during the last financial year, in cases where resolution was not achieved, 83 decisions made by the FOS were in favour of the consumer and 71 were in favour of the adviser/financial services provider.

The FOS website is www.fos.org.au.

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