An uptick in complaints about financial advisers (mortgage advisers, share brokers, and insurance brokers) has been noticeable, although overall adviser complaint numbers are low.
The biggest number of complaints are about non-bank lenders. They made up 54% of the disputes FSCL investigated in the six months to the end of last year, up about 14% on the same period in 2022.
The FSCL says it is seeing increasing financial pressure on individuals and families due to the higher cost of living and interest rates, translating to a continuing rise in complaints.
Financial Ombudsman Susan Taylor says the higher increase in disputes, may also, in part, be because people are less willing to settle a grievance or “chalk it up to experience” and want to take it further.
“Consumers are more aware of their rights, and, in challenging times, the role of independent dispute resolution services has never been more important.”
Following on from 2022’s rise in complaints and disputes, Taylor says the latest statistics are showing no let-up.
“Not surprisingly, we are seeing an increase in complaints about lending products (including car loans, personal loans, and credit cards) reflecting what is happening in the wider economy.”
The service has also had a 50% increase in complaints about transactional service providers which are forex dealers, money transfer agencies and trading platforms.
“This could, in part, be due to the steady number of frauds and scams, and the increasing popularity of money transfer services, particularly as New Zealanders are travelling again,” Taylor says.
“It’s a good reminder that when transferring money overseas, consumers should double check they have entered the correct account number and that the person requesting the money is a legitimate business or person.”
She says it is also important for consumers to contact their lender or financial service provider as soon as they have a complaint as the earlier this is done, the quicker it will likely get resolved.
“If it can’t be resolved with the financial service provider, then they can bring the complaint to us.”
Family told mortgage application successful when it had not been made
One case the FSCL investigated recently involved a mortgage business paying $4,000 in compensation for an adviser who told a family a mortgage loan was successful when he had not even put the application into the bank.
A woman, her brother and husband owned a home together and had started renovations. The woman had loaned her brother $400,000 so he could buy into a business.
The brother wanted to repay his sister and borrow $100,000 to pay for the renovations. A business associate recommended a financial adviser to the brother, who discussed options and asked for information so that he could take the loan application further.
Because the house securing the lending was jointly owned, the woman and her husband joined her brother as co-borrowers in his application, wanting to borrow $500,000 – $400,000 to repay his sister and $100,000 for the renovations.
The family gave the financial adviser all the information he asked for to support the loan application. At around this time, the woman took over as the contact person for the family.
Between July and November 2022, she and the financial adviser were in regular text contact, with the woman asking for updates and the financial adviser reassuring her the application was progressing and looked promising. In late November the financial adviser said that approval had come through. He repeated this advice in January, and said he was just waiting for the documentation.
In April 2023 another financial adviser from the same company called the woman to say the original financial adviser had left the company, and he would be taking over.
It transpired the original financial adviser had not submitted a loan application to the bank, and the family needed to start the whole process over again.
The new financial adviser was able to arrange a $140,000 loan for the renovations, but the bank was not prepared to lend the $400,000 to repay the loan from the brother’s sister. The bank explained it viewed this as a ‘start-up’ loan and the family did not meet the bank’s lending criteria.
The family was disappointed about the service they had received from the first adviser and, when they were unable to resolve this complaint with the financial advice firm, the woman complained to FSCL.
Dispute
She said the family had trusted the financial adviser when he said the loan application was progressing and had suffered emotional distress, financial loss, and lost opportunities because the financial adviser had done nothing.
Market conditions had shifted in the year they had been waiting for finance, meaning their house was worth less and their income had also declined. In addition, interest rates had increased.
The financial advice firm accepted the adviser had let the family down but did not accept that it had caused the family a financial loss.
Review
FSCL says the adviser had led the family to believe they had provided all the information needed for the bank to assess the loan application, and that the application was progressing.
As the family had embarked on the renovations and the woman had already loaned her brother the money, the FSCL says the family had not made any decisions relying on the adviser’s misleading advice.
“It is our view the adviser had not caused the family a financial loss, but his service fell far short of what is expected of a financial adviser. The adviser made promises he did not keep and did not meet the family’s reasonable expectations, all culminating in the distressing news that the bank would not lend the full $500,000.”
Resolution
The FSCL told the financial advice firm to pay the family $4,000 as compensation for the stress, disappointment, disruption to plans, and the lost opportunity to borrow at a lower interest rate. The financial advice firm and the woman agreed, resolving the complaint on this basis.
Insights
The financial advice firm had not caused the stress and inconvenience but, because the adviser who caused the problem had been working under its licence, the firm was responsible for his actions.
