EDR costs fall for advisers
The cost of being a member of an external dispute resolution scheme is steadily dropping as providers compete for their share of the market – but not all providers are convinced the multiple-operator model is working.
Thursday, May 11th 2017, 6:00AM 
12 Comments
by Susan Edmunds
There are now three EDRs operating for financial service providers, plus the Banking Ombudsman scheme, which deals only with complaints about banks.
All financial advisers must belong to one of the schemes.
According to their most recent annual reports, Financial Dispute Resolution (FDR) now has 1,500 members, Financial Services Complaints Ltd (FSCL) 6,500 and the Insurance and Financial Services Ombudsman 4,299.
Some of these members are groups that have many staff working for them.
Susan Taylor, chief executive of FSCL, said her organisation had a net increase of 1,363 members across all financial service sectors over the past 12 months.
IFSO saw its membership increase by about 200, of which a spokeswoman said most were financial advisers.
Both services recorded a drop in fees. FSCL’s are now 20% lower than they were four years ago at $248 including GST for individual advisers and those in smaller companies.
IFSO charges $270 plus GST for financial advisers, an annual drop of 10%.
FDR charges financial adviser businesses $400 per adviser, or $250 per adviser in organisations with three or more advisers. It has also reduced its fee over time.
Members pay to have their complaints handled, too.
Taylor said her scheme offered fee discounts for existing members. Last year it offered a 20% cut. She said there would be a discount again this year although it had not yet been revealed.
The schemes were put under the spotlight as part of the Financial Advisers Act review, which asked whether it was right that there are multiple options. MBIE asked whether there were consistency and transparency issues although it noted there was no evidence of customer harm.
FDR argued that the cost reductions were a sign of the system working well and competitive pressure driving down price. It and FSCL argued there were no problems with multiple schemes.
But IFSO said it was only a matter of time.
‘If nothing is done in New Zealand about competition among multiple schemes, there will be actual evidence of poor outcomes for consumers. That evidence would undermine the stated intention of the legislation. Currently, we must look internationally for comments and, in particular, to Australia, about the detriments of competition among multiple schemes and add it to our own experience; the IFSO Scheme believes that the complexity arising from multiple competing schemes does exist and can hinder a consumer’s access to redress.”
It cited a case in which a woman had a car loan with one provider and loan repayment insurance with another.
When she fell into arrears, her claim was declined. The insurer was a member of IFSO and the car loan provider was with FSCL.
“The customer understood that company was entitled to repossess the car, because she had not made the repayments; however, she strongly believed [the insurer] should have paid the claim.
“FSCL was contacted to see whether it would be prepared to contact its member to ask if it would stop the repossession until the complaint against [the insurer] had been resolved. FSCL declined to become involved.”
MBIE said it would continue to seek feedback on the multiple scheme model.
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Or why should we blindly copy Australia?
A key player in the proposed super ombudsman to cover all disputes in the financial system has slammed the initiative, saying it will be completely unaccountable, “powerless” to prevent future big-bank scandals and make smaller players uncompetitive by burdening them with huge costs.
In a damning assessment of the so-called “Super FOS”, due to be announced in tomorrow’s budget, the head of one of the three schemes to be merged said the irony was that the major banks would emerge as big winners.
“(The major banks) know the review is a diversion to avoid a royal commission,” said Raj Venga, chief executive and ombudsman at the Credit and Investments Ombudsman.
“Yet everyone who competes against them is against it.”
The Australian at the weekend revealed plans for a three-way merger between the CIO, the Financial Ombudsman Service and Superannuation Complaints Tribunal, with the new scheme to be up and running sometime next year.
The proposal is broadly in line with the recommendations of the Ramsay review of external dispute resolution in the financial system.
However, Mr Venga flagged a strong campaign by CIO and like-minded industry bodies against the creation of a Super FOS.
Super FOS could proceed through a merger by scheme of arrangement between FOS and CIO, but Mr Venga said that “won’t happen”.
The alternative was legislative change, which opened the way for a strong “no” campaign.
The CIO chief said the Ramsay review “fundamentally lacked credibility” because it supported the government’s previously announced intention to create a small ‘t’ tribunal.
“It was hastily commissioned to fend off calls for a royal commission and placate the Coalition backbench who were calling for a wide-ranging financial services tribunal,” he said.
“The Ramsay review offers the worst compromise for stakeholders — not being able to investigate the root cause of financial scandals, the proposed single ombudsman will be powerless to prevent future big-bank scandals to the detriment of consumers.”
Super FOS, he said, would have no statutory powers and would be unable to address the power imbalance between big banks and small businesses, or deal effectively with small business claims against banks.
A non-statutory scheme was unable to subpoena a third party to attend as a witness or produce documents, and could not join third parties, bind them to its decisions, cross-examine witnesses, take evidence on oath, investigate criminal fraud or impose penalties. “A Super FOS will undermine competition in financial services and play into the hands of the major incumbents,” he said.
can't these people come up with ideas and let others copy nz?
lack of ideas / creativity? may be more cost effective to get oz to do it for us along the way. this way we can save a lot of money on consultation and hiring people who only copycat.
just saying.
They also apply different methodology in the handling of customer disputes. Some are more consumer-centric, some jump to investigation before trying to resolve the dispute by mediating a resolution, other adopt a strict legal style of opinions others rely on their own opinions. Remember the rulings are binding on members, so you want to know the process is right. I would recommend all financial services providers review the scheme choices at least every 5 years to ensure they know how a dispute would be handled.
Look at their case history for similar services to your own. I'd also like to see the terms of the schemes change to remove the one year notice a member must give when resigning from the scheme. I can't see any benefit in this for anyone but the scheme it self.
The 'law' imposed by a DRS cannot be what some person employed by a DRS who may have no understanding of the 'industry', laws, financial matters or anything else pertinent to judging the conduct of an adviser thinks it should be. Failing to adopt a legal basis upon which to judge the reasonableness of an adviser's conduct makes it impossible to know what is and what is not acceptable conduct/advice for any adviser, a completely unprofessional and untenable position.
I wonder how my PI insurer would react if I told them I was forced to join a DRS that could make binding rulings on me based on nothing more than the opinion of some individual (are any qualifications required for these people sitting in judgement?) applying his/her own view of how things should be! I'd better review my PI policy!
I very much hope you are wrong in your assessment.
I thought the purpose of the EDRS is to protect the consumer, not the adviser.
Your comment gives great ammo to a consumer organisation to argue that's why there should be only 1 scheme.
The ToR for the various organisations refer to the resolution of disputes, not the "protection" of any party.
Here's an extract from FSCL's ToR -
"Provide Complainants free of charge with an accessible alternative to legal proceedings for the resolution of their complaints against FSCL’s
Participants.
act as an approved external financial dispute resolution scheme for the financial services industry, and
actively facilitate the resolution of complaints about financial services."
Don't see any reference to consumer protection.
The complainant in cases in front of an EDRS is ALWAYS the consumer. The respondent is the financial services firm.
To hammer home the point, financial services firms cannot complain to an EDRS about their customer.
So if that's not a consumer protection policy, then i don't know what it is.
PS I found this authority on the Consumer website "At last our "lightly" regulated financial sector has been reined in with increased regulation and protection for consumers, through the Financial Service Providers (Registration and Dispute Resolution) Act 2008.
Even better authority. Financial Services Providers (Registration and Dispute Resolution) Act 2008
s 47
The purpose of this Part is to promote confidence in financial service providers by improving consumers’ access to redress from providers through schemes to resolve disputes. The schemes are intended to be accessible, independent, fair, accountable, efficient, and effective."
Murray/David - I agree it is for consumer protection, but it needs to be an unbiased and fair process. You can't just add more weight to the consumer side of the argument because they are the consumer, that in itself is unfair.
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If IFSO thinks there should be only one supplier of EDRS, can they tell us of the action they have taken to merge with any of the other EDRS Schemes.
And although I know it is dangerous to comment on cases where I don't know all the facts, let me have a go. The problem with the case mentioned seems to me to lie with IFSO. It seems to me that the lender was perfectly within its rights to repossess - customer was required to make payments - she didn't, so company enforced its rights. No complaint there.
Her complaint seems to be her insurer didn't meet her claim - that is an issue between her and her insurer, not her and the car lender. Surely her claim against her insurer should be heard and in the event IFSO ruled against the insurer, why wouldn't the insurer have been made to compensate her for the loss of her equity in her car? And inform the credit raters and request them to remove the black mark from the client's file.