Does New Zealand really need four dispute resolution schemes?
Multiple, competing schemes do not provide positive outcomes for consumers says Trevor Slater.
Thursday, November 12th 2020, 6:00AM 
11 Comments
by Daniel Smith
New Zealand is one of the few countries to have competing schemes, and that provides a problem for consumers says Trevor Slater, COO of Resolution Institute.
Slater told Good Returns that “how the dispute resolution schemes operate now is, if you as a consumer have a complaint against your financial service provider, meaning everyone from a small scale lender to a large managed fund, the provider is supposed to tell you which dispute resolution scheme they are a member of. The problem with that is that it doesn’t always work well enough.”
“What is happening, except for the banking ombudsman, is that consumers have very little knowledge about the dispute services that are available to them.”
According to Slater, there is an upside and a downside to this situation. The upside is that financial service providers can join any scheme they wish, which makes for a competitive market which in theory keeps the fees down.
But Slater says, “The downside of our system is that because it is a competitive market, cooperation between the schemes is okay, but it's not great. All of the different schemes have different business plans, aims, they even report differently, but the biggest thing is the lack of consumer outreach.”
To combat these shortcomings, Slater is proposing a drastic change, consolidation of the four schemes into one.
“My personal view is that we are a tiny country and we only need one scheme. People will say ‘We need competition to keep the price down’. I think that can all be sorted by legislation. It should still be private, and funded by membership. A good chunk of the membership fund should be going into outreach to consumers.”
“If you were to go to South Auckland or Porirua and ask people on the street ‘If you have a complaint with XYZ Loans, where should you go?’, I think you could interview 500 people and you would be lucky if you found one of them who knew about a financial resolution scheme.”
While the change would be a big shakeup of the current structure, Slater believes that the impact on advisers would be minimal.
“Advisers are already very good with telling their clients what scheme they are a member of. The biggest concern an adviser might have if this was to happen is ‘Are my fees going up?’ and that is a genuine concern. If you could implement legislation to handle the fees, I don’t think advisers would be too concerned at all, as long as the organisations had a panel of experts that know about financial planning and financial services. If the scheme could prove that they know the business and will keep the fees the same or lower, I don’t think that this change will affect advisers at all.”
“The big challenge to do this is you would need either cooperation from the existing schemes or compulsion from the government. I would even go as far as saying that you would probably need a brand new person to lead the organisation so it doesn’t become a merger.”
“When the industry created Financial Advice NZ, that was absolutely needed so that the consumers could understand that there was one voice. That situation is no different to this.”
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Comments from our readers
3 things have to have happened before an EDRS comes into play
1. the consumer has received advice and/or purchased a product
2. the consumer has complained to the adviser about the advice and/or to the manufacturer about the product
3. The adviser/manufacturer and the complainant have not reached a mutually acceptable solution.
It's only then that the consumer can take their unresolved complaint = dispute to the EDRS.
Its no wonder that 100 random people in the street don't know anything about EDRS. They might never have received advice or bought a product, and of those that had, the greatest majority will not have had a complaint.
Trevor provides zilch evidence as to how consumers have been failed by EDRS. Having worked for two of them, maybe he does have insights as to how he used to fail consumers who were in dispute. But nothing like that is evident in his reported comments.
Like many times earlier in the reform saga, let me ask "what exactly is the problem?"
PS the financial advice EDRS has always seemed to me to be biased against the adviser/manufacturer. They are obligated to accept the findings of the EDRS whereas the client is not. The consumer can take their case to the court if they are not satisfied with the ruling of the EDRS.
My main concern is not with advisers as the article says. My concern is that many people who use short term loans, payday borrowing or purchasing from the door to door sales to name a few do not know about their rights to complain to the DRS.
Unlike advisers many of these financial service providers do not tell borrowers about their rights.
And as my good mate Murray says I do have inside information and have seen awful situations.
Whilst DRS compete for business in my humble view they are hampered in reaching those that need to know about them.
A single scheme would have a far better chance of being more known about. Why should a financial service provider be able to chose what DRS they can use but consumers have no choice?
The problem you are articulating is not a DRS one - it is rather that you are alleging that providers of financial products are not advising their customers of their rights to complain to the supplier of those products.
Surely the more a more efficient regulatory approach to fix that problem at the supplier/customer level.
Why aren't FMA and the Commission for Financial Capability doing more to make customers aware of their rights? Isn't consumer education fair square within their responsibilities?
The DRS is not and should not be the first port-of-call for complaints. I reiterate my early contribution that the DRS should only get involved once negotiations between the supplier and the customer have broken down - resolution of the customers complaint has not been achieved.
Your wish to elevate the responsibilities of DRS and in the ultimate your call for a single DRS is saying Step 2 should be in play before step 1.
I could not disagree more.
I encourage debate about this lest an official or a politician suddenly grabs hold of Trevor's single DRS idea, says it sounds good and seems to be agreed within the industry (because no-one is speaking out against) and next minute it's government policy.
Why are the DRS schemes silent in public?
DRS have a very clear requirement to raise consumer awareness under the Accessibility, Effective and Efficient principles.
I am at a loss why the financial industry is so against one single scheme. NZ to the best of my knowledge is now the only country that has competition of DRS.
Both the NZ and Australian Ombudsman Association and the International Financial Sector Ombudsman have spoke against competition between schemes as being inappropriate.
So tell me why one scheme is a bad thing and why should we be out of step with the rest of the world on this issue?
I found within the Abstract the following interesting proviso
"This document does not apply to disputes referred for resolution outside the organization"
I didn't read any further.
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