Complaint levels show health of industry and market
The levels of resolved client complaints against financial service providers show that systems are working, but this could change with the tide of the markets, says Murray Weatherston.
Thursday, January 14th 2021, 6:10AM 
2 Comments
by Daniel Smith
When the FSCL said that rising complaints was good news for financial services a few onlookers scratched their heads.
With the NZI PI insurance debacle fresh in many advisers' memory, some are thinking that rising complaints are proving insurers' fears that providing professional indemnity cover to advisers under the new regime may prove too risky.
But principal of Financial Focus, Murray Weatherston, says that the levels of complaint seen in New Zealand are actually relatively low. For the FSCL in 2020 there were only 298 investigations completed – 91 of which were settled, 103 discontinued and 44 resolved early by the participant. Only 42 cases went all the way through to the end of the process.
Weatherston believes that these numbers reflect the health of the DRS systems and of the industry as a whole.
“The situation is clear. If the client has a complaint that the provider cannot deal with, then the consumer has the right to go free of charge to a dispute resolution scheme. The fact that the numbers are low means that the adviser industry is in good health.”
One caveat that Weatherston adds: “Given the ways the investment markets have been performing it is very hard to see why any consumer would have anything to complain about regarding investment advice.”
Weatherston believes that when analysing the performance of the DRS it is important to remember that the markets have largely been kind. “It’s hard to complain when you are not losing money. It will be interesting to see, if markets turn, if that will lead to an increase in disputes.”
The confusion around what the numbers of complaints means for the industry stems from a misunderstanding of the way the systems work, Weatherson says.
“Some people think that the consumer can go straight to the DRS to make their complaint, that is not the case. The consumer has to go to the adviser first, and only if they can’t get a solution there can they then approach the scheme.
“Many people don’t understand that to even get to the DRS there has to be a complaint that has not been settled through the adviser-client channels.”
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Comments from our readers
Which is why any complaint that is more significant than a grumble needs to be discussed with your PI insurer, or at least put them on notice, as per the terms and conditions of your PI insurance.
If the PI insurer has the opportunity to be involved at the adviser level rather than the DRS level they have the ability to help with the complaint and potentially mitigate a significant amount of their claim costs.
The client still has the ability to go to the DRS provider, the disputes tribunal, or court if they are not happy with what happens at the adviser level.
So it's far from a case of the PI insurers not being able to be involved with managing the situation. The issue lies with advisers and how they handle complaints. If they don't or aren't reasonable, then yes they can escalate very quickly.
And I have seen some significantly emotional responses from advisers to client complaints over the years that ensure that the DRS scheme is going to be involved.
Advisers do have a choice on this, and it is completely related to how they conduct themselves.
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The PI insurers are exposed. The PI insurer should have the right to handle any PI claim or potential claim totally. What the disputes industry has done is take away the claims process from the PI insurers which leaves them exposed to decisions made by third parties
Of course the PI insurers will exit the market