Compensation Bodies To Merge

Sydney Morning Herald

Wednesday December 5, 2007

By John Collett

Investors have a simpler system to air financial grievances but advocates say it's not enough.

Consumers will have a one-stop shop for complaints against banks, insurers, financial planners, stockbrokers and fund managers from the middle of next year.

Three schemes, the Banking and Financial Services Ombudsman, the Insurance Ombudsman Service and the Financial Industry Complaints Service, are to merge..

However, the streamlining of the complaints handling process is likely to go only so far. The hotch-potch of monetary and jurisdictional limits looks set to continue.

The boards of the three services have established a committee to work through the details of the merger. Each service is likely to retain its distinctive complaints handling process.

The Financial Industry Complaints Service, for example, has a panel for adjudicating complaints whereas complaints with the banking service are settled by an ombudsman.

A condition of an Australian Financial Services licence is that providers join a complaints resolution service approved by the Australian Securities and Investments Commission.

The service is paid for by industry members and is free to consumers.

Most complaints are resolved by conciliation. If a complaint goes to adjudication and the consumer wins, the financial services provider is directed to compensate the consumer.

The merger moves Australia's complaints resolution system closer to the British model, where the Financial Ombudsman Service is the only dispute resolution service for complaints against financial services companies.

The British service has a single monetary limit for complaints, #100,000 ($235,000).

Consumer groups have long argued that a deficiency in the Australian complaints resolution schemes is that they exclude claims from consumers who have lost more than each scheme's monetary limit.

Consumers can always go down the litigation route but this is an expensive way to seek redress - especially for claims under $250,000.

FIC's relatively low monetary limit of $100,000 was highlighted after the collapse of property developer Westpoint in late 2005, with about 3500 investors owed more than $300 million. Up to two-thirds of the Westpoint-related complaints have been rejected because the claims exceeded the service's limit.

FICS consulted with members and their main insurers to have the limit increased to $280,000. But the members - financial planners, stockbrokers and fund managers - who can veto proposed rule changes resisted the change.

Jo-Anne Bloch, the chief executive of the Financial Planning Association, wrote to the Financial Industry Complaints Service, saying: "We have some way to go to engender confidence amongst FPA members that FICS provides a transparent and reliable complaints service which warrants a substantial increase in monetary limits."

Many of the service's financial planning members are small businesses. They are concerned they may have to pay more for professional indemnity insurance if the limit is lifted.

ASIC's chairman, Tony D'Aloisio, said last week the limit should be $280,000, in line with regulators such as the Banking and Financial Services Ombudsman and the Insurance Ombudsman.

As a compromise, FICS has proposed to its members that the monetary limit be increased to $150,000. FICS chief executive, Alison Maynard, is confident the compromise proposal will be accepted by members.

She expects the new limit to take effect from July 1 with a six-month extension for planners unable to get their new indemnity insurance arrangements in place by then.

Every three years the limit will be increased with inflation. FICS will also raise the limit on lump sum life insurance compensation from $250,000 to $280,000.

Consumer advocate Denise Brailey, who works for litigation funder IMF, says a limit of $150,000 - or even $280,000 - is inadequate.

"The losses we are seeing now have risen to between $300,000 and $500,000 in a lot of cases," she says.

"It is now quite usual for large amounts of money to be lost where the complaint against the bank, insurer or financial planner is legitimate."

While Brailey welcomes the move to a single complaints service, she doubts the merger signals a fresh approach to complaints resolution.

As long as complaints resolution schemes are "owned" by the financial services industry they will continue to have a "conflict of interest which sees them try to bury complaints", she says.

Brailey believes the best way to ensure impartiality would be to create a Consumer Protection Agency that is administered by government.

Big three to merge

Banking and Financial Services Ombudsman Deals with complaints directed at banks, foreign-exchange dealers, deposit takers, credit providers and some mortgage brokers and insurance and investment providers.Insurance Ombudsman Service Members include general insurance such as home and contents insurance, and travel and motor vehicle insurance. Financial Industry Complaints Service Includes financial planners, fund managers, stockbrokers, life insurers and some superannuation providers.

These schemes, and others, can be contacted on 1300 780 808 or see www.fos.org.au.

© 2007 Sydney Morning Herald

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