Raising the stakes in the disputes resolution arena
Dispute resolution represents a hefty cost factor for the Australian financial planning industry and anyone reading the recently-released Australian Securities and Investments Commission (ASIC) Consultation Paper 102 will only conclude that their costs are not going to be getting any less.
Central to the ASIC discussion paper is the proposal to lift the cap on External Disputes Resolution (EDR) schemes to $280,000 to “reflect the significant increases in the value of consumers’ investments in recent years”. According to the regulator, this would mean that some schemes would need to lift their current limits within an appropriate transitional period.
Of course, the whole purpose of having the kind of disputes resolution framework that covers the Australian financial services industry is to provide consumers with an alternative to pursuing litigation within the traditional and often times highly expensive court system.
However, given the annual costs, including professional indemnity insurance associated with maintaining the so-called EDR system, there must be many financial planners left wondering whether they might not be better off pursuing more formal legal remedies, particularly if they believe their position is legitimate and defensible and they can therefore succeed in fully recovering costs.
The reality, of course, is that the EDR system is not primarily intended to protect financial planning firms; it is there to protect their clients and, according to recent data out of the Financial Ombudsman Scheme, the recent difficult market conditions have seen more clients finding reasons to complain.
It would be wrong to suggest that the financial planning industry is unduly subject to complaints and the need to pay large amounts of compensation. However, research commissioned by ASIC and published in its discussion paper goes a long way towards justifying the existence of the EDR regime.
Covering a period that spanned the Westpoint and Fincorp debacles, the research found that while 52 per cent of consumers and investors had experienced some dissatisfaction with a financial product or service in the past two years, only 29 per cent had actually seen fit to make a complaint and that, of those complainants, 60 per cent had found the whole process easy to handle.
The ASIC data must be seen in the context of covering a wide range of services and products not necessarily the preserve of financial planners, but it nonetheless serves as a reminder of consumer sensitivity when it comes to other people handling their money.
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