Complaints schemes’ merger to boost investor safteguards

The merger of the financial services industry’s three biggest complaints schemes is expected to facilitate greater accessibility, consistency and efficiency for consumers and investors.

The Australian Securities and Investments Commission (ASIC) gave a green light to the new Financial Ombudsman Service (FOS) in late May. FOS is the result of a merger between the Financial Industry Complaints Service (FICS), the Banking and Financial Services Ombudsman (BFSO) and the Insurance Ombudsman Service (IOS), and is operational from July 1.

Under the new entity, FICS becomes the investments, life insurance and superannuation division and will be headed up by Alison Maynard, chief executive of FICS. Maynard says the merger will create a more professional organisation and increase efficiency during busy periods. In the highly volatile first four months of 2008, financial planning complaints, stockbroking and managed investment complaints doubled compared to the same period last year. FICS received 152 financial planning complaints, up from 114 in the same period last year.

Collectively, the three schemes dealt with about 10,000 consumer disputes in the last reporting period and over 100,000 telephone enquiries, according to their annual reports. “[FOS] will be more accessible to consumers and we think we’ll be able to serve all the members of the FOS better by better allocating resources in periods of peak demand,” Maynard says. “Although there might not be immediate savings, there will be economies of scale as we progress with the merged entity. So even if we don’t reduce costs to members, at least there won’t be the growth in costs to members that you would have expected if we’d stayed as FICS.”

Initially FOS will operate under the rules and procedures of the three existing schemes. However, ASIC says a single set of rules will be introduced no later than January 1, 2010. “We can continue to be specialised, and it’s an opportunity to take the best of what the three schemes were doing before and create a process that’s best practice,” Maynard says. The cap on financial compensation on investment complaints will be reviewed as part of the merger. In November 2007, FICS raised its limit from $100,000 to $150,000, effective July 1 this year.

“The FICS board had already committed to a review as at July 1, 2009 so the monetary limits will definitely be looked at. However, the same factors that applied to our last review of the monetary limits still apply going forward,” Maynard says. “We acknowledge that particularly smaller members are very reliant on professional indemnity (PI) insurance when they come up against a large claim at FICS, so we have to take those factors into account, and the capacity of smaller members to obtain the necessary PI cover and the willingness of the PI insurers to work with the scheme.” Consumer group Choice wants the limit set at the BFSO level of $280,000.

“We think that if you have one service, you naturally would have the same limits [for each division], which one would hope is going to be the case,” a spokesperson says. Jeremy Cooper, ASIC deputy chairman, says complaints schemes play a vital role in the broader consumer protection framework for financial services.

“They provide a forum for consumers to resolve complaints against industry that is quicker and cheaper than the formal legal system and an opportunity to improve industry standards of conduct and to improve relations between industry participants and consumers,” he says. “This development will promote better outcomes both for the industry, as members of the scheme, and for consumers and investors with an unresolved dispute against their financial services provider. These outcomes include greater accessibility, consistency and efficiency, and the potential for economies of scale.”

Choice agrees the move will simplify the complaints process for consumers. “It’s a rationalisation and a one-stop-shop that has many advantages to the consumer,” the spokesperson says. “When people are getting into products they don’t look at what the dispute resolution is going to be; it’s only when things go wrong [that they consider their options] and in the past there have been a number of different players. It creates ease of use – having one scheme is much better.”