The Financial Planning Association (FPA) and the Investment and Financial Services Association (IFSA) are in discussions with a view to merging their external complaints resolution schemes.
At present, each has its own scheme with its own particular slant. IFSA’s members belong to the Life Insurance Complaints Service (LICS), which is currently being revamped to handle a wider range of products and services and is poised to change its name to the Financial Industry Complaints Service (FICS).
The FPA’s members belong to the Financial Services Complaints Resolution Scheme (FSCRS), which it started in 1995.
FPA chief executive officer Michael McKenna says: “There is some logic to having one scheme as opposed to two which are essentially doing the same thing.”
Among the benefits of a merger would be better economies of scale and reduced confusion in the marketplace.
Indeed, there is already an overlap in membership and this could increase as both continue to open their doors to more industry participants.
McKenna says IFSA is working hard and fast to get its revised scheme in place, but there are concerns as to whether there will be enough time to resolve all merger issues before November 1, 1999.
This is the revised deadline recently announced by the Australian Securities and Investments Commission (ASIC) for fund managers to join an external complaints resolution scheme in line with the Managed Investment Act.
“The time table is probably a bit tight to do what we think would be a sensible thing to do,” McKenna says.
However, he notes that a merger after the deadline will be more complex as both schemes would already be entrenched in their own areas of operation.
“It is easier for two organisations to merge when they are both going through change,” he says.
LICS is currently revising its constitution and rules and expects to launch as FICS in September or October this year.
Director of ASIC’s Office of Consumer Protection Peter Kell says: “LICS has
traditionally had a slightly different focus to that of the FSCRS, but
there are many in the industry who argue that there is a convergence taking
place.”
He says similar schemes have merged in the United Kingdom and Canada.
Both LICS and FSCRS have been rapidly expanding their membership base and both plan to open their doors to fund managers conforming to the new Managed Investments Act obligations.
LICS started operating in May 1995 to serve the life insurance industry which, at the time, was a clearly identifiable industry. It is now being broadened to reflect the wider range of products and services offered by life offices.
Last year, it allowed people giving securities advice to join, attracting nearly 70 new members. It is now keenly eying the Superannuation Complaints Tribunal and may allow super schemes in as members if this body fairs poorly in the High Court.
LICS investigation and inquiries officer Joseph McCarthy says a further 30-40 new corporate members and around 50 individuals are expected to join
after LICS opens up to fund managers acting as single responsible entities.
FSCRS membership has also grown rapidly – from 370 in mid-1998 to more than 550 at present.
Last year, it allowed stockbrokers to join and it now has about 90 per cent of all Australian Stock Exchange members. They make up l4 per cent of its total membership.
FSCRS manager Nicole Arendsen says plans to open up to fund managers as single responsible entities will be a huge expansion for the FSCRS.
The scheme has already received numerous applications and telephone inquiries and she believes there is a market of about 1,000 managed investment schemes out there.
“We are hoping to attract a substantial majority of this market, because of
our track record in resolving disputes,” Arendsen says.
LICS received 847 new complaints in 1998 and finalised a total of 873 for the year.
The number of written complaints lodged with the FSCRS doubled to 244 last year and all but one of these were resolved before reaching adjudication.
Arendsen says: “Given the volume of business in financial advisory services, we receive few complaints. Our FPA members alone have 3 .7 million clients for whom they manage $118 billion, while 32 per cent of adult Australians have direct share ownership. “
ASIC is currently working at gaining industry and consumer acceptance for its policy for the approval of external resolutions schemes .
Under the managed investments provisions of the Corporations Law, each managed investment scheme must now have a single responsible entity that is
licensed by ASIC and each must belong to an ASIC approved external complaints resolution scheme.
The single responsible entity replaces the existing requirement stipulating a two tier structure of a manager and a trustee.
Indeed, this dual structure was criticised as leading to a confusion of roles, split responsibility and in the event of dispute, litigation as to who should take legal liability.
On why ASIC extended the deadline for join a scheme by four months, Kell says:
“We want to make sure that complaint resolution schemes and industry members have the opportunity to consider all issues and to get the system working properly.
“We are aware that there are other financial sector reforms at the moment,
like the CLERP 6 proposal, and we believe that it is important to allow time
to get things right.”
He says based on current thinking, ASIC’s policy’s statement could be out by June or July, still allowing industry members a few months to make their own plans.
