This whole Kelly O’Dwyer-sanctioned big-end-of-town-deal for one ombudsman for financial services is simply appalling.
The lack of evidence for considered issues very much suggests that the outcome of establishing the Australian Financial Complaints Authority (AFCA) was predetermined to achieve somebody’s desired result without any balancing of other consequent outcomes.
The current system is wrong in that it has no disincentive for litigious parties to not promote spurious action to achieve compromise windfalls as nuisance actions. We are all aware that a large number of matters are brought because particular claimants see some easy money with no financial or legal risk if they fail.
We are also aware that the big end of town accepts complaints as a necessary evil. Those parties see the goal as how to deal with complaints quickly and cheaply. The nirvana of not having complaints, and/or paying appropriate compensation where deserved, is simply not on the agenda of politicians and institutional managers. The parties in institutions and government are driving this outcome because it gives them more certainty as to KPI’s, less media attention and they have the resources to run over everyone else.
“Team” politics means that individual local members and senators won’t break ranks to contest what is a blatant decision to benefit institutions and make an ineffective minister look like she is actually doing something.
An ombudsman system is in place to provide for genuine consumer assistance where a valid dispute exists but the damaged person doesn’t have the wherewithal to defend themselves. The flaws in the current system relate to a lack of checks and balances as to spurious claims as well as the lack of recovery where the AFSL is financially unable to fund a settlement. The new proposed system won’t deal with either of these issues.
The minister doesn’t care and doesn’t want to know.
If the minister was even half genuine, then the new proposal that is totally designed by the institutions should be limited to them and anyone else who wanted to opt-in. Separate to that, the much discussed checks and balances to the old system should be introduced and not ignored.
A separate, but currently little discussed, issue is the appropriate cap on claims that are in the jurisdiction of the ombudsman mandate. Any experienced person will tell you that there is an awful lot of litigious lawyers around who will work on a no-win, no-fee basis for claims over $100,000.
Therefore the ongoing argument about needing to increase the cap in order to provide access to consumers who have incurred a loss is simply a misrepresentation. Increasing the cap is all about allowing the ombudsman, a largely commercial enterprise that just happens to direct all profits to its employees, to be involved in more matters and allow them to market themselves to institutions as a cheaper form of dispute resolution.
ifa should keep up the publicity on this issue as no one else seems to want to.
Michael Pinn is the managing director of boutique AFSL Pinn Deavin
David you miss the point. There are no checks and balances for spurious claims.Insurance policies mean that the adviser pays, usually up to $25k or more for compulsory legal representation regardless of the merits of the complaint. A mischievous complainant can keep changing the grounds of complaint just to increase these expenses seeking to obtain a settlement. There is no fairness in the system for the independent operator, forcing them to align with banks, insurance companies or industry funds.
This is more comment of a theoretical nature – have the events described in this post actually happened – that is,how often does it actually happen that a lawyer acting on a contingency fee basis will devote time and resources to pursuing a spurious case in the hope that the other side will settle. It needs to be kept in mind that there is a big difference between a spurious case and a case that is lost – just because a case is lost doesn’t mean that it should never have been brought in the first place.
This article perpetuates a number of myths about EDR schemes – in particular:
– that lawyers, on a contingency basis, take on spurious cases so as to achieve a compromise windfall-
– this circumstance simply does not happen – most cases before an EDR scheme will involve an insurer – insurers and their lawyers are in the business of managing claims and minimizing the amount that will be paid out (moreover many FSPs have their own in-house units that specialize in managing claims) – the settlement of matters usually involve tough negotiations (often before a mediator) where the strengths and weaknesses of a case will be fully ventilated – the idea that lawyers on a contingency basis (that is, working with no guarantee of payment) take on spurious cases in the hope that the other side will make a windfall settlement (even though it is presumably apparent to the other side and to the FOS/CIO that the case has no merit), is a fantasy