New Zealand is one of the few countries to have competing schemes, and that provides a problem for consumers says Trevor Slater, COO of Resolution Institute.

Slater told Good Returns that “how the dispute resolution schemes operate now is, if you as a consumer have a complaint against your financial service provider, meaning everyone from a small scale lender to a large managed fund, the provider is supposed to tell you which dispute resolution scheme they are a member of. The problem with that is that it doesn’t always work well enough.”

“What is happening, except for the banking ombudsman, is that consumers have very little knowledge about the dispute services that are available to them.”

According to Slater, there is an upside and a downside to this situation. The upside is that financial service providers can join any scheme they wish, which makes for a competitive market which in theory keeps the fees down.

But Slater says, “The downside of our system is that because it is a competitive market, cooperation between the schemes is okay, but it's not great. All of the different schemes have different business plans, aims, they even report differently, but the biggest thing is the lack of consumer outreach.”

To combat these shortcomings, Slater is proposing a drastic change, consolidation of the four schemes into one.

“My personal view is that we are a tiny country and we only need one scheme. People will say ‘We need competition to keep the price down’. I think that can all be sorted by legislation. It should still be private, and funded by membership. A good chunk of the membership fund should be going into outreach to consumers.”

“If you were to go to South Auckland or Porirua and ask people on the street ‘If you have a complaint with XYZ Loans, where should you go?’, I think you could interview 500 people and you would be lucky if you found one of them who knew about a financial resolution scheme.”

While the change would be a big shakeup of the current structure, Slater believes that the impact on advisers would be minimal.

“Advisers are already very good with telling their clients what scheme they are a member of. The biggest concern an adviser might have if this was to happen is ‘Are my fees going up?’ and that is a genuine concern. If you could implement legislation to handle the fees, I don’t think advisers would be too concerned at all, as long as the organisations had a panel of experts that know about financial planning and financial services. If the scheme could prove that they know the business and will keep the fees the same or lower, I don’t think that this change will affect advisers at all.”

“The big challenge to do this is you would need either cooperation from the existing schemes or compulsion from the government. I would even go as far as saying that you would probably need a brand new person to lead the organisation so it doesn’t become a merger.”

“When the industry created Financial Advice NZ, that was absolutely needed so that the consumers could understand that there was one voice. That situation is no different to this.”