The decision to increase all dispute resolution scheme compensation levels to $500,000 effective from 18 July 2024, and the proposal to increase consumer awareness of how to complain plus make it easier to complain has come as a surprise to many in the industry. These changes are driving a rethink by many FAPs as to how they deliver financial advice and how to check their compliance status.

Last year, complaints to dispute resolution schemes surged. If the Government promotes easier complaint processes and raises compensation to $500,000, we can expect a continued rise in complaints against FAPs and product providers. This will likely drive up professional indemnity insurance premiums even more.

“We’re noticing a significant shift in FAP owners’ attitudes towards compliance,” said David Greenslade, founder and executive director of Strategi. “Owners are now beginning to view compliance and training as investments rather than just costs. More FAPs are seeking independent assessments of their compliance status or considering outsourcing their compliance to the Strategi team.”

Strategi research confirms that:

• Businesses fostering a robust compliance culture tend to prioritise positive consumer outcomes and deliver higher-quality financial advice. This results in fewer errors, fewer client complaints, and avoids regulatory intervention or dispute resolution scheme compensation payouts. The cost of an independent review is minor compared to the substantial savings achieved through these measures.
  
• A good compliance provider, by producing a valuable review report, can help businesses simplify processes and encourage FAPs to be more innovative in how they give financial advice. This, in turn, reduces duplication within the business and cuts costs.
  
• If all staff receive good yearly CPD training and key staff take specialised courses like the AML/CFT compliance officer course, the Governance Course for small FAP owners, FAP compliance officer course, and the Consumer credit course — all NZQA approved micro-credentials — business competence and productivity rise, lowering the chance of facing a $500,000 compensation claim.

The first step to preventing complaints is to strengthen your compliance measures, and a compliance review serves as an excellent starting point. It’s a worthwhile investment, offering value that shouldn’t be viewed as an expense. Contact Strategi for information on how we can assist with compliance reviews, consulting, and our Virtual Compliance Officer Service.