How to minimise the costs associated with complaints management

With experience in managing in excess of 2,500 client complaints, our clients often ask our advice on how to address complaint responses.

Recently, the Australian Financial Complaints Authority, AFCA, released their new fee schedule for the 2022/2023 financial year and with its release, it is an opportune time to discuss how to minimise excess usage charges for the use of AFCA.

For most of our clients, the changes to the fee schedule will be positive as the minimum fee will be $375.55 per annum.  With this fee will be the ability to qualify for five free complaints per annum.

This new fee schedule has been put in place to encourage more members to finalise client complaints during internal dispute resolution.

It is important to understand that first and foremost, there is a cost to your business to defend a complaint.  Whether it be through internal dispute resolution (IDR), or through external dispute resolution (EDR) via AFCA.

This cost to defend needs to be taken into consideration when making a decision as to whether you deny a complaint or make an offer of settlement, financial or otherwise.

The cost associated with all complaints is not only financial.  The time and resources required for the IDR proves, and, if escalated, the EDR process will significantly impact your business.

If the complaint is within your IDR, the average cost to defend will be approximately $5,000 whether you use an external firm to conduct the review and response or handle internally.

If this response is then escalated to AFCA, the cost to defend starts to increase incrementally and starts to include the AFCA complaint charges, such as fees for the different dispute stages within AFCA.  For example, if you have a complaint that escalates through to determination stage, the cost to your business, without the settlement amount, could be in excess of $35,000. 

In addition to this, you will have your excess from Professional Indemnity (PI) Insurance and also possible future increases to AFCA fees and PI insurance premiums.

With this in mind, it is important to consider settlement as an option within your IDR process, where appropriate, to avoid escalation in both costs to defend and EDR costs.

A service that we provide our clients is to review complaints and provide advice as to the prospective possibility of success of defending the complaint, through your IDR process of via EDR.  This may provide you with invaluable advice on how to minimise complaints escalating to AFCA.

It is important to remember that strong and effective processes will assist in minimising the potential for client complaints.

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