Rob Everett, Chief Executive of The FMA has set out the evolving approach for the FMA as the regulator’s mandate expands under the Financial Markets Conduct Act, taking effect from 1 December.
Mr Everett said, “The FMA’s mandate is expanding, from 1 December, with several hundred businesses and professionals expected to apply for new licences. Licensing allows us to establish minimum standards for firms and professionals who want to deliver financial services. But this is only part of the increased powers granted to the FMA under the Financial Markets Conduct Act (The Act). Read full article here on FMA website.
Heavy regulation can be an obstacle to innovation. Detailed and prescriptive regulation can entrench practices that, while being compliant, may also be inefficient. Even a principles-based regime can slow things down a lot because regulators get used to seeing the same sorts of responses to those principles. Being regulators they do not tend to be innovators. Albert Einstein in the patent office was the exception, not the rule.
All that means that when someone wants to innovate in delivering a regulated service they can often look for ways to stay 'unregulated' - that isn't helpful. Regulators all over the world are conscious of the issue of unregulated services. They can damage confidence in consumers who are confused about what is or is not protected. They can undermine the relationship between the regulator and the regulated services providers.
In the UK the regulator has launched Project Innovate. This is a nice idea designed to support new approaches (by new companies or existing ones) that could benefit the customer. There is a kind of trade-off. The FCA gives more support, and faster responses, but the adviser business has to take some of the risk with the advice from the FCA.
It has not been popular with existing businesses. They are concerned that they are funding a kind of 'fast-track' for innovators that are often competing with their businesses. The regulator, of course, says this isn't happening - existing companies are welcome to innovate too.
It is an interesting response to the problem of innovation in a regulated environment.
The issue of retirement age has been talked about a bit, mainly because some people believe it was a contributor to Labour losing the recent election. I suspect that there are a host of issues that grabbed attention (rightly or wrongly, you choose) before the vote was decided by retirement age. However, it is interesting. Personally I think the retirement age should rise, but it is a complex policy decision and needs to come along with better work-fitness testing, and an acknowledgement that some people in more physically demanding occupations should be able to retire sooner than others.
But long-term care, the requirement for help for people in later retirement, could be a much bigger issue. The reason is that it is so much more expensive to provide long-term care, than it is to provide the super safety net. The demand for medical services in later years is likely to be a huge issue for our health service. It is an issue which should concern the young, as well as the old, because it is about the allocation of limited resources.
One insurer in the UK has highlighted the issue and is calling for an inquiry. Link.
One commentator in the UK has described the use of life expectancy in financial planning as "useless" pointing out that:
"...the average life expectancy for a 65-year-old male is 86.5 but 22 per cent of men aged 65 will live to see their 95th birthday."
That is a valid point, but there are some unasked further questions there. One is the likely distribution of cash use over retirement, and for what purposes. Another is the question of risk. Risk is ever present in financial planning, and life duration risk is present too.
Cash allocation over retirement might, for example, see a client elect to spend more in early retirement (age 65 through to 75 or even 80) because they know that they will enjoy greater health.
Thinking about risk means we need to ask client what their tolerance is. Should we be planning for no consumption of capital. You might term that as a 'no risk' approach, but it is also a 'lowest income' approach.
For me the lesson is that while Life Expectancy is of limited use on its own in financial planning it is hard to see how it can be left out. At the very least the client should decide to rule it out themselves and clearly understand that reducing the risk of running out of cash in retirement also has the effect of reducing their income.
You can read the rest of the Money Marketing article by Tessa Norman at this link.
One of my favourite stories is one financial adviser who, when talking to a couple, points at one of them and says "Bang, You're Dead" and turns to the other and says "Now, how are you going to manage financially?"
What I like most about this is that it gets right to the point, without too much getting lost in the detail. The detail comes after the response to that question.
It reminded me of this piece at Seth Godin's blog, about getting your audience to care enough to go and look up the details themselves. Link.
Quotemonster is now quoting the pricing for Income Protection to Age 70 benefit period for those providers who offer it. When quoting Income Protection insurance you can select it in the list under the 'Benefit Period' the drop down box.
For two sharply contrasting views of the same data from ACC take these two headlines:
If you read each article (NBR here, TVOne here) you will appreciate that these views are based on exactly the same data. What's missing is a restatement of exactly what ACC is for, and therefore the context to those numbers.
A couple of weeks ago the article that got the most commentary was all about the labelling of advisers - Dr. Michael Naylor got some great coverage for the concept of labeling some advisers "Restricted" which is a term employed in the UK for advisers that are, well, restricted, in some way - usually by the range of products they can offer, but also sometimes in other ways.
This week there is a good article on goodreturns which focuses on how limited the advice could be in another way. This is the crucial quote (but you should follow this link and read the whole article, by Susan Edmonds).
"After all there may not be much difference in effect between ‘I recommend this product to you in your circumstances’ - personalised advice, ‘I recommend this product generally to all my clients’ - class advice, or ‘here is some information which recommends this product’ - no advice.”
That may be the case. It may also be that almost every adviser could not offer a whole universe of product. But I think there are three pieces of information critical to a client getting a fair idea of what their adviser is doing for them:
Knowing how the adviser is getting paid (fee, commission, how much)
Knowing which solutions the adviser is leaving out (can't offer, versus which aren't appropriate)
Knowing whether they are considering all my personal circumstances
Building a brand is sometimes seen as something only a huge company can undertake.
The genuine advantages of incumbency and market share are real - but not as big as is sometimes assumed. Perhaps because of my background I am more optimistic than that. I have often worked for challenger brands, and built them up to become something much bigger, first at Sovereign, then at Quicken, and more recently with Quotemonster.
You can build up your brand as well.
Now, obviously, Quotemonster is not Spark, or Apple, or Coke. But I don't need all those people to be able to find Quotemonster, or Chatswood, for that matter.
This excellent blog post by marketing guru Seth Godin explains masterfully how definining your target market carefully may be the first step to working on your brand. He calls it "Famous in the family." Link.
Use two criteria to define your market - one will be about what you do, and the other will define more carefully out of the whole world of people the group you are most likely to help first.
Later you have to explain why you are special, and when you have done that, we can talk about some of the actions required to make your reputation grow.