MBIE has just published an updated timeline for the implementation of the new financial advice regime.
MBIE's release below explains:
We have published on the MBIE website some updated factsheets relating to the new regime for financial advice, including updated expected timeframes for the new regime...
We know there has been some uncertainty and speculation about timing for the new regime. While we cannot give certainty about exact timeframes until regulations and the Code of Conduct are finalised, we wanted to share our latest best estimates of timeframes for the new regime. These updated timeframes take into account time needed for the Bill to complete its final stages in the House, and time to consult on and finalise supporting regulations and the Code of Conduct to ensure they are workable and do not impose undue compliance costs. We also want to allow for a bit more time than previously indicated for industry to apply for transitional licences given the Christmas holidays may fall during the transitional licence application period.
These timeframes are still indicative only and we will provide updated estimates of key dates once the Bill is passed. Regardless of when the Bill passes, there will be time built in for industry to prepare for the new regime.
In terms of next steps, you will see from the fact sheet showing the puzzle pieces that make up the new regime that:
the Code Working Group expect to consult on a draft Code of Conduct shortly, and
we also expect to be consulting later this year on licensing fees and levies.
We hope you will continue to engage and provide your input on these matters.
I don't like this headline, but the trick with this kind of information is to try and figure out why it was written, rather than spend ages grumbling about how wrong it is. In fact, this is the headline for a long-form essay on conduct issues in life insurance. While I do not agree with some of the things in the article, it is overall a good introduction to the subject and covers it well. You should take a look. Click here to read it.
Now back to our challenge - that for many people insurer and adviser are synonymous. Read this quote and absorb it again:
'Life insurance providers are under pressure to disclose sales incentives, which can affect their advice and are banned in some countries. But the industry is resisting.'
I added the emphasis on the word 'their' myself. Plainly the insurer is seen as being responsible for the advice that an adviser may give. For some, they are, for others, of course they are not. This is a significant issue for insurers and advisers that wish to provide excellent experiences for their clients. Being clear about the service you provide, and what you are (or are not) responsible for, is essential to managing your advice and conduct compliance obligations.
Looking through the reading material on the industry yesterday the wording of the RiskInfo poll on the impact of FSLAB caught my attention. Here is the question:
"Will the Government's financial advice legislation reforms improve access to high-quality financial advice?"
It seems simple, but includes two dimensions quality of advice, and access.
I must admit to struggling to answer. In the end I plumped for 'not sure', which might seem like a bit of a cop-out, but I'm genuinely not sure. I dobelieve that FSLAB will almost certainly improve the quality of advice on offer. It is already, with much more interest being shown by some RFAs in the process of developing effective statements of advice, for example. I also know QFE managers that are more focused on advice as they contemplate taking their QFEs through transition to licence-holder status. I also think it will reduce the numbers of people claiming to offer advice, and that may or may not be a bad thing - depending on how many that number is. If regulation and costs are too tough we could lose lots of good people. If they aren't tough enough the law will have failed too. The challenge for CWG, FMA, and MBIE in their various roles in the change is to come up with the 'Goldilocks' result: just right, and there are many different views about what that is. But I am quite unsure that greater accessto advice will result, and in my heart I suspect the answer is a modest reduction in access.
I have a model (which produces a Sankey chart) to enable me to experiment with different scenarios for the future numbers of advisers in different entities, I am yet to land on a 'most likely' case. If you work in distribution, or deal with financial advisers (of any type) I suspect that kind of variability creates a great deal of uncertainty and worry about how to invest for the future.
Here is the sixth message from the FSC about future changes coming in financial advice regulation. Their goal is to highlight key things advisers need to know about the Financial Services Legislation Amendment Bill, its regulations and the Code of Conduct for Financial Advice. It is a good guide, and well worth checking in with each one.
General background on Insurance Contract Law Review is below. More detailed comments and exploration of the issues is available to subscribers to Chatswood's Quarterly Life and Health report.
The Insurance Contracts Law Review (ICLR) is an important process which has been on the legislative agenda for nearly twenty years since a Law Commission report in 2000 advocated for reform. Insurers, too, generally support many of the issues raised in the consultation document which has been circulated recently. You can find the document at this link: https://www.mbie.govt.nz/info-services/business/business-law/insurance-contract-law-review Submissions have closed, but if you haven’t read it already, you may as well add the document to your reading pile, to get a head start on the next load when submissions are released.
Consumer groups are lobbying for changes to disclosure rules, and other contract terms which they say will pay claims payments fairer. While insurers are concerned that if they lose the right to void a contract based on broad definitions of non-disclosure, they may be forced into the more difficult area of proving fraud. Some form of change is likely, but we need to keep working to defend our right to underwrite and manage claims effectively.
ICLR is a complex set of issues bundled together. Some affect general insurance more than life insurance. ICLR will take some years. That’s good – because it is very complicated, and some choices might pose a major threat to consumer ability to obtain insurance.
The recent claim decline case on Fair Go programme offered Minister Faafoi a good platform to launch the review, but it is an example of how simplification masks the real, difficult, issues in the review. It does not illustrate the central point around the duty of disclosure – that a client is required to disclose anything that might be relevant, even if they are not asked. They were asked. It now turns out that their medical records were incorrect (see this story). Insurers are frustrated by this, they want the right to rely on information they receive from either clients or doctors, which seems fair enough to me.
Reforms in other markets usually leave the applicant with the responsibility to answer questions truthfully, and do not usually require insurers to collect medical evidence in every case. What most insurers want is to retain the right to underwrite, be fair, offer a good product efficiently. To do that we need to be able to ask questions and rely on the answers.
That’s just underwriting. But perhaps a bigger challenge comes from the review questions around contract terms. Many words could be offered on this subject, but I shall choose only these: unlike other aspects of insurance law, in this area New Zealand is relatively up to date, and Australia is contemplating using our approach as a model for their reform. I would argue to keep our approach.
Another important area is conduct of insurers. While conduct, and how it supports expectations of the community, has been given plenty of media attention there is some legal and regulatory plumbing missing. The RBNZ is the prudential supervisor, but arguably New Zealand lacks a conduct regulator for insurers. You might consider some recent FMA reports as an audition for the role.
Advice on disposal of an insurance product is another neglected area. This is related to the subject of advice on replacement, but it is not limited to that. Advice on disposal occurs when someone tells a client to cancel a policy. That happens. Because of the recent focus on replacement business most people tend to think of that happening when someone wants to replace the insurance policy with another. But it also happens a lot when someone wants to recommend that the client use the money they spend on insurance to spend on something else. It happens a lot when a client is stretching a budget to make the next step up to a more expensive property. It also happens when a client is re-organising their affairs to save more.
It can be good advice to cancel insurance policies that no longer meet your needs - but it isn't always good advice, it depends on personal circumstances, and requires an appreciation of the risks faced by the client and their wider financial situation. Often this advice is being given by financial advisers, or non-advice staff selling home loans, and sometimes by non-advisers unrelated to the financial services sector. Having a decent definition of advice on disposal may save us from stretching the definition of replacement advice to breaking point.
Given the logjam of work that has to be done by much of the financial services industry around legal and compliance matters right now, few will be thanking the FMA for adding another consultation at this time, even if it is about minimising unnecessary compliance costs.