moneyblog

KPMG: wealth management environmental review

KPMG has published a good environmental review for wealth management. Although I try to stick largely to matters of insurance and risk management, much of this review is applicable to those areas too. Also, some of the trends discussed are emerging in the insurance world but are further advanced in the investment advice area - and so give us a glimpse of the future, or at least, a possible future. Check it out at this link. 

 

Disclosure regulations - points for discussion

The disclosure regulations consultation is not too large to quickly get your thinking around at little more than a dozen pages of real content. The issues for more detailed discussion are, perhaps, the disclosure of scope, commission, and conflicts of interest. 

Scope because thinking hard about what your standard service is, and the most common variations, is always an important feature of any business. Considerations include: whether you want to craft each scope statement uniquely, or have a standard, or other approaches like a short menu of different scope statements. Dimensions of scope including areas of service, companies, and products, but also methods and approach - so the client knows what the limits of your efforts shall be as well as your view. 

Commission because complete disclosure of commission may be new to some. Of course disclosure of the fact of commission, relative levels in some form early on. My preference is for dollar disclosure along the lines required for fees, but current wording in the consultation document appears to allow discretion to state a calculation method, although there can be concerns about how clear that will be to many clients. 

Conflicts of interest and how they are managed. It is the last piece which is of most interest. Clearly receipt of commission is a conflict that requires disclosure, but even a fee requires disclosure. Management strategies include disclosure, review of alternatives, commitments to review the wider marketplace, the use of external research, equalising the remuneration for the financial adviser, and so on. 

I encourage everyone to read the consultation document (scroll down for the link below) and to consider making a submission. 

 

nib: 'Health Comes First' roadshows

nib are running a 'Health Comes First - Moments of Truth' roadshow series between the 4th and 22nd of November. Details of the dates and venues are below, registration to these events will be open next week.

Auckland – North Shore

07 November - 9 am to 11 am. The North Lounge – North Harbour Stadium

Whangarei

07 November - 3pm to 5pm. Hatea Room, Discovery Settlers Hotel, 61 Hatea Drive

Auckland – Central

15 November - 12pm to 2pm. Tote on Ascot, Ellerslie Event Centre, 100 Ascot Drive, Remuera.

Expected recurring revenue multiple for Australian client bases

Radar Results Marketing created a summary of over 130 financial planning practices and client registers from the past six months to September 2019.  The summary outlines the recurring revenue multiples for the different revenue types.  As stated in the table below, advisers looking to sell, can expect to sell their client bases from 1.0 times to 2.8 times their recurring revenue. It is worth noting that these multiples apply to client bases where the annual revenue is up to $1 million AUD - reinforcing the view the the multiple of renewals method is applicable mainly to smaller businesses (under five people) rather than more substantial enterprises. For those constantly surprised why small businesses of this type can command values as high or higher than these then the answer is simple - because of the arbitrage between the values for these businesses, and those for larger advice businesses. 

 

APRA on general insurance: call for more expenditure on mitigation and resilience

The AFR reports that APRA is so concerned about the crisis in insurance coverage in northern parts of Australia that it wants a new approach to the market: 

"All levels of government must act to save swathes of northern Australia from becoming uninsurable as a result of a climate change-related increase in natural disasters, the prudential regulator has warned. The Australian Prudential Regulation Authority said action should include a major shift of emphasis from disaster recovery to disaster resiliance and mitigation, pointing out the vast majority of disaster funding goes to "clean-up and recovery", with only 3 per cent on prevention and mitigation."

The piece by James Fernyhough is well worth a read, and not just for general insurers. It is also indicative of a wider interest by regulators in spotting medium to longer term issues and creating impetus for solutions where competitive pressure makes it hard for individual participants to act. That sounds a lot like some of the problems the New Zealand life insurance industry is grappling with. 

Why many women arrive at retirement financially worse off than men

Women arrive at retirement 18% financially worse off than men, on average, they also tend to live longer. Research commissioned by CFFC states that there are more than twice as many women as men living in poverty post age 65 - 14% females compared to 6.6% men. This is a long-run legacy of two features - the interruption to earning from having children, and the gender pay gap. In some Scandinavian countries, both parents take time off for the birth of a child (not necessarily at the same time) and men are more likely to become an at-home carer if that is the option parents go for. Hopefully, other changes can be made - although a gender pay gap persists, it is narrower in New Zealand than many countries. Click here to read more. 

MBIE Consultation Opens on Disclosure Regulations

From the team at MBIE: 

We are now seeking feedback on the draft regulations that will set the disclosure requirements that will apply in the new financial advice regime.

The Financial Markets Conduct (Regulated Financial Advice Disclosure) Amendment Regulations will give effect to the Cabinet policy decisions made in February 2019. We are now seeking feedback on the content of the regulations themselves. In particular, we are seeking feedback on whether these draft regulations achieve the policy intent and whether they are workable in practice for the different ways in which advice can be given.

You can read the exposure draft and make a submission here: https://www.mbie.govt.nz/have-your-say/exposure-draft-financial-markets-conduct-regulated-financial-advice-disclosure-amendment-regulations-2019. Submissions close on 8 November and we would greatly appreciate any feedback you might have.

Key points: 

• As discussed previously, dollar disclosure
• Disclosure of scope of service
• Disclosure of conflicts and how they are managed - probably the latter part of that is the more interesting bit

 

NZ radio host "the unluckiest guy in the world"

The Edge radio host Michael Kooge, aged 35 calls himself "the unluckiest guy in the world" after battling through stage three melanoma in 2012 was then told he had an unrelated glioblastoma (type of brain cancer) in 2017. It is a curious thing. There must be some research on these types of unrelated cancer appearing, I seem to hear about it so often I can't be the only person to think - are they unrelated? 

The cancer treatment Kooge needs, Avastin, had an application placed for funding with Pharmac in 2015 and there has still been no decision made. Kooge is spending a huge $34,000 every six months, and he's quickly running out of money. "I'm not an advocate for health insurance at all, but I do urge everyone to get it even if you are young, because it could save your life.

This is the point - new drugs are made available to the public sector some years after they are available to private patients. The public health system is efficient - for the taxpayer it gives incredible value for money - but new drugs cost a huge sum of money to research, and that has to be recovered somehow. That 'somehow' is in the large private market of the US, and the (much) smaller markets that co-exist with public sector provision in most other wealthy countries.

It is sometimes said that private provision detracts from public provision (by bidding up the cost for resources, usually people) but I doubt we would have anything like the range of new drugs and discoveries that we do if all medical research globally were restricted to public services. 

Click here to read more. 

UK: Half of people surviving advanced melanoma due to immunotherapy drugs

UK Doctors say in this article that over half of melanoma patients are now surviving the disease that was considered untreatable a decade ago. Immunotherapy drugs are making a big impact on survival rates and quality of life. A clinical trial was done and had side effects like fatigue, rashes and diarrhoea, and after the trial the decision to make these drugs available worldwide was one of the fastest in NHS history. It is paying dividends. 

Partners Life: New adviser training course

Expressions of interest are open for the Partners Life three day New Adviser Training Course to be held in Takapuna from the 21st - 23rd of October. The course is recommended for advisers new to the industry (less than 24 months) and cover a range of topics including product, lead generation, 6-step advice process, claims, underwriting and more.

Click here to register. 

Premium Comparison Database v106

Chatswood has just sent the premium comparison database out to all subscribers. Recent changes include: 

• Updated Partners Life Mortgage Replacement rates effective 1/10
• Removed all AIA Real rates

KensingtonSwan highlight complexity of FSLAA and CoFI

In their newsletter KensingtonSwan has highlighted how complex the new financial sector law is becoming: 

"The outcome of the path taken with the CoFI reforms is that a piece of legislation that is already one of the most complex in the New Zealand legislative framework is set to become even more complicated and lengthy. As if FSLAA’s inclusion within the FMC Act of financial advice and client money and property handling wasn’t enough!"

More available at their newsletter. 

Product Research Database Update

We have uploaded the latest product research database (version 12_7) onto Quotemonster and distributed it to subscribers. This version includes the following changes:

• Asteron Life policy wording added and rating changes applied effective 30.09.2019
• BNZ LifeCare 01.04.2019 policy wording added and applied rating changes
• Unimed Hospital Select 01.09.2019 policy wording added and applied rating changes
• Fidelity Trauma Multi 08.09.2019 wording added and applied rating changes
• AA Life and Funeral cover 01.08.2019 wording added and applied rating changes
• Kiwibank Home Loan and Life & Living 01.08.2019 wording added and applied rating changes

Product Researcher: Doreen Dutt

I am so glad to have Doreen as part of the team. With us for several weeks now, Doreen has been learning fast and picking up the product research baton really well. We are looking for some advisers and underwriters to help us out with a research advisory board at some stage. If you check back here you will see a profile posted soon. 

Economics stand in the way of new antibiotics

Antibiotic developer company Achaogen has filled for bankruptcy earlier this year as sales of its drugs failed to keep pace with operational costs as antibiotics are short-term drugs with limited shelf lives. The economic fundamentals may leave the world with very few antibiotics as the bugs are currently retooling much faster than human medical science. It is probably time to change the way we play organise funding and rewards. Thanks to Len Elikhis for highlighting this article. Click here to read more. 

Fidelity Life Roadshow On Point Live

Fidelity Life have an upcoming Roadshow, On Point Live. The Roadshow will run from 14 to 18 October and will be focused on:

• Informing attendees on Fidelity Life updates and how the updates are being tracked
• How Fidelity Life is helping with the transition to the new financial advice regime
• Adviser professional development plans
• As well as a sneak peek of the new adviser website

Click here to register

Australian actuaries: heat stroke death rates likely to rise

Australian actuaries are concerned that heat stroke death rates will rise and superannuation balances will be reduced as the effects of climate change make themselves felt in health and the Australian economy. 

Workplace health survey by Southern Cross and Business New Zealand

Well worth checking out this report - both if you are an employer considering policy, and if you are a stakeholder in the employer market for insurance. Link. 

Conduct issues example: Mobile trader 'signed up mental health unit patients to unreasonable phone contracts'

This article on Stuff relates to the general unfair contract law changes proposed, not just the changes likely to arise from financial services conduct review going on.

As I read it I found myself wondering: don't we already have laws against this kind of idiotic behaviour? Remember this case highlighted by the Hayne Commission: insurance sold to an intellectually handicapped young man. I always thought that none of us want this to happen, and if some fool from a call centre has done this to hit a target it was always - sooner or later - going to get discovered and reversed. 

But on the other hand, has this kind of behaviour got more common? If so, then why?

Setting aside people with more severe limitations, we may all be cognitively stressed at times, and can be vulnerable to a pushy sales pitch which is exploiting some fundamental information asymmetry. I suspect that this is more common with any service (not just financial) when several of these factors combine:

• Complex services
• Information asymmetry
• Subscription or regular payments
• Hard to compare features
• Presence of a sales incentive
• Distant call-centre sales process
• Reduced or limited competition
• Infrequent purchase events, for ‘set-and-forget’ services

So, the Government has announced its intention to do the following:

• Prohibit unconscionable conduct in connection with the supply or acquisition of goods and services
• Extend the existing protections against unfair contract terms in standard form consumer contract terms to also apply to standard form business contracts with a value below $250,000.

That's probably understandable if this is become more widespread because more and more services have features like those above. You can find more information about the decisions here: https://www.mbie.govt.nz/business-and-employment/consumer-protection/review-of-consumer-law/protecting-businesses-and-consumers-from-unfair-commercial-practices/

Note, that is quite separate (but related to) the work going on that is specific to financial services. This is the context which is helpful to consider when you are looking at draft law (soon, we hope) of COFI, Insurance Contract Law, and considering the expanded remit of the FMA.

Fidelity Life pay over $1 billion in claims

Fidelity Life have announced that they have paid over $1 billion in claims since they were founded in 1973.

Here is part of their announcement:

Paying claims is what we do and this amazing milestone goes right to the heart of our purpose: we give New Zealanders certainty to enjoy a more rewarding life.

Our claims team’s mission is to always do the right thing by customers and this is reflected in their high customer satisfaction scores.

Advisers rate us highly as well, especially when it comes to fairness, speed and communications. And we’ll always keep looking for ways to make it easier for you to do business with us.

So a big thank you for playing your part in helping us achieve this awesome milestone.

When you add $1 billion in claims paid to our 100 per cent Kiwi ownership, A- financial strength rating* and Life Insurance Company of Year award (twice!) we reckon there’s lots of great reasons for you and your customers to choose Fidelity Life!