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Fees

The Ministerial announcement available at link references a discussion document still to be posted on the MED website but, in summary, the announcement lists potential fees as follows:
The proposed initial registration and application fees range from $350 for registration to around $1,385 for authorised financial advisers, and around $4630 for qualifying financial entities.  The ongoing confirmation and renewal fees are proposed to be substantially less.

Between 10,000 and 12,000 financial service providers (including approximately 7,200 financial advisers) are expected to pay the fees.

The QFE fees look a bit low, perhaps implying a fairly cursory examination of what could be quite large and complex QFEs in the initial stage. However, let's hold our fire until the full discussion document is available.

Agency Agreements

We're in the process of completing our review of agency agreements. It's a companion piece of research to our commission comparison review, and already the results are already interesting.

We've examined and compared the broker agreements of each of the major life companies across more than 50 component categories divided into the main sections:

  • Obligations
  • Termination
  • Commissions
  • Specified Laws and Regulations
  • Guarantees
  • Presentation

It's our view that every agreement we've reviewed will need to be revised for the new legal and regulatory environment. Some will find it easier than others.

The major issues are these:

The Financial Advisers Act licences mainly individuals, not companies. Most companies at present contract with companies, they then seek personal guarantees, only a couple reference employees, or deal with the question of multiple advisers under the contract wih any clarity.

Advisers will still want commission payments to be made to companies, not themselves as individuals. The parties to an agreement are likely to be the provider company, the adviser (or list of advisers), the adviser company, and a guarantor (if applicable, since you now have individual advisers as responsible.

Companies will probably need to have quite different agreements for advisers that are Registered, Authorised, or members of their QFE.

Agreements take very different approaches to dealing with adviser's obligations. Some list relevant laws, codes, and regulations - but this approach appears dangerous, likely to see the agreement quickly out of date, and raises the question of what to do about breaches of laws, codes, and regulations that fall outside these. The simpler approach is to treat the legal and regulatory environment as the external context for the agreement - and leave it out. Then have the agreement focus on the business relationship and commitments that the parties need to make to each other. It is these that have now changed so much, and will therefore need reviewing. You can still help your advisers by having separate guides to compliance requirements.

Different permissions and obligations are now important. Advisers will need to make different warranties to companies depending on their practicing status. Companies may want to receive copies of different documents - such as evidence of registration and authorisation, copies of adviser business statements, and so forth.

There has been a time when agency agreements were a source of competitive tension until almost every company adopted an approach which assured advisers more confidence about the security of renewal commissions being paid over time.

As we go through the coming changes there may be new sources of competitive tension arises as some companies surrender to their corporate lawyers and unintentionally end up with agreements that are too conservative. Others may skimp on this vital step and fail to acquire the necessary tools to manage agency relationships effectively.

While we're at it companies might want to rectify some of the less critical but annoying issues around their agreements. Page numbers were surprisingly absent from some. Cover pages can be helpful, descriptive, and list the parties to the agreement - or they can merely be undifferentiated ways of hiding the useful content. Plain english has been employed to excellent effect in one agreement, with a welcoming degree of mutuality in obligations that makes it stand out from the crowd.

Clear structure counts for a great deal. Updating associated application forms to collect better information about the parties would help too - as would a long overdue renovation of adviser relationship management systems - most of which are little better than accounting systems with an export function for a mailing list. This would make the information collected actually useful to development managers and marketing team.

Call me to get more information about the review.


Friday Fun

It's late, but hopefully you will catch it before you slope off to the pub, golfcourse, or in my case to lie coughing and spluttering in my bed recovering from a chest infection.

This week's Friday fun owes a hat tip to Mike Maloney, and 'cheese eating surrender monkeys' everywhere.

The British are feeling the pinch in relation to recent
terrorist threats in Islamabad and have raised their
security level from "Miffed" to "Peeved."

Soon, though, security levels may be raised yet again to
"Irritated" or even "A Bit Cross." Brits have not been
"A Bit Cross" since the blitz in 1940 when tea supplies all but
ran out. Terrorists have been re-categorized from "Tiresome"
to a "Bloody Nuisance."
The last time the British issued a
"Bloody Nuisance" warning level was during the great fire of
1666.

The French government announced yesterday that it has raised
its terror alert level from "Run" to "Hide". The only two
higher levels in France are "Collaborate" and "Surrender."
The rise was precipitated by a recent fire that destroyed
France 's white flag factory, effectively paralysing the
country's military capability.

It's not only the French who are on a heightened level of
alert. Italy has increased the alert level from "Shout
loudly and excitedly" to "Elaborate Military Posturing." Two
more levels remain: "Ineffective Combat Operations" and
"Change Sides."

The Germans also increased their alert state from
"Disdainful Arrogance" to "Dress in Uniform and Sing
Marching Songs.." They also have two higher levels: "Invade a
Neighbour" and "Lose".

Belgians, on the other hand, are all on holiday as usual,
and the only threat they are worried about is NATO pulling
out of Brussels .

The Spanish are all excited to see their new submarines
ready to deploy. These beautifully designed subs have glass
bottoms so the new Spanish navy can get a really good look
at the old Spanish navy.

Americans meanwhile are carrying out pre-emptive strikes, on
all of their allies, just in case.

And at a local level...

New Zealand has also raised its security levels - from
"baaa" to "BAAAA!". Due to continuing defence cutbacks (the
airforce being a squadron of spotty teenagers flying paper
aeroplanes and the navy some toy boats in the Prime
Minister's bath), New Zealand only has one more level of
escalation, which is "Shut, I hope Austrulia will come end
riscue us".  In the event of invasion, New Zealanders will be
asked to gather together in a strategic defensive position
called "Bondi".

Australia, meanwhile, has raised its security level from "No
worries" to "She'll be right, mate". Three more escalation
levels remain, "Crikey!', "I think we'll need to cancel the
barbie this weekend" and "The barbie is cancelled". There
has not been a situation yet that has warranted the use of
the final escalation level.


Real Estate Agents - again

"We've had people from the department of justice, from the real estate institute, and solicitors and barristers, and none of them have mentioned this."

That's a direct quote referring to the Financial Advisers Act from the head a major real estate network in New Zealand. Now, there are two possible explanations for this:

a) He's right, the exemption for 'necessary incident of acting as a real estate agent' covers everything including sales of a thousand apartments a year to 'investors'.

b) He's wrong and he's only going to find out when a financial planner decides to dob in half a dozen of his offices for their residential property investment seminars, property management etc...

Will investment advisers hold their fire? Or will sellers of investment property soon find they are captured? Your comments...


Sovereign's Commission Offer

It's not such a great thing to pick at a story written by one's own editor, Link, but I feel I must correct a point in the article about Sovereign's commission offer - 230% is not higher than the highest end of the commission range offered by Sovereign under some of it's agency terms. In fact it's within the range - so in that sense, it isn't 20% higher than other offers.

However, I have to agree that for many individual brokers it will be a significant increase as most advisers would not have the scale to achieve the highest paying terms. Also, as a reading of our commissions research shows, it will not make them the highest payer of commissions in the market - but it will mean that they are extending a higher rate to a much broader group of advisers.

This could clearly be seen as a reflection of the breakdown in production bonus 'ladders' which have been made almost useless as a way of targeting higher levels of commission on larger, more efficient, producers by the deals done with loose 'aggregator' types of business. Now, Sovereign's offer direct to the little guy means if an aggregator wants a margin, they may have to invoice it the old-fashioned way.


Paying out at the right time to the right people

In the UK the ABI is lobbying the revenue service for changes that will make the payment of proceeds from life insurance policies faster. As I understand it this is less of a problem here because of the current zero-rating of estate tax. However, when someone dies without a will then delays can be significant. This is a reminder that we need to try and make sure we do the whole job - getting the ownership of the contract right can avoid this problem entirely. We've known how to achieve this for some time, but the article reminds us.

Matt Morris says just about every life insurance policy should be written in trust. Morris adds: “Policies written in trust are technically no longer your assets and belong to the beneficiary from the moment the trust form is completed. The monies are paid quickly and avoid any probate delays with the HMRC, which average six months. The money is paid to the right person - the person you nominate as your beneficiary - rather than openly to your estate.”

Link.


QFE Changes

There's a bunch of analysis to be done, which as you will know we do not normally do on our blog. However, criticism of the media is a reasonable subject for these posts. Attentive readers will know why this statement irks me:

He also plans to change term life insurance, bonus bonds and call building society shares from category one to category two products in an effort to ensure simpler financial products are still easily accessible to the public.

I would have used the word 'clarify' rather than change in the context of term life insurance, as a close reading of the law would show that it has always been category 2.


Financial Advisers Should Go To More Funerals

Gilchrist at Money Management (UK) has an excellent article on why financial advisers should attend more funerals - in essence to remind them what is and what is not important about money, which they otherwise spend far too much time thinking about. Link.

On Friday I went to a funeral of a genuine Kiwi hero, Bert Walls. He fought in North Africa and at Monte Cassino - and perhaps even more significantly went on to make a difference in the lives of hundreds, if not thousands, of people when he got home too. It was a big crowd for the funeral of an 88 year old.