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Ministerial announcement on legislative change proposals

Rob Dowler is the guest contributor of this piece on compliance, many clients will know that we work together on these projects, and Rob keeps an excellence oversight on such matters. He enlightens us wrapping up the changes announced yesterday, including, crucially, notes about what was missing, and is yet to come:

An update on the Minister of Commerce announcements on changes proposed to the Financial Advisers regime, the market regulator, KiwiSaver and auditor supervision.

Attached at the end of this message are the web links to the full text of the Minister’s speech and the individual announcements on each of the topics to enable you to focus on those areas of particular interest to your own business.

The key announcement on the financial advisers’ and providers regime is that the December 2010 date remains for registration and dispute resolution scheme membership, but that the date to undertake education and competence assessment to achieve authorisation as a financial adviser has been extended to 1 July 2010. This 1 July date also now applies to achieving designation as a QFE.

Note that the Minister has stated that further announcements are still to come on the financial adviser regime in relation to:
  • The treatment of advice to wholesale clients.
  • "Class advice" - that is, generic advice often issued by institutions rather than individuals, and
  • How the regime deals with group corporate structures.
Without implying that future announcements might not include comment on the following, it is also worth noting what the Minister has not listed for further announcement, including:
  • Whether any consideration is being given to clarifying the “financial planning service” definition and what it captures
  • QFE liability for actions taken by nominated representatives for products and services unrelated to the QFE
  • Change to the capture of or relief for overseas based financial advisers
  • Any relief for advisers in training, such as being able to act under adequate supervision
Advice is awaited as to the implications of these announcements on the timetable for development of the Code of Professional Conduct for Authorised Financial Advisers and the Commerce Select Committee consideration of the Financial Service Providers (Pre-Implementation Adjustments) Bill, noting that the date of the Select Committee report back to Parliament has already been moved from 4 May to 24 May 2010.

The Beehive weblinks follow:

Minister’s full speech

Financial adviser compliance pathway announced

Government announces ‘super-regulator' for financial markets

Government to improve KiwiSaver regulation

Auditor oversight in hands of super-regulator

Fish-hooks in the 'Extended' time to comply

I note that in this article the comment is made - twice - that advisers 'cannot postpone complying with the Code'.

The way this works out is that although you will have longer to get authorised, if you are selling a product that requires authorisation, you remain bound by the Code. So you still need to apply the requirements of the Code at the time - not June 2010 - that means all the procedural bits about ensuring suitability, disclosing conflicts, and not offering advice in circumstances where you are insufficiently educated... which is th emurky bit. You see, your requirement for completing your education has been postponed, I think, but you are not given relief from the Code, I think (based only on a press release and a news story, of course, so I could be wrong).

Now, you are probably Okay - why? because first of all you can choose not to offer advice in areas where you are not competent (in fact, you should not be doing that today). You can probably demonstrate that your knowledge is reasonable even without the formal qualification - going through the ETITO self-assessment test might be a good contrbutor to such a defence - and you can probably point to the 'reasonable' part of the care skill and diligence test, and claim that since almost no-one else had completed their qualification, you were still reasonably well-qualified.

But it's worth thinking about.

Disability in New Zealand

A modest collection of disability resources. The intention is constrasting personal definitions of disability, (and a surprising resilience in employment) and societal definitions of disability, and particularly a rising trend in welfare assistance to classfy people as disabled, with the approach that insurers take along with some reflections on those differences.

Key Statistics:

17% of the total population are disabled. Lower than in 1996 and 2001 (the figure was 20%). In the 45 to 64 age gorup the figure was as high as 25% and has fallen to 20%. Disabled in this context, can still mean working, as you will have guessed from these figures.

Diseases or illnesses were the most common cause of disability for adults, followed by accidents or injuries and ageing. Accidents or injuries were given as a cause of disability for an estimated 166,300 adults and the most common type of accident or injury causing disability was one that occurred at work.

Around 5% of the working age population receives either sickness beenfit or invalids benefit - slightly below the OECD average. But this number has been after some substantial growth - and is against a background of falling levels of total disability. Here's a chart - hat tip: Kiwiblog.

Disability benefits

Now we can compare that with working age population - again hat-tip: Kiwiblog.

Disability Benefits2

Interestingly, the disconnect between the reported definitions and receipt of financial assistance from the state go further one report states "...many people on disability benefits do not regard themselves as having a disability, while, at the same time, many people classify themselves as severely disabled, do not work and receive no benefits..." up to 20% of severely disabled people with no income may receive no benefit, in fact (according to an OECD report).

Sickness benefits grew by a rate of about 15% from 1985 to about 1995 - and then levelled off. In 1991 changes made to the Sickness Benefit meant that as a proportion of the average after tax weekly earnings it fell from being worth about 40% to being worth about 32%.

Invalids benefit recipient numbers have been rising at an annual rate of 7.5% per annum since 1975. This benefit is worth about 35% of the average weekly wage.


Many people identify as being disabled and remain active in the workforce and still want to work iin spite of the barriers that disability and prejudice place in their way.

The insurance industry may be fighting a headwind caused by increasing social welfare tendancy to classify people as disabled - as the societal threshhold for disability lowers, insurers rejecting claims look increasingly nasty - when in practice they are work-testing only to a level that has historical acceptance and functional validity.

Economic conditions are making the situation harder - clearly, as many as 1 in 5 people who are seriously disabled do not like claiming benefits (there remains a social stigma). They may feel happier claiming an insurance benefit, and indeed, insurers will see a rise in disability claims as return to work is hindered by economic conditions and possible income falls below the income from paid benefits.

Insurers can engage better with the disability groups to align their communications with the core of long-term disabled who clealry meet policy definitions. Mere acceptance of a claim makes their public position seem heartless - especially when much energy is clearly invested in the rejection of claims that are not valid. Celebration of effective and fulfilling lives of the disabled would be a welcome balance to that.

Societal definitions of disability should be constrasted with policy definitions in detail with interested audiences - medical, consumer groups, governmental, non-governmental organisations so that insurers are both clear on where they stand and have a basis for drawing distinctions between claim definitions and others. 


  • Disability Survey, Statistics New Zealand, October 2007
  • Disability Stocktake, Statistics New Zealand, February 2007 - a summary of administrative data, benefits, and eligibility criteria.
  • Improving the labour force participation of people on disability-related benefits, The Treasury, April 2005
  • Background information briefing for members of parliament, August 2000
  • Kiwiblog article on beneficiary numbers - link.

Investment Commissions Ban - Impacts

If banning commissions on investment products is a done deal, then let's look at some of the impacts:

  1. It's another force pushing towards a reduction in the number of investment advisers in the short term (I make no comment on whether this is a good thing or not, merely note it) - along with the pressures towards a smaller group of investment sellers created by market conditions, the FAA, and other laws and regulations.
  2. It will push more in the direction of vertically integrated sales channels where distribution can be wrapped up with the investment management function - so you will see stronger bank owned investment businesses.
  3. More fund managers will seek to develop direct business models in response to having fewer non-aligned intermediaries - making that space a little more crowded. It's been gathering in popularity since the launch of KiwiSaver and gets another push shortly.
  4. Fewer, weaker, 'pure producer' investment businesses - because these tend to rely on non-employed invesment advisers during their start-up phases.
  5. Re-alignment of the investment advice sector around fee models. The interesting thing here is that it's not just about changing the way you charge - it's often about changing the whole service approach for your clients - many valuable changes may occur in client servicing as a result.

While all this is happening, there may be more talk about whether to ban commissions in other financial products  say insurance - or whether to ban them for all AFAs. Which, given our definition of financial planning, means pretty much the same thing. Insurance companies should be concerned about that possibility, as it could cause a big dip (even if only temporary) in the amount of insurance sold.

Weekend Projects

The weekend was spent mainly working on the garden. My tribute to Anzac day was reading about heroes in my odd breaks - special favourites of mine at this time of year are "Gallipoli" which is a solid biography of the campaign and I have a bio of Ataturk as well. It's a good reminder that the war was formative for us, and for modern Turkey too.

But the true joy of a weekend in the garden is the 'project'. As someone who works primarily with words and the intangible it's really good for me to work on the real and practical from time to time. The best place for this is in my garden, as I get to bear the consequences of my lack of skill in this area. This story starts - as so many do - with failure. We have a pond, tech specs follow:

  • Capacity - about 800 litres
  • Format - one major pond, two small 'upper ponds' which double as filters
  • Features - waterfalls, three of them. Total drop is about 1 metre. Continous operation.
  • Age - 8 years.
  • Construction - reinforced concrete with a painted bitumen based sealer for the main paids, the waterfalls are beautiful hand built from rocks.
  • Occupants: 19 gold fish (as at today), two are the original survivors from the first six, and they are 8 years old (which makes them big - about 7 inches from nose to the base of the tail.
  • Pump and pipes

Well, the pond has been leaking. Probably losing about 50 litres a day. This is not so good. Continuous replenishment was outstrippping our dedicated rainwater supply and that means treating tap water and the promoting of algae.

The mark 1 solution was to emply the pond, find the cracks, fix them, and repaint the bitumen based sealer. We did this pre-Christmas and lost one fish while draining the pond, and in the week long sojourn for the fish in the paddling pool lost one to a local cat. Also, after Christmas the pond started leaking again.

The mark 2 solution was to buy a butyl-rubber liner for the pond, place this inside the main concrete pond. This only took a day to install and I did it the Sunday before the PAA compliance roadshow. However, disaster struck. It was leaking from behind the back of the main waterfall, and that mean that overnight the pump essentially pumped the water from one side of the lining to the other. I came out to find my pump and 19 fish sucking air.in remaining shallow pools. However, we lost none of them!

This weekend brough mark 3 solution. I had researched the solution more carefully. I was to both glue (using a scary glue made by the clever folk at Ardex) the rubber liner into the contrete pond, but also cut back under the lip of the waterfall, fit the liner more carefully and seal it there with a flexible waterproof sealant. It's above the waterline, so should not be continously wet - so I used a shower sealant made by Sika. This combination has just passed the 24 hour point, and no water loss. It took probably 10 hours labour over Saturday and Sunday to complete.

We still have 19 fish.

The Plan - PAA publishes

The PAA has published our month by month plan to get authorised - you can grab it from here. We will be updating the plan regularly as we go forward. Edward Richards and the PAA board were very clear in our brief for the roadshows that they wanted practical planning for the issues facing advisers going forwards - it turned out that there really was only one issue. As we went around the country and built this plan we got lots of good feedback. Our co-presenters felt that no-one had put it all together so advisers could see, step-by-step, exactly what needs to be done, and how to do it. This exists because the PAA had the foresight to see that this is what their members need.

Do drop me a line if you would like more information, or a one-on-one meeting about the equivalent plan for your organisation.

Thanks to ING Life for sponsoring that roadshow - and also to all the advisers that participated - a lot of useful material about business impacts came from each meeting.

Sovereign on Compliance

This piece over at Goodreturns shows what a company should be doing to get it's people compliant. I think it's sound. Also, it's rare, unless I've missed all the other announcements of companies saying that they will pay to get aligned advisers compliant. They key issue is this, Sovereign appears to have recognised the serious economic risk of pushing compliance matters completely onto adviser shoulders - the risk is that they don't properly comply, more opt out than need to, and overall there are fewer advisers selling business, which would mean less business written. What Sovereign has done is, I think, the minimum required for an aligned channel.

While we're on the subject of regulation, we note that the ETITO booking facility is now running over at www.afacompetence.co.nz