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Battling the Banks? Or being fed by them?

Goodreturns has a piece reporting on Milton Jenning's speech to the LBA - the quotes focus on comments he made about how AFA status enables advisers to differentiate from the service offered by the banks. I don't know if Milton would have agreed with the title "Battling the Banks" - but it's worth thinking about that for a minute.

Do people battle the banks? Do advisers lose business to them? There is no doubt that some do, but is it all one way traffic?

There are advisers that tell me that one of their best sources of business is clients that need a proper review following being sold a package by the bank. For them banks are feeder businesses - doing a great job of sorting out who will buy cover and who won't. The adviser's job is then to sort out who wants a higher level of advice in their risk planning.

There is a life-cycle view which run like this:

  1. The first insurance people buy is consumer credit insurance, usually alongside a loan for their first car, bought for their first job. Alongside this will be car insurance.
  2. The second insurance people buy is travel insurance for a trip away, a big trip, the OE perhaps. Often bought by Dad. While flatting they may buy contents cover, but it is rare.
  3. Which brings us to the third insurance they buy: from the bank, when they buy their house.

Advisers fit in after this.


Asset Piece - Online, but Adviser Assisted

My piece in Asset this month was about the benefits of online application, but assisted by advisers. However, some people without the patience to reach the final couple of paragraphs have already pigeon-holed me as 'anti-adviser'. If you want the full story, better read the whole thing. Or drop me a line :-)

However, adviser-assisted online is set to become a major feature of the marketplace going forward - reducing administration burdens and mistakes wherever it is used. We've already had some exposure to this at a number of levels, in underwriting systems, kiosks, direct to consumer, and online services through dealer groups. It's only going to grow. Nothing is more certain, if you are an adviser and you shy away from online because you think it's about grabbing the client relationship and making them direct, you will cut off an important path of development, and be stuck in a high cost / low touch model which will reduce returns to you every year from this point.

Graphic Design

Time to tidy up the brand! We're engaging some graphic design help to bring the now-venerable Chatswood brand into 2011. Any comments or suggestions from regular readers will be welcomed. Any ideas that we use shall enjoy my thanks and lunch at a suitably luxurious venue.

FMA Operational Levy

This is the forgotten fee. Yet, as it has not yet been set, and there are many fewer AFAs than originally anticipated, it should be getting some attention. There have been a number of attempts to estimate what it will be, but all cost-based attempts will run into two questions, which make any further step pure guesswork. Those questions are:

1. How will the split in operational levy between companies and advisers be allocated?

2. Will the FMA seek full recovery in the first year, or effectively phase in recovery over a number of years, to allow for some settling down (or up, I suppose) of the actual costs and numbers of participants?

I don't fancy the job of the FMA on this one, no fee will be gladly accepted. But the industry has only narrow grounds for arguing over the fee, and in the end, it will simply be accepted. It has to be.

Cavalcade of Risk 132 - 5th Anniversary Editio

We are thrilled to host the 132nd Cavalcade of Risk - a compilation of risk focused writing from around the world, assembled from the posts in the last fortnight. If you are a regular reader and would like to suggest a site or news story, please drop me a line. If you are a writer, please alert me to any story you have. If you haven't written, but you have a story you want to share with us in the risk world, the likewise, drop me a line.

Sean Hughes - Speech to the PAA

Some details are given here at goodreturns. More detail is given here, in fact the full text, and I would like to highlight the following:

"I was interviewed, and advised people yet again to take advice. But what I couldn't say - what I didn't feel inclined to say yet - was get that advice from a financial adviser."

I think that a generous interpretation is that the industry is yet to win the confidence of the regulator. That's a big, big, challenge.

Good advice, affordable for all

This article in the SMH rehearses all the arguments in favour of what might be described as a professional advice industry: one based on fee for service, rather than any payment from the product provider to an adviser.

The promise of the title relies on a view that runs more or less thus: any advice received while being sold a product by a commission-remunerated salesperson isn't advice. Start with that principle then reductions in this kind of advice are all justified - because none of it counts as 'good'. Ban all of that and the expansion of fee-for-service advice that follows is an increase in good advice. Job done.

The argument becomes stickier when you accept that not all advice given by commission-sales staff is bad. Sometimes parallel services, such as general financial knowledge shared in countless 'guides' (like the ASB guide for new home buyers that I saw in the bank yesterday) are an important contributor to consumer knowledge. That has been found in the UK, but only after over-zealous regulation has made such advice all-but disappear.

The argument also begins to lack consistency when instead of removing conflicts of interest, you swap one for another. Take for example the permission to allow 'limited advice' by super funds on issues such as contribution levels and fund selection. A commission doesn't exist, but a payoff certainly does (the increase in contributions to the fund, or higher fees with clients switching to growth funds). Why is it okay for a large corporate to give conflicted advice but not okay for a third party financial advisory business?

In the medium term I will be glad to see more financial planning services operating on a fee for service model. As people get richer they will be better able to afford better advice. I just hope we don't lose a lot of good advice given in other channels in the pursuit of that worthwhile goal.

OECD Better Life Index

This model is great fun - using eleven factors you can rate 20 countries (including New Zealand) and figure out which one gives th best lifestyle overall (based on your weighting of the factors). Note how NZ scores really well on everything, more or less, except income. So when you're on holiday in Golden Bay saying to yourself "I'd live here if I could find a way to earn a decent income doing it" that's pretty much how everyone else feels about New Zealand as a whole!