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Triplejump Expansion Plans

This article on goodreturns has the news that Triplejump is seeking to take its expansion outside New Zealand and to obtain a listing. That is great news - an advice business taking its wares to the world and achieving success as an advice business. Of course, I should disclose that Triplejump is a client, so I have one more reason to say nice things about them, but their success is clear. Link.

Insurance: Truth or Consequences

Money Marketing recently posted an article about the Consumer Insurance (Disclosure and Representations) Act 2012 which went in force on 6th April 2013. The Act deals primarily with the issue of what consumers must tell insurers before entering into an insurance contract, and removes both the principle of ‘utmost good faith’ and the duty of disclosure.

It is believed that as a result of the recent changes there should be fewer disputes when it comes to claim time. So what does this change mean? In reality the consumer need only answer questions asked by the insurer - so it is up to the insurer to frame the questions carefully to allow them to gather the information they need. Previously the consumers were required to disclose all material information while acting in utmost good faith.

Click here to read the full article.


Do The Wealthy Need Life Insurance?

Traditional models of the 'need' for life insurance tend to predict declining needs with rising assets, and also with increasing age (the two often, but not always, go hand-in-hand).The issue of whether the need for insurance declines with age was the subject of one of my recent goodreturns articles (link). The question when you consider wealth as the variable can sometimes surprise. While generally rising net worth may indicate a reduction in need for cover, this will depend on three other factors:

1. Income dependent on the insured. If there is a high income that the wealthy individual wants to insure, then this may still present a strong enough factor to drive the purchase of cover.

2. Liabilities - in spite of net worth some liabilities are simply best met by having adequate cover in place and either assigning it or placing it in trust for the party who would like the liability repaid in certain circumstances.

3. Asset mix - some wealth may be held in illiquid assets, and the liquidity available through insurance may allow for the managed transfer of estate assets separate to the requirement to meet immediate cash needs.


Commission, Soft Commissions, and Conflicts of Interest

The current issue of Asset magazine focuses on soft commissions and churn. My piece in the edition was all about business value, which isn't directly connected to either, but is affected by them - more on that later.

The magazine is well worth a read, but the key points are:

Susan Edmond's article about soft commissions, in general, and trips in particular. Naomi Ballantyne, Milton Jennings, Jenny Campbell, and me, all offer a defence of trips as limited, useful, and not deliberately or fundamentally wrong. Michael Naylor takes a tougher line, mainly as he points out that 'most perceptions were negative' while accepting that 'my best guess is that they change the behaviour of a subset'.

Sue Brown nails the key issue: highlighting that 'advisers needed to act professionally and ensure that you they put the needs of the client before everything else.' Which brings us back to the point about value - given the very large financial incentive offered on every case by commission trips look unlikely to offer much more.

There is a solid review of the issues around replacement business in another article by Naomi Ballantyne.

But what about value?

One of the best arguments against churn and soft commissions is a focus on value. If you are in the last few years of your practice and you are negotiating an exit the 'incentives' can swing around the other way: every case you rewrite means a year with no renewal, and therefore it deducts three, four, five, or six times that renewal from your capital value. It also makes you think about that trip: Maybe it's only equivalent to 4% of commissions, say it was $10,000 - that's $30,000 to $60,000 off your valuation if it were added to renewals.



Australian View on Scope of Product Range

An overview of the duties of advisers in Australia provides this comment (for more look here):

The best interests duty requires a financial adviser to conduct a reasonable investigation into relevant financial products (including those not necessarily included on their licensee's APL and base their advice on the client's relevant circumstances rather than the benefit that the adviser or the licensee will receive from the recommendation to invest in an "approved" product.

Rather interesting to see Australia demanding, it appears, that advisers consider products outside of what they might be contracted to deliver, perhaps irrespective of their competence and knowledge to do so?


New Zealand Income Guarantee

Ralph Stewart, former head of ACC and AXA New Zealand (now part of AMP) has established a new business to help Kiwi's manage their growing KiwiSaver balances when they withdraw them and need to invest them for income.

Congratulations to Ralph on the launch of his new business.

Although the word annuity is used to describe some of the services the products described are more managed accounts than traditional annuities - which usually involve some mortality risk management.  Link.