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Last Days of the AFAs

David Chaplin has this report detailing the changes in AFA numbers and alignment over the last five years. Called 'last days...' because of the recommendation to end the AFA designation under the FAA review proposals, the report remains a good way to think about investment advice distribution in the medium-term - even after the changes that will end the designation. Link

Put this way - those worried about the future of provision of retirement advice by an already-low number of AFAs should applaud the admittance of RFAs into the ante-room to the provision of such advice. By erasing the categorical difference between being an adviser in, say, home loans or insurance, only one obstacle will remain to prevent hundreds if not thousands of new advisers advising on, say, KiwiSaver. Of course, the remaining obstacle is quite large, it is competence. But some advisers were keen to advise on KiwiSaver and will eagerly take to the required study. This could be good. 

The Economist: Measuring Well-Being

According to this article and graphic from The Economist money alone cannot buy you happiness. Some other economists have been quoted as saying 'if spending money doesn't make you happy you are not a very good shopper.' But that statement implies the action of choice. Choice implies objectives. Objectives suggest some ambition. 

Innovate or Downscale: The Insurer's Dilemma in the Digital Economy

'The rapid rise of the digital economy is forcing insurers to innovate to survive. They must develop new products, improve customer experiences, secure additional markets, adapt their culture and change the tasks their employees perform.' writes Jean-Fracois Gasc from Accenture in this post.

He has a point. 

When change comes it is sometimes easy to find some non-productive ways of trying to find security and safety for the current business model. One is to blame other actors in the value chain. Another is to seek regulatory rescue. In our distribution of insurance three large forces have combined to create change: 

  • Consumerism - with more activist and engaged consumers treating insurance like they do all their other purchases
  • Technology change - with a channel shift to online and call centre within the intermediated, direct, and bancassurance channels
  • Bancassurance - has risen to more than a third of all new sales by delivering on convenience of purchase and building cross-selling skills

I didn't list regulatory change. In some respects that has been a distraction to the business of delivering a relevant value proposition to customers. That may seem like a terrible thing to say, but insurance regulation has remained light touch to this point. Right now, with the Financial Advisers Act review wee only have a recommendation to make the AFA Code apply to all channels. Even if accepted, that will not actually occur for a couple of years.

Clearly, therefore, changes which have affected where customers buy, what they buy, from which channels, and how, have all largely been market initiated, not legislated or regulated. 

In terms of a market share growth story it is all about call centres, banks, and online. 

Together Towards Tomorrow

The joint IFA PAA conference has been great so far and I am looking forward to Friday. Here was a quick shot from Oliver Hartwich's talk on the future for New Zealand. Twin themes of educational performance and house prices were both tied back to political organisation and the relative weakness of our over-large councils. 

2016-07-28 09.55.25

Do pop over and visit the IDS stand which Quotemonster is sharing. We are demonstrating the new needs analysis functionality (now available for subscribers to the research service). Alan, Kelly, and I will be at the stand all day Friday. Look forward to seeing you there. But if you aren't at the conference and you would like a demonstration please email me and I shall let you know when we will be nearby and we can demonstrate it to you. 

Financial Advice - How Did We Get it so Wrong?

Tom Garcia wrote this post on LinkedIn discussing the current model of providing financial advice in Australia and the flaws it faces.

Garcia says "There are two key issues that need addressing: the definitions of advice, and the Statement of Advice. There are now almost more legal definitions for financial advice – general, comprehensive, personal, limited, intra-fund etc – than there are asset classes in which to invest. Talk about confusing for the average customer, who is essentially just asking for help. But many financial planners are just as confused. If you ask 10 people in the industry, you will probably get 10 different answers as to what advice is permissible under each definition. Many advisors run for cover and err on the side of caution, leading to a poor customer experience."

New App Created by AMP Scholarship Recipient

NZ teacher Charles Leota used his $10,000 AMP scholarship winnings to create an app called 'My Kete'. After finding one of his students struggling with exams due to having dyslexia he decided to invent the app which is a 'text-to-speech app for laptop and desktop computers and phones that reads NCEA exam questions to a student, and reads their answers back to them.

Read more here.

Real Financial Advisers And Opinions

I just listened to this great podcast which carries the provocative title "real financial advisers should always have an opinion" - although I might take issue with the word 'always' I would like to go with the main thrust of the argument. Hat tip: Tony Vidler. 

Advice means, in the current Financial Advisers Act: "...a recommendation or gives an opinion in relation to acquiring or disposing of (including refraining from acquiring or disposing of) a financial product." So clearly, you are not a financial adviser unless you give a recommendation or an opinion.

That is a worthwhile definition, not least because it is the law, but also because it matches client expectations.

Clients of advisers want advice. Calling yourself an adviser and not giving advice is probably misleading.

There are, of course, exceptions. From time to time a financial adviser will provide limited services: perhaps just execution-only, sometimes just class advice. But if these come to dominate their advice business I suggest a re-branding. 

Who's on first: Income Protection Tax Update

There is a great deal of debate about tax treatment of Income Protection. Given the importance of this product as society progressively shifts towards greater dependence on living benefits from a focus on death benefits this matters. A little while ago I asked the FSC to tell me what their goal in lobbying for consistent tax treatment is. This was their response: 

  • Consistent income tax and GST treatment of income protection products.  The income tax treatment is on the current Government work programme with an Officials Issues Paper the likely next step as part of the Government Generic Tax Policy Process (“GTPP”).  The TAG will continue to lobby Tax Policy Officials for consistent GST treatment as part of this process also.

So far so good. So I blogged that, and this tax watcher on Twitter said something which shall we say contrasted with the above. 

  • "Review likely but outcome non-taxable non-deductible (AV) taxation. Existing indemnity policies are grandparented" Adding for good measure: "...years away. IRD got bigger projects on; no drive from industry to change tax treatment either"

Back in among the industry on LinkedIn JP Hale had this to say, in this case, he kind of put it differently.

  • "...the IRD has repeatedly refused to review the position over the years"

It is, of course, perfectly possible that someone is right, and the rest are wrong. But clarity in long-term planning is handy, more so when contemplating a contract which can be hard to switch or change if your health has deteriorated. This is an example of a long-term issue we should be prioritising. Meanwhile, you may find this explanatory video helpful (yes, it is the right video, requires sound, and is suitable for work).