Chartered Accountants Australia and New Zealand’s report has found that New Zealanders are more likely to seek financial advice from family and friends at informal gatherings. People reported that their friends and family were the most trustworthy source, followed by accountants. The good news for financial advisers is that as people get older, they understand the value and importance of professional financial advice. Click here to read more
Financial services is a complicated sector, and many simple things are trickier, on closer inspection, than they first appear. Novice consumer advocates are often surprised to find that short-form insurance costs more than fully underwritten cover. Consumers astonished to find that much 'direct' insurance is more expensive than the stuff where commission is paid. Others are amazed that the industry is allowed to discriminate - just the kind that we call it underwriting, enabling us to price different risks appropriately.
I could go on and on.
I try to remember that I won't know everything relevant, that my one insight into a problem might be a useful starting point, but is unlikely to capture everything about a situation - because it's complicated. A value chain rarely responds exactly as we expect.
(Prompted by the articles on commission and the rise in the number of articles which proffer advisers as 'the solution' - whether it is the low interest rate environment, the large number of people without a Will, or even, just without insurance.)
Although 4 times is usually taken as an industry standard, not all “4 x” are equal. The difference can be accredited to things like:
- Cash now with mechanism for claw back issues
- Documentation - especially of privacy and scope of service issues
- Age of clients
- Problems of enforcement affecting deal structure
- Cash and shares mix
Other factors that affect the multiple of renewals include:
- X factors - such as brand, referral deals, and technology
- Bargain basement factors - such as a poor reputation, location, or form of lock-in to an unpopular product provider
- Age and type
- The product mix
Increasingly, issues that relate to compliance under the new regime are being named, but these appear premature, as no-one is yet in the market to buy a Financial Advice Provider.
We record, source, comment on books, persistency, size of renewals, comment on transactions – and have dozens from the last two years to generate a range of multiples. If interested, feel free to email your interest to Jerusalem.Hibru@chatswood.co.nz
There is a concern among regulators that robo advisers do not make their selection process clear to customers - so algorithmic advice may be biased, especially in those cases where there is a choice of product providers. There are several ways such sites can lead clients to believe that their choice is perhaps wider and the process fairer than it might be. One is simply the way the starting set of companies is selected - if you have a mid-market product and you want to favour that one then it is easy to only select products that are in some obvious way 'worse' - say more expensive or offering less cover. The manner in which you apply selection criteria can affect outcomes too. If you apply selection criteria in a series of 'rounds' where you eliminate products you can imagine that if you knock out, say, all the products that are more expensive first, then in the second round you may find it easy to win on a coverage criteria. Even considering criteria in a balanced scorecard can be gamed in some ways - such as the weighting applied to each factor. That is why the Financial Conduct Authority in the UK is interested in how robo-advice works, and in particular how they meet requirements to check suitability, but also other advice safety issues.
It is not just bias in sales that concerns us - it also happens in underwriting and probably in claims. Humans are prone to bias in favour of groups to which they belong, and by implication against the others. That can reinforce existing societal prejudices and make life harder - more expensive policies and more declined claims - for minorities. Is there hope? This article from Daniel Schreiber, CEO & Co-founder at Lemonade explains how he thinks an AI we may never understand can eliminate discrimination and bias in insurance. Of course, I note that he isn't talking about bias in insurer selection - Lemonade is a single insurer offer, not a marketplace.
Rupert Carlyon, Kōura founder has said since going live, they have given advice to 3,000 people through the company’s digital advice platform. They are looking to roll out new messaging to improve user experience and understanding of their products. Click here to read more
The internet is a great platform for data-rich financial services. Since its earliest days financial services (led by sharetrading) have been a leader in e-commerce. But there is a catch. It has always been difficult to convert a lot of interest into action. We can easily deliver data, calculators, and content - and still struggle to achieve connection, engagement, and action. This is the overarching problem with digital. It is worth working on, but it is hard.
Westpac in Australia has been fined $9.15 million after Sudhir Sinha, a former Westpac financial planner provided poor financial advice on multiple occasions.
ASIC noted that the Court found Mr Sinha failed to act in the best interests of his clients, provided inappropriate financial advice, and failed to prioritise the interests of his clients, in four sample client files identified by the regulator.
Click here to read more.
The Australian Securities and Investments Commission (ASIC) is set to ban cold calling for life and consumer credit insurance sales from January 2020. This has change has been justified as addressing poor sales practices that ASIC believes has led to unfair consumer outcomes. This ban will not apply if the marketer provides the person they are calling with personal advice. It is another sign of the shift in conduct expectations that creates an incentive for a financial provider to choose to step into advice provision and the supervisory regime that surrounds it. We may experience similar incentives in this market. Click here to read more
Angela Martyn, a financial planner in Melbourne has revealed that her practice spends $4.50 for every $100 of revenue on compliance – including personal indemnity insurance, industry memberships, audits and training. Martyn has said that personal indemnity insurance makes up much of the cost. The labour required for these things is $9 of every $100 of revenue. Additionally, she spends $1.50 per $100 revenue on marketing. Martyn has said that she expects that compliance spending will increase to 15% – 17% of their revenue. Or put it another way, 15% of the cost of advice will be compliance.
Tower CEO Richard Harding detailed that research showed confidence in the industry is at an all-time low. Harding revealed that although general insurers often claim 99.9 per cent of claims are paid, instead approximately one in five claims were withdrawn by policyholders. Although there are many reasons a policyholder could withdraw a claim, including pressure from the insurer, fear, dishonesty and non-disclosure, having an adviser reduces chances of withdrawals. Clients with advisers are better informed and make fewer pointless claims. In effect, his comments were a big endorsement of having an adviser involved. By implication, however, they raise questions about direct insurance. Click here to read more
It has been claimed that institutionally aligned Australian Financial Services Licensees are funneling new clients into in-house products. Whistleblower Jeff Morris has said the industry lacks the ability to properly manage conflicts of interest, and insisted that the Government should ban the use of APLs (approved product list) by vertically-integrated advice licensees. In response, David Wappett, head of research and relationship manager at MLC Advice said that they provide a range of additional resources to ensure advisers understand the way APLs are constructed. Click here to read more
What makes a viable APL? It's all in what's on it and whether you use it. In essence, if a vertically integrated business treats its in-house products the same as any other... then there shouldn't be any problem. But how to do that?