To help you prepare for the implementation of the Financial Services Legislation Amendment Act implementation on 15 March Quality Product Research Limited has made the following changes to the Quotemonster site:

1. Prepared an outsourced provider statement. This provides you with information to meet the license conditions for a Financial Advice Provider to use a third party (us) as part of your advice process (for example: preparing comparison quotes and research reports). Subscribers to the research and advicemonster services will see an announcement when they next log in. A link to the outsource provider statement is included in the site in the About Us section. 
   
   
2. Updated Advicemonster – an external review has been conducted, the draft statement of advice (SOA) has been updated, and the system for preparing the SOA has been improved. If you are an Advicemonster subscriber we suggest you run a new trial needs analysis to check out the new report – it is a more comprehensive and robust document that speeds up the process of creating new life and health statements of advice. If you don’t subscribe, or you would just like a quick refresher on how to use the system, click here to request a demonstration.
   
   
3. Updated our terms and conditions – refer this link for details. Also, a link to the terms is included in the site in the About Us section, and on every page in the site. 

Coming up: there will be further changes to the adviser profile page to reflect changes to the FSPR due to the new license regime. We will update you on those next week. If you have any questions or concerns, please contact us or call (09) 480 6071. Thank you for being a customer of Quality Product Research Limited.

What should advice cost? That was an excellent question from the audience during the first two of our recent getting in shape series. Perhaps this seemingly simple question surprised our panel. The answer to the question is not easy. It was a kind of sub-plot in the day's event: the question of the cost of advice is part of the disclosure story, part of the story about the future of advice, part of the story about the value of advisers solidly backed up by the research shared on the day. When asked what advice should cost the panel made a good beginning - in both Wellington and Auckland the first answer was "it should not be free". This echoed John Botica's  earlier comment during the first panel in Wellington where, talking about disclosure, he asked that any advisers taking commission should not refer to their advice as free. Of course advice isn't free. Often something that is not paid for is not valued. Advice is paid for (whether by fee or commission) and it is valuable. 

The question came up in the context of a discussion about how to make advice more accessible. For people to value advice they must first know it is available, believe it is worth getting - but these are just pre-conditions. Often we know something would be good for us, but don't do it.

Many people struggle with making the time to meet with an adviser - not just because of the time for the meeting, but they fear the time the work around the meeting will take. A good portion of the population are certain that their finances are a mess, and if not, then the musty file of papers definitely is a mess. So they fear judgment. Many people struggle with making room for the cost of advice. If they believe that it will require payment at the time and their budget is already stretched they will be reluctant to make an appointment. Commission has a valuable financing role to play here - but it is not the only mechanism, of course, that can make access to advice easier. 

So although advice should not be free, we need to make it easy to start the process. Which means the initial steps should be free - and easy to do.

Most advisers offer initial discussions at no charge. More can be done to make brief trials of the value of advice accessible. Social media helps, Zoom and MS Teams helps, but nothing quite beats a meeting - and the ability to slip into a 20 minute session on KiwiSaver at lunch or hear ten top tips on managing your home loan at the local mall are probably under-utilised strategies. Now add some tools in the client's first language (which will not be English in about a third of cases in Auckland) and spoken by someone who at least knows your culture a bit... these are access strategies. They reduce the psychological costs (fear of rejection, fear of shame, fear of being exposed as not having 'enough money to qualify for advice'). 

nib has said that members that receive financial advice are better off. In addition, nib CEO Rob Hennin noted that half of nib’s members join via financial advisers. Hennin credited nib’s view by highlighting the findings from an internal study which found that members with advisers have more financial certainty and more health benefits. Hennin used the findings of nib’s internal study and studies commissioned by the FSC to conclude that people who receive financial advice are better off, saying that people with financial advice experience an improvement to their overall health.

“Health insurer nib says it is “absolutely clear” that customers with insurance advisers end up better off, and says advisers have done an “extraordinary” job adapting to the challenges that have come with COVID-19, and multiple lockdowns.

According to nib New Zealand CEO Rob Hennin, approximately half of the insurer’s business currently comes through its adviser channel. He says its internal studies have been clear – customers with advisers have more financial certainty, and also see increased health benefits as a result.

“It’s absolutely clear from our research and the work the Financial Services Council has done that Kiwis who receive financial advice are better off,” Hennin told Insurance Business.

Hennin acknowledged the work advisers have done saying that their response to COVID-19 was extraordinary. Hennin mentioned the increased use of digital tools and other methods to reach and assist clients.

“Advisers have just pivoted and done an extraordinary job throughout COVID-19,” Hennin added.

“They’ve really embraced digital tools and they’ve gone out, consulted with their clients and done whatever they can to ensure they all have access to the care and protection that they need.”” Click here to read more

In other news

Southern Cross: Insurer promises to “build momentum” and enhance products at AGM

AIA: Belief in oneself key to empowering women

What will be the big themes for 2021 for life and health insurance? 

• Helping people keep their cover through disruption will continue to be a theme - although economic performance has been better than expected there remain quite a few people out there struggling with adjustment to the COVID economy. Several advisers tell me of long conversations that are essentially about conservation. They take time and they generate little revenue - this largely unsung work is of a piece with claims help and is part of the value of the commission model: the adviser isn't expecting to charge a fee for these discussions, they just want to help the client stay covered. 
• The shift towards digital - within advice businesses, at insurers, and for consumers. Digital is an enabler of faster transactions, more efficient administration, better accuracy, and more meaningful engagement. More adviser businesses will develop better digital capability and be looking for ways to automate certain processes. That includes digital advice offerings. It also means better underwriting processes built around access to 
• Direct - it has shown solid growth - and not merely as a proportion of the market which has shrunk, but in absolute terms. It has benefitted from a big drop in bancassurance and a big push through online social media platforms. I really want to see the quality of the offers improved in 2021, but that will probably require more work in the area above to achieve. 
• Regtech - this is the year we begin to see regtech applied to insurer and adviser conduct programmes - analysis of all clients by a range of factors will be a vital complement to human-managed compliance processes.
• Transition - to the new advice regime means that a lot of advisers will be spending a bit more time than usual working on systems, new processes, and disclosure requirements. That will hit productivity for a few weeks. Combined with holidays, will the nadir be the first quarter production figures with a recovery from there, or will the second quarter be the low point? I am expecting recovery and more confidence to recruit and focus on marketing to be able to get traction in at least the third quarter. 
• Consolidation - adviser business size is definitely rising. The greater integration and co-ordination required to successfully meet new compliance requirements is reflected in the high number of authorised body structures being disclosed by FMA licensing statistics. 
• Consumer knowledge and understanding will continue to rise as more advisers share relevant content in easily digestible digital media. Gradually the focus on what is most relevant and readily explainable will begin to percolate through consumer finance forums changing the general perception of 'good' this will further current consumer trends towards more living products and more packages of benefits. 

Our best wishes for your well-earned break

After years of using the same Christmas-themed card with a traditional tree on it, planning well ahead, we took a much more clearly southern hemisphere approach in January, using some artwork that focuses on what New Zealanders tend to do in the summer: head to the beach. At the time we did not know how particularly appropriate that shift in focus was going to be!

How has the life and health insurance sector performed for its many stakeholders?

While many will want to say good riddance to 2020, reflecting on a challenging year shows that there is an awful lot to admire in how the industry has performed: Insurers were able to reassure clients that their policies would work. They were able to offer a wide range of methods to support clients – allowing premium holidays, refunds, rate increase deferrals, and cover changes that helped people manage through the economic disruption that was a big part of the year. Claims services continued even through a tight lockdown, with insurers finding workarounds for signatures, meetings, and examinations, to help meet clients needs. That was impressive.

Like many others we were grateful for flexibility when we had to reschedule meetings, shift them online, and other aspects of our usual service had to be rapidly reconfigured for delivery in a digital-only context. We are fortunate that we can operate almost all our business functions entirely online – although we will take the credit for making decisions to have most of our IT infrastructure in leading cloud facilities. We are most proud of how the Chatswood and Quality Product Research teams performed through this period to enable continued support to our customers.

Through a period of disruption, what opportunities can be found?

The effects of COVID-19 disruption are real and likely to take some time to flow through the economy and into the financial accounts of insurers. Recent results show what we can expect from others yet to report. Economic modelling suggests the worst period for unemployment lies ahead – although so far, we have outperformed the models. There are reasons for optimism: vaccines, the power of digital to enable change, and evidence of greater flexibility and resilience than expected.

The environment will improve but relying on that alone is insufficient. Plenty of our 2021 workplan is laid out for us due to the scope of legal and regulatory change but merely responding to that will also be insufficient. Every research paper highlighting underinsurance is really underlining an opportunity for growth – those growth opportunities are ones we must build. We must build them - hoping for a mere return to what once was fails to recognise market reality and environmental change.

So, as well as meeting the requirements of the new Privacy Act 2020 that came into force on 1 December; as well as playing our part in the implementation of FSLAA on 15 March; as well as working with RBNZ on the implementation of IFRS 17 and the IPSA review; and as well as working with MBIE on new conduct law, we have to invest in the new. We have to work to bring new products to the marketplace. We have to work with the changed distribution environment – realising the long-predicted increasing business size in advised distribution. We also have to work to build better digital: there is such a great opportunity to displace some of the low-quality online insurance offers with better – an opportunity to open new frontlines against ignorance and indifference through digital advice.

Happy holidays and opening hours information

Opening times: On Tuesday the 22nd of December we will close the office at midday, and open again on the 11th of January, but you can call Russell on mobile any time. Our best wishes to you for the holidays and the New Year.

Thank you for your support, from all the team at Chatswood: Fran, Jerusalem, Kelly, Rob, Ed, Wanyi, Melissa, and Russell

Angus Dale-Jones, chairman of the Code Working Group, shared insights on the upcoming regulatory changes. Dale-Jones mentioned that the workload of advisers is going to change. Unlike the current regime, Dale-Jones noted that the new regime will not allow advisers to be easily let off the hook. Instead, Dale-Jones says in the new regime advisers will need to do more for their clients. Although all advisers need to adjust their service to meet the regulatory obligations, there will be scalability in provisions. Dale-Jones said that the code is designed around scalability, meaning that the effort and work advisers are expected to put in depends on the advice given. 

“To help advisers prepare, Good Returns talked to chairman of the Code Working Group Angus Dale-Jones who told us what changes are most vital for advisers to take note of.

Dale-Jones said that for many “the amount of work that the adviser is going to have to do will change”.

According to Dale-Jones this contrasts with the current system of class advice, which he believes has been too soft on advisers.

“Class advice [has] basically allowed advisers [to be] let off the hook. The current regime has encouraged advisers to do less for their clients. Which is not a good outcome for anybody including the advisers.”

But this will all change when the code of conduct comes into play on March 15, “The new regime holds that no matter how big or small you are, the code of conduct and the regulations apply. But, there is scalability in the provisions. If it is a very simple piece of advice, say advice on KiwiSaver, then you adjust your work accordingly. If you are doing full blown investment planning, then you would expect to see much more work around that.”

Scalability of advice is central to the code for Dale-Jones who says that, “The code and the legislation have been designed with scalability in mind. This isn’t as if we have switched the boundary. It means that whenever there is advice, the code applies. Advisers need to think very carefully as to how it applies.””

Dale-Jones also highlighted that FAPs will need to consider processes and procedures that advisers follow. Two code standards will become relevant to advisers in the new regime. Standard three and four weren’t previously requirements but are intended to protect clients. Dale-Jones has said that he is confident that much of the industry will handle the new standards with ease.

“It is not only the adviser that needs to be thinking carefully about the scope of their advice, the new regime and its focus on FAPs means that, “FAPs as the licence holders under this new regime, need to think about the processes and procedures that its advisers are going to have to follow in order to comply. It’s not all just on the shoulders of advisers.”

For advisers who have grown used to doing things the old way, Dale-Jones says that there are two key code standards that they will need to pay particular attention to.

“The two standards that have not been formal requirements previously are standards three and four. Standard three is to ‘give financial advice that is suitable’. So that means that the adviser needs to think about the circumstances of their client and consider what suitable advice means for them.

“Now there isn’t a code standard that applies to that in the class advice standards currently, but a person giving class advice who goes and tries to sell things against their client's interests is risking legal action. This code just makes it very clear that this is a standard that must be adhered to.

“Standard four is ‘ensure that the client understands the financial advice’. Now that standard asks advisers to put themselves in the shoes of the client to ask themselves: ‘Is this client vulnerable? Does this client have any understanding of financial matters? Do I need to explain things more to help the client understand?’

“Now this is something that a good practitioner should have been doing before anyway, but now there is a code standard that makes this a requirement so it becomes much easier for the regulator to say, ‘You did not do that, you don’t have a file note to demonstrate how you have done that, so you have not complied with the law.’ So the law has become far more precise in saying what needs to be done.”

With all the changes coming, Dale-Jones is confident that most of the industry will be able to handle the new standards with ease.” Click here to read more

In other news

Cigna: “Blue Star, our collateral provider, is in the process of upgrading their platforms which support the ordering process. To complete this they’ll be temporarily shutting down their online ordering portal on our Adviser Hub from 11am on Friday 4 December until 8am on Monday 7 December.

All emails regarding new business should still be sent to newbusiness@cigna.com, all other emails regarding existing business should be sent to customercarenz@cigna.com.”

BNZ: BNZ was warned by the Commerce Commission over responsible lending and disclosure failures

Southern Cross: Couple's $25,000 bill after cancer surgery only partly covered by Southern Cross

Ailepata Ailepata’s gastric cancer claim denial as a result of a New Zealand Home Loans broker suggesting Ailepata change insurers has caused division within the industry. While some have sided with Fidelity Life’s decision to deny the trauma claim, others have contested the decision. Tony Vidler described the incident as a shocker and hoped it would highlight the duties of advisers by stating that advisers need to act as front-line underwriters since they are better judges of insurer criteria than clients. 

“Vidler said: “Clients often, with the best of intentions, tell you everything they think you want to know then later say ‘I didn’t think that would matter. A doctor told me I needed to get my blood pressure under control 17 years ago but that doesn’t matter, does it?’

Clients were in a poor position to judge what would be important to an insurer, he said, and it was the adviser’s job to step up.

“I always take the view that the adviser should be the frontline underwriter … if there’s any doubt or questions you’ve got to draw attention to it.”

If there was a concern about something from a client’s past, the adviser could suggest the insurer requested medical files, he said.”

Katrina Church has stated that they isn’t enough information to condemn the advice provided to Ailepata Ailepata by the mortgage broker. Instead Katrina said that in her experience clients don’t usually understand their disclosure obligations. While advisers work to minimise risk of each application but she suggests that advisers consider the question do clients understand what they have to do when applying.

“Church said there was not enough in the articles written about the case to condemn any adviser. “My experience is most clients don’t truly understand what their obligations regarding disclosure are. And as advisers I would ask do we do enough here to help out clients? Are we training this as well as we can in the industry?

“Advisers are the first underwriters and we should do all we can to derisk the situation for clients – this is something that online or applications made direct to providers can't. That’s our point of difference. 

“Advisers should be thinking, is this client really understanding what they have to do when they are filling out this form? That’s the first thing. The industry could do better, insurers could do better.” Click here to read more 

In other news:

Financial Advice: Financial Advice formed a group called Corporate Associates

Financial Advice: consultation of the Trusted Adviser mark closed July 22 2020

Financial Advice: Applications invited to be a Corporate Associate

FMA: Kiwis confident financial markets will recover from COVID-19, plan to increase investments

Tony Vidler posted a great article on not giving advice. The essential premise is that the client may not want you to give formal advice - or even informal advice - but rather, simply act as a good sounding board for their own decision-making process. This connects strongly to my lived experience. Accountants, lawyers, fellow consultants, have all performed at their best when avoiding the quick move into the prescriptive, the planning, and the acting space. Not always, some times speed is vital, but not nearly so often as it is supposed. More often, asking good questions is the foundation for better decision-making - and not all of those decision have to be made by the adviser. In fact, the decision a client has the most emotional commitment to, is the one they choose through a guided discovery process. They appreciate the guidance, they know the discovery would not have been made without the presence of the trusted adviser. They really own the choice. How do I know? Because I have been in the place of both the client, seeking help in my own business, and the adviser, helping others with theirs. 

With the regulatory changes set to be implemented in early 2021, Karty Mayne from Rosewill Consulting is warning advisers to take precautions with advertising as this is an area that causes issues with compliance. Karty has suggested that advisers pay attention to their online activity. David Greenslade, executive director of Strategi has echoed Karty’s point by saying that although advisers have room to be creative they must carefully review the material.

“Karty Mayne, compliance consultant at Rosewill Consulting says that marketing and adverts are the areas where advisers can often trip up when it comes to compliance, and so they should be taking extra care to review their online activity.

David Greenslade, executive director of Strategi Group says the new disclosure regime will allow advisers to get more “innovative” with how they convey information - but it will also mean that every piece of marketing material will need to be looked at, and potentially revised.”

Karty has suggested advisers can improve current practices by updating their websites and reviewing how social media platforms are used. Additionally, Karty has suggested advisers create a compliance procedure that is simple to follow. Chatswood offers a Digital Advice Strategy service as well as an Advice Process Management service that helps advisers achieve what Karty is suggesting. If you wish to find out more email your interest to Jerusalem.Hibru@chatswood.co.nz or Russell.Hutchinson@chatswood.co.nz

““It’s also a really good opportunity to have a look at modernising your website and how you communicate on social media, because the FMA will look at all of that,” she explained.

Karty Mayne says the easiest way to stay on top of compliance is to create a series of policies, and document their implementation as simply as possible. She noted that if not for COVID-19, we would all be operating within the new regime right now - and so she urges advisers to use this extra breathing space ‘wisely’ and not get left behind.” Click here to read more

In other news

BNZ: Darrin Bull has been appointed as Head of Product and Distribution at BNZ

Cigna: Cigna appoints chief risk officer

Quarters two and three will see clients at their “most demanding”

Climate change may soon render some beach houses uninsurable

I've written about the three big themes driving consumer behaviour over at goodreturns, here is the link:

https://www.goodreturns.co.nz/article/976516900/three-big-things-that-are-forcing-consumers-to-re-think.html