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 

Investment advice businesses appear to have been experimenting with different structures to manage, mitigate, or eliminate conflicts of interest for some time. See story below. I have heard of a few in the insurance sector - usually people offering options rather than an entire change of business model - but they are rare. Models that I have see offered: true nil commission options with a fee for placement, another Advice for fee and no offer of placement, another fee and commission refund (varying terms), and others simply presented hourly paid options. We have not yet seen these coupled with environmental, social, or governance goals explicitly as in the case below, although often proprietors are concerned about those issues, they are not wired in to the business. Perhaps that's an opportunity. 

Donna Nicolof, who was the former head of BNZ's Private Bank has established Pāua Wealth Management. Donna has stated that the firm is determined to eliminate any conflicts of interest and remain independent. When analysing and making decisions, investment managers will be required to consider different external factors including environmental, social, and governance factors.

"Pāua Wealth Management has created a business model to support the independence and integrity of its advice and remove potential conflicts of interest, Nicolof says. She has said no to product commissions or referral fees in favour of a fees-for service approach.

“We believe New Zealand investors deserve truly independent advice and the better outcomes this delivers. We only receive fees agreed to by clients so they can be confident that we act only in their best interests,” she said.

“We do not manufacture investment products and our advisers are not incentivised to sell particular products or trade on clients’ portfolios, which can create conflicts of interest. We are motivated by delivering quality advice and superior service,” she said.” Click here to read more

In other news:

Brokers on lost business, insurer response and government support

NZ’s largest travel insurer restructures, halves staff

Three big things that are forcing consumers to re-think

Sorted has had a big spike in traffic. Reported in Goodreturns, the focus in that article is on the demand for advice. That is true. The nature of the traffic also highlight the grim economic news: the most-used areas of the site were the mortgage calculator and the budget planner. But to return to the subject of advice, more than ever an holistic approach to financial advice is probably in demand now. We could do with a lot more capacity in this area - which currently is limited to AFAs. If you are an RFA, with relevant competence to offer financial planning, I suggest getting your transitional licence for the new regime and formalising your offer. It is needed.

Sorted: New Zealanders hungry for advice, Sorted says

In other news:

Fidelity Life: Fidelity Life makes board appointment

OBITUARY: Janet Brownlie

Suncorp: There is “no urgency” to return staff to offices - Suncorp

Pandemic risk mitigation and environmental policies go hand in hand

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
• Products
• Persistency
• 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.