Australian financial adviser numbers dropping fast

News reports show a drop in adviser numbers in Australia close to 15% in just one year, perversely leading to increased ASIC levies for the remaining advisers to cover ASIC costs. https://www.moneymanagement.com.au/news/financial-planning/asic-levy-increase-due-declining-adviser-numbers

These costs must, of course, be passed on to consumers. But the real impacts will not be on the relatively wealthy clients that continue to get financial advice, it will be borne by the many consumers that can no longer receive good advice. They will struggle in an increasingly complex financial world. A divide will widen between the more literate and numerate who will be able to DIY and those who lack the skills or inclination who will tend to lead more financially precarious lives due to lower savings rates and fewer options. Access to advice must always be a consideration.

I have not checked because my concern is mainly New Zealand, not Australia, but perhaps one of my readers who is more across that jurisdiction can pull the relevant impact statement that was inevitably prepared and find what was said at the time. Did they assume a 15% decline and believe the change worth it? Or did they underestimate the impact of change? 


Legal and regulatory review for the life and health insurance sector

16 Mar 2021 - The Financial Markets Authority (FMA) Board announced that Chief Executive Rob Everett had resigned and would leave the organisation towards the end of the year. https://www.fma.govt.nz/news-and-resources/media-releases/fma-board-announces-chief-executive-will-leave-at-end-of-2021/

15 Mar 2021 - The Australian Prudential Regulation Authority (APRA) released a response letter for insurers on proposals to collect cyber insurance and management liability data in the National Claims and Policies Database. https://www.apra.gov.au/news-and-publications/apra-releases-draft-reporting-standards-for-data-collection-national-claims

11 Mar 2021 - The Anti-Money Laundering and Countering Financing of Terrorism (Class Exemptions) Amendment Notice 2021 (‘Amendment Notice’) was released on 11 March 2021 and is now in force. It amends Part 5 (Reporting Entities whose customers are licensed managing intermediaries) and Part 8 (Financial advisers arranging for relevant services to be provided for retirement schemes) of the Schedule to the Anti-Money Laundering and Countering Financing of Terrorism (Class Exemptions) Notice 2018 (‘Principal Notice’), with the changes largely arising under the new financial advice regime.


Legal and regulatory update for the Life and Health Insurance sector

11 Mar 2021 – Takeovers Panel released three updated Guidance Notes as follows: https://www.takeovers.govt.nz/

  • Independent Advisers. The amendments made in this revision are to Appendix A:  The Panel's Policy on the Approval of Independent Advisers.
  • Panel’s Exemption Powers - providing guidance as to when exemptions are likely to be granted.
  • Creeping Acquisitions - providing information on the ability of a holder or controller of between 50% and 90% of the voting rights in a Code company to increase its control percentage by "creeping" under rule 7(e) of the Code.

11 Mar 2021 - ASIC consults on implementing a deferred sales model for add-on insurance products. The deferred sales model introduces a four-day pause between the sale of a principal product or service and the sale of an add-on insurance product. https://asic.gov.au/about-asic/news-centre/find-a-media-release/2021-releases/21-043mr-asic-consults-on-implementing-a-deferred-sales-model-for-add-on-insurance-products/ The last item will be of particular interest to banks, credit card issuers, airlines, and other organisations where insurance is commonly sold as an add-on. 


Legal and regulatory review for the life and health insurance sector

4 Mar 2021 - Overseas Investment Amendment Bill (No 3), introduced on 14 May 2020, reported back to Parliament. https://www.parliament.nz/en/pb/bills-and-laws/bills-proposed-laws/document/BILL_97807/overseas-investment-amendment-bill-no-3

4 Mar 2021 – APRA released separately the statistics for December 2020 for life insurance and general insurance. Weblinks are https://www.apra.gov.au/news-and-publications/apra-releases-life-insurance-statistics-for-december-2020 and https://www.apra.gov.au/news-and-publications/apra-releases-general-insurance-statistics-for-december-2020

4 Mar 2021 – Financial Advisers Disciplinary Committee issued its penalty determination on the case decision released in Jan 2021 regarding Code Standard breaches. The FADC imposed the penalty that the Respondent is censured for the Code breaches together with permanent suppression of identity. https://fadc.govt.nz/decisions/

4 Mar 2021 – Commission for Financial Capability announced that it had launched achievement standard resources through its Sorted in Schools programme. The resources are designed to be taught by teachers as part of day to day classes in Statistics and Economics for students studying toward NCEA Levels 1 and 2. https://cffc.govt.nz/news-and-media/news/money-lessons-offer-ncea-excellence-grades/

5 Mar 2021 – FMA issued a public warning to the adviser for KiwiSaver advice given generally to switch funds in the wake of COVID-19 and market volatility in March 2020. https://www.fma.govt.nz/news-and-resources/media-releases/fma-warns-financial-adviser-kiwisaver-covid19/

5 Mar 2021 – IRD advised that the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Bill, introduced on 4 June 2020, was reported back to Parliament on 4 March 2021. https://www.parliament.nz/en/pb/bills-and-laws/bills-proposed-laws/document/BILL_98047/taxation-annual-rates-for-2020-21-feasibility-expenditure


Decrease in Australian adviser numbers related to increased lapse rates, and more daily news

Australian consultancy firm NMG Consulting was commissioned to review different aspects of the Australian life insurance industry. The report found that the decrease in adviser numbers, advisers shifting their attention to higher value customers along with more frequent reviews will mean that within the next three years, cover will be offered to less than 15% of the financially active population. The report noted that research backed the expectation that the industry shrinking would result in an increase in lapse rates as access to financial advice would reduce. It was stated that there is an increase in partial lapses and a sharp decrease in re-broking. The decrease in re-broking means affordability pressures on clients trying to keep their policies. The report suggests that prices are likely to increases and risks pools are likely to shrink as a result of reduced access to financial advice.

“The ongoing decline in total number of advisers, combined with the rational adviser shift to focus on fewer, higher value customers and more frequent reviews will reduce coverage to less than 15% of the financially active population within 3 years. The focus will be the top-tier 200 – 300 consumers with a three year or shorter review cycle. This implies a highly productive, sustainable and high quality ‘best advice’ model, that narrowly supports informed decisions by only the wealthiest and most financially sophisticated 10% - 15% of the population (with a resulting skew to older ages/more complex cases).

Research supports expectations that the contraction in the advice market will lead to an increase in lapse rates as customer access to advice reduces. Partial lapses and the rate of lapsing out of the system has increased. The sharp decline in re-broking is leading to increasing affordability pressure on customers who try to ‘hang on’ and then lapse out altogether, as opposed to an advised glide path to retirement with benefit and affordability aligned to need.

It should be noted that of the 25% of Australians aged 25 – 35 (predominantly middle income, with children or non-working spouses) who have less insurance than the community standard, almost one in five has not been able to access financial advice.

These trends suggest that future risks to the life insurance market are likely to relate to lack of access to the advice system and sustainability due to shrinking risk pools driving up prices and reinforcing the adverse selection spiral. Regulatory reforms need to both protect Australian consumers whilst making sure they can access an affordable advice system; while ensuring life insurance is sustainable over the longer term. Otherwise the pattern of under-insurance among young and middle-aged Australians, and the over-insurance of older Australians due to lack of access to advice, is likely to get worse at least over the next three years.”

 

In other news

Fidelity Life: Ross Fowler from Wealth Protection in Christchurch awarded the Gordon Watson trophy 

Fidelity Life: Brett and Niki Stonham from Stonham and Co in Auckland awarded the Cary Veenhof Service award 

Fidelity Life: Joey Gregory from Discovery Financial in Auckland awarded the Emerging Adviser of the Year award 

Fidelity Life: Chris Aynsley from Aynsley and Associates from Canterbury awarded the Fidelity Life trophy


Australia: "ASIC boss should enforce rules not fantasise about setting them"

The Sydney Morning Herald had that powerful headline in a revealing piece about the future direction for ASIC as it enters upon the search for a new CEO. Link: https://www.smh.com.au/politics/federal/new-asic-chief-must-enforce-rules-not-fantasise-about-setting-them-hartnell-20210221-p574cs.html 


Australia: adviser numbers heading further down

David Chaplin's Investment News has this piece on the adviser numbers in Australia after their recent regulatory changes. Numbers are almost a third down in 2018. Although the article quotes some slightly more upbeat news from those that are getting qualifications ahead of full implementation they make worrying reading for those that take a view more based on client access to advice and with half an eye on efficient markets. Advisers that choose to remain can look forward to a lot less competition due to reduced numbers - while clients will have to hunt around for advisers with the range of services to meet their needs, and those not able to pay the high fees becoming increasingly common will have to make do with DIY and direct. 


Legal and regulatory update for the life and health insurance sector

22 Jan 2021 - RBNZ advised that it will be postponing publication of most statistical releases. It will provide an updated release calendar when it can but expect delays of 3-4weeks to most publications.
 
At this stage, statistics impacted by this delay will include:

  • Bank customer lending (C65 & C66): delayed from 12 January
  • Credit card balances and spending (C12 & C13): delayed from 26 January
  • New mortgage commitments - Loan to Valuation Ratios  (C30-C35): delayed from 29 January
  • Bank Balance Sheet (C5, C50-52, S10-41): delayed from 29 January
  • Non-bank Lending Institutions (T1,T4, T11, T21, T31): delayed from 29 January
  • Bank Liquidity  (L1-3): delayed from 5 February
  • Retail interest rates (B3, B6, B20, B21, B25-27): delayed from 5 February

Other publications scheduled for February and March are also expected to be affected, including the December 2020 quarter Bank Financial Strength Dashboard (scheduled for release on 3 March). Delays to publication are necessary because the file transfer software application, Accellion FTA, recently breached, was used for onboarding data from regulated entities and other suppliers into the RBNZ. The RBNZ will not be collecting data from these entities for statistical production until a new secure file transfer system is implemented. RBNZ expect the new system to become available in February 2021.

26 Jan 2021 – FMA published the findings of its obligations review of the ASX 24 derivatives market for the period of 1 July 2018 to 30 June 2020. https://www.fma.govt.nz/news-and-resources/media-releases/asx-24-derivatives-market-review-released/

25 Jan 2021 – ASIC announced that it became aware on 15 January 2021 of a cyber security incident affecting a server used by ASIC . Like the recent RBNZ breach incident, this incident related to Accellion software used by ASIC to transfer files and attachments. It involved unauthorised access to a server which contained documents associated with recent Australian credit licence applications. https://asic.gov.au/about-asic/news-centre/news-items/accellion-cyber-incident/


Implications of approval of Australian advisers operating in NZ, and more daily news

The Financial Markets Conduct (Australian Licensees) Exemption Notice 2020 issued by the FMA allows Australian licence holders and representatives to operate in New Zealand. Although MinterEllisonRuddWatts special counsel Alistair Robertson says there is nothing to worry about, some advisers have expressed their concerns about allowing Australian advisers to enter the market at this time. Robertson has clarified the terms of the exemption saying that Australian advisers that choose to move to New Zealand will be able to continue servicing Australian clients.. The exemption doesn’t allow Australian advisers to service New Zealand clients. Australian advisers looking to achieve the exemption will need to:

  • “Hold a current Australian financial services licence, be in the business of providing a financial service in Australia, and not have a New Zealand place of business.
  • Be registered as a financial service provider in New Zealand, and be a member of a dispute resolution scheme.
  • Take all reasonable steps to ensure its representatives submit to the New Zealand courts in respect of the relevant financial services.
  • Give the FMA written notice that it intends to rely on the Exemption Notice.
  • Have procedures that give reasonable assurance that the licensee and its representatives comply with relevant Australian regulatory requirements when giving regulated financial advice to a New Zealand retail client under the Exemption Notice.”

“The FMA released an updated exemption that allows Australian financial service licence holders and their representatives will be free to operate in New Zealand without a local licence, following the rubber stamping of the Financial Markets Conduct (Australian Licensees) Exemption Notice 2020.

The move, which came at around the same time that politicians were scrambling to finalise a trans-Tasman travel bubble, was the finalisation of a proposal first put forward to the industry in August 2020.

Some advisers may be worried that allowing Australian advisers into the New Zealand market at such a tumultuous time of regulation change could cause trouble.

Alistair Robertson, special counsel at MinterEllisonRuddWatts says that New Zealand advisers have nothing to be worried about.

“The exemption is limited in scope. It does not allow Australian financial advisers to solicit New Zealand retail clients. It generally allows Australian advisers to continue to service Australian clients if they, the adviser, move to New Zealand without having disruption to those clients and without complying with the New Zealand licensing regime.” Click here to read more

In other news

From Goodreturns: Barry Kloogh not forced to pay reparations

From Stuff: Mortgage adviser client upset at $2500 bill

From Stuff: Covid-19 ended my flight attendant career, but it also taught me resilience


Legal and regulatory update for the life and health insurance sector

11 Dec 2020 – IRD advised that the US IRS have just issued an FATCA News & Information alert to remind NZ Financial Institutions (NZFIs) registered for FATCA that the Responsible Officer (RO) Certifications are due by 15 December 2020.

11 Dec 2020 – Further to its initial response to the Minister of Finance on 24 Nov, the Reserve Bank published a copy of its updated detailed response to the letter from the Minister on house prices and the role of the Reserve Bank. https://www.rbnz.govt.nz/news/2020/12/reserve-banks-response-to-minister-of-finance

11 Dec 2020 - ASIC releases regulatory guide on product design and distribution obligations in Australia. https://asic.gov.au/about-asic/news-centre/find-a-media-release/2020-releases/20-320mr-asic-releases-regulatory-guide-on-product-design-and-distribution-obligations/

11 Dec 2020 – FMA published “The Auditor Regulation Act (Prescribed Minimum Standards and Conditions for Licensed Auditors and Registered Audit Firms) Notice 2020.” https://www.fma.govt.nz/assets/Reports/Auditor-Regulation-Act-Notice-2020.pdf

13 Dec 2020 – Good Returns reports on a case heard before the Financial Advice Disciplinary Committee on 10 Dec 2020 on “record keeping” charges, with the Committee decision reserved and with details yet to be published on the FADC website. https://www.goodreturns.co.nz/article/976517952/adviser-appears-before-fadc-on-record-keeping-charges.html

14 Dec 2020 – FMA released guidance on financial products that incorporate non-financial factors, such as ‘green’ bonds and ‘socially responsible’ managed funds. https://www.fma.govt.nz/news-and-resources/media-releases/expectations-green-investment-products/