The International Association of Insurance Supervisors feels that commission is probably an integral part of insurance advice. Like most of the people I know, I think the same way. But fee-based remuneration is bound to get a bit of attention due to the new, draft Financial Advice Code. I shall write more on that later today. But quite a few advisers already see a role for fees as a part of a balanced remuneration strategy. If you would like to explore that world, please drop me a line. I am aiming to get a few of us together for lunch and ideas sharing.
The new draft Code has just been released for consultation:
Consultation closes on Friday, 9 November 2018.
Selected details from MBIE's media release:
11 October 2018
Consultation is now open on a draft code of professional conduct for people who provide financial advice to consumers.
Code Working Group chair Angus Dale-Jones says the Group has been working to create a workable and robust code that will help ensure the availability and quality of financial advice.
“Our role in developing the Code is to set minimum standards of ethical behaviour, conduct and client care, and competence, knowledge and skill that will apply to anyone who gives financial advice to a retail client,” says Mr Dale-Jones.
“Earlier this year we consulted on the key concepts and high-level approach, which gave us a clear indication of what people wanted to see in the Code. As part of this consultation we also conducted a survey of consumers’ experiences with financial advice, which provided some useful insights on what consumers expect and how a Code of Conduct could improve outcomes for consumers.
“We received a lot of feedback on the need to set robust and achievable competence standards, and have taken this feedback on board. The draft Code proposes to set competence equivalent to the learning outcomes in the New Zealand Certificate in Financial Services (Level 5), approved by the New Zealand Qualifications Authority in 2014.
“We have also taken a principles-based approach to ensure the Code is flexible and works for all the different types of businesses that provide financial advice, including small firms.
“We’re now seeking feedback on the draft Code, and want to hear from people about what they think of the proposed standards and how they will work in practice.
“We want to encourage feedback from all parties who will be affected by the Code, including anyone who is representative of the financial advice industry as well as consumers of financial advice. We will be holding a live chat session during the consultation period and people can also submit feedback via our online submission form,” says Mr Dale-Jones.
The Code is technology-neutral and will apply to robo-advice, as well as financial advice given by people. It sets out 12 proposed standards and supporting commentary. It includes requirements to treat clients fairly and act in their interests, act with integrity, manage conflicts of interest, take steps to ensure the client understands the advice, give advice that is suitable for the client and meet standards of competence, knowledge and skill.
The Code will sit within a wider regulatory regime that will include statutory duties, disclosure requirements and licensing. These changes are being introduced through the Financial Services Legislation Amendment Bill.
MBIE has just published an updated timeline for the implementation of the new financial advice regime.
MBIE's release below explains:
We have published on the MBIE website some updated factsheets relating to the new regime for financial advice, including updated expected timeframes for the new regime...
We know there has been some uncertainty and speculation about timing for the new regime. While we cannot give certainty about exact timeframes until regulations and the Code of Conduct are finalised, we wanted to share our latest best estimates of timeframes for the new regime. These updated timeframes take into account time needed for the Bill to complete its final stages in the House, and time to consult on and finalise supporting regulations and the Code of Conduct to ensure they are workable and do not impose undue compliance costs. We also want to allow for a bit more time than previously indicated for industry to apply for transitional licences given the Christmas holidays may fall during the transitional licence application period.
These timeframes are still indicative only and we will provide updated estimates of key dates once the Bill is passed. Regardless of when the Bill passes, there will be time built in for industry to prepare for the new regime.
In terms of next steps, you will see from the fact sheet showing the puzzle pieces that make up the new regime that:
- the Code Working Group expect to consult on a draft Code of Conduct shortly, and
- we also expect to be consulting later this year on licensing fees and levies.
We hope you will continue to engage and provide your input on these matters.
MANAGER, FINANCIAL MARKETS POLICY
Looking through the reading material on the industry yesterday the wording of the RiskInfo poll on the impact of FSLAB caught my attention. Here is the question:
"Will the Government's financial advice legislation reforms improve access to high-quality financial advice?"
It seems simple, but includes two dimensions quality of advice, and access.
I must admit to struggling to answer. In the end I plumped for 'not sure', which might seem like a bit of a cop-out, but I'm genuinely not sure. I do believe that FSLAB will almost certainly improve the quality of advice on offer. It is already, with much more interest being shown by some RFAs in the process of developing effective statements of advice, for example. I also know QFE managers that are more focused on advice as they contemplate taking their QFEs through transition to licence-holder status. I also think it will reduce the numbers of people claiming to offer advice, and that may or may not be a bad thing - depending on how many that number is. If regulation and costs are too tough we could lose lots of good people. If they aren't tough enough the law will have failed too. The challenge for CWG, FMA, and MBIE in their various roles in the change is to come up with the 'Goldilocks' result: just right, and there are many different views about what that is. But I am quite unsure that greater access to advice will result, and in my heart I suspect the answer is a modest reduction in access.
I have a model (which produces a Sankey chart) to enable me to experiment with different scenarios for the future numbers of advisers in different entities, I am yet to land on a 'most likely' case. If you work in distribution, or deal with financial advisers (of any type) I suspect that kind of variability creates a great deal of uncertainty and worry about how to invest for the future.
The CWG has updated their blog (Thanks Angus Dale-Jones) and provided a cool summary of the submissions received. Insurance advisers and insurers were well-represented:
We received around 160 submissions – nearly 2000 pages. Approximately...
- 20% of submissions were from RFAs,
- 16% were from AFAs, and over
- 20% were from firms whose services ranged from investment and insurance broking, to investment advice and wider financial planning.
- Over 10% were from industry bodies or dealer groups, and around
- 13% were from insurers or QFEs such as banks.
We also received submissions from or had meetings with consumer representatives, dispute resolution schemes and education providers.
The guide you can find at this link, by Partners Life, is excellent for advisers considering submitting on the Code Working Group (CWG) proposals. I am very happy to publish links to other guides and discussion papers, so please send me them if you think they are worthwhile.
Philip Macalister's interview with Minister of Consumer Affairs, Kris Faafoi, is well worth listening to. The good bits really kick in at about 3.30 into the video. That is where Philip asks the minister about the Code Working Group, and the minister makes his expectations clear. Here is a small sample, but well worth watching the whole interview:
“My clear expectation was given to them at that first meeting that, along with the big players in the market who would serve the majority of consumers in the market, that small industry players who had voiced their concerns were to be consulted with as well, and that is still my expectation.”
He said he was primarily concerned that that the final product decided upon by the working group was for the benefit of consumers.
It is worth noting the three main parts of what is going on right now:
- The law will go to select committee
- The drafting of the Code
- The consultation on disclosure requirements
At this stage I feel most comfortable with the last point. It is the interaction between submissions on the law and the drafting of the Code where the impacts on availability of advice for consumers, driven by competence requirements and costs that may weigh on advice businesses, could vary widely depending on choices made.
Te recent news round-ups have seen insurance in the news in ways we aren't used to, and would generally rather it wasn't seen, or in ways which look like they are going to be darned tricky to work with in the future. The round-up is based on calls, emails and txts, over the last couple of days from people who help me out by contributing / arguing / and questioning this stuff. The list is therefore:
- Code working group (CWG) proposals for competence standards for most insurance planning services
- The FMA's report on replacement business, and the comments on the same by various journalists and commentators
- The use of private investigators by insurers
All have been getting plenty of work and are current subjects on which I have been preparing advice for clients. Do drop me a line if you want to explore these in detail.
The question is 'Do you have a Bachelor’s degree majoring in one of either: financial planning, accountancy, business, commerce, economics, finance, or management? We’re asking because in a consultation document published by the Code Working Group there is a proposal to require this as part of the competence requirements for offering a financial planning service (which could include insurance planning).'
Next time you are logged in to Quotemonster could you please spare a moment to answer our latest survey? You can find it in the bottom left corner of the dashboard as pictured below.
The Code Working Group is to be congratulated for the work that they have done so far. The proposals in the consultation document are a significant achievement, in laying a new foundation for conduct for financial advice providers and financial advisers.
In particular, some structural decisions that, perhaps appear straightforward now, would not have been clear to the group when commencing their work: such as the separation of requirements on the business providing the services, and the individual providing the advice. The development of the themes from the legislation, of ethical behaviour, conduct and client care, general competence, knowledge, and skill, and particular competence is also strong. The lens of a 'good advice outcome' also appears to be a reasonable test, as defined, for the successful operation of the standards.
There are definitely problems, and they are to be expected. This is, after all, a consultation document. The working group has a particular skew - self-employed advisers make up a substantial part of the marketplace (perhaps accounting for half of all advice given) and yet not room was found on the committee for an adviser of that type, so it must now take into account wider views.
The areas of particular concern to me, and those interested in the provision of advice for insurance, may be concerned about the requirement for a Bachelor's degree qualification (or higher) and a level five certificate for the provision of an insurance plan (see pages 11 and especially 16 of the consultation document, see the blog post below for the link). That captures a substantial proportion of insurance advice as given now. The discussion of recognition of prior learning / experience needs to be a lot more detailed. Another area of concern, to those interested in the use of technology in advice-giving, will be the aspects of the draft make that appear to make that difficult.
But there will be plenty of time to engage in the 'now fix this' part of the engagement. I reiterate my congratulations to Angus Dale-Jones and all the members of the Code Working Group on the document we have.