Fidelity prolongs registration date

Fidelity Life have extended the registration period for Customer Engagement 2020. Advisers now have until 6 April 2020 to register to be in the running to attend a Thought Leaders forum in Te Anau in October.

Key points:

  • Runs from 6 March – 31 July 2020
  • Based on Net Promoter Score – a measure of customer satisfaction
  • Top 30 advisers plus partners attend a special forum in Te Anau, 14-16 October 2020
  • Advisers need to register by 6 April to participate

Click here to register

Deep dive into client base valuations - and a comment on risk

We worked alongside Kurt Owen of Base to offer advisers insight into the factors considered when determining the value of an adviser’s client base and overall business. Click here to understand what does into an accountant’s valuation of a client base with input from a life insurance expert.

Please bear in mind that this is a framework presentation and the material in the presentation is illustrative only. The market has received some substantial shocks, and with new draft conduct law on the horizon, which appears to establish a framework that could ban commission, there are substantial risks in the medium term outlook. 

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Insurers: get a transitional licence or we stop paying

In an admirably blunt statement of the need to get moving Fidelity Life has told advisers that they need to get a transitional licence or they won't be working with them. That was from an email on March 4.They are not alone. Several insurers are now recommending advisers apply for their transitional licence no later than mid-April. I think that’s good advice. So you now have a maximum of five weeks to apply.

Some insurers will choose to only do business with distributors that give financial advice and therefore must have a licence. I expect that financial advice providers will have to give the insurer their details if they are to continue to work with a product provider – otherwise, no agency, and therefore, no commission. I plan to expand on the consequences of failure to get a transitional licence - including the possible loss of renewal commissions - next week.

In exceptional cases, where a business model is clearly sales with no financial advice, an insurer may choose to continue working with a distributor. However, I would expect that to apply to very few agency relationships.

From 1 February, OnePath becomes Cigna

Cigna formally absorbs OnePath from 1 February. Quoting from an email sent to advisers recently they announced: 

"We’re pleased to let you know that we have received approval from the Reserve Bank of New Zealand, and on 31 January 2020 the OnePath business will be transferred to Cigna. This means the two businesses will begin operating as one – Cigna"

Congratulations to Cigna on the successful completion of the merger. Adviser familiar with other mergers will be able to appreciate how quickly, and in many respects smoothly, this has gone. Also announced under the same email are changes to the agency agreements. These, like AIA's recent changes, introduce new obligations for both advisers and Cigna. These relate to the expected requirements under the Conduct of Financial Institutions Bill. Although these requirements will probably undergo some change, the transfer of all OnePath business to Cigna means that a new agreement was required.

Goodreturns article wrong to be pessimistic on COFI-driven change

Goodreturns has a piece by-lined BusinessDesk which is pessimistic about the outcomes for introducing the Conduct of Financial Institutions reforms. I found the attitude of the article intensely disappointing. Not because there aren't problems, when there plainly are problems. Not for the numbers that were right, or the numbers that were wrong - some are hard facts and some are conjecture, and we are all entitled to share a point of view. Not for the failure to be even handed, although it wasn't: the author is particularly critical of advisers, but the Hayne commission tended to find the biggest problems in direct and vertically integrated channels. 

The main reason I am particularly disappointed is that it fails the standard the industry is being held to: it fails to address what a good customer outcome really is, and consider what the right pathway is to that. Instead it focuses on a few proxy numbers. Minister Faafoi does better because they have a vision of increasing confidence and clarity for consumers. MBIE does better because they consider efficiency as a whole and suitability throughout the product life-cycle as important factors. The industry does better because, contrary to the assertion in the article, they do look at more numbers than just new business. Lots of advisers, managers, owners, and leaders care a great deal about customer outcomes. Only one was quoted, but I could quote hundreds more. There are many differing views among them, interesting views that are actually shaping the future. 

There are progressive parts of the sector that embrace change, and there are others that prefer a risk avoidance strategy. A customer-focused view of industry problems needs to consider the fundamental challenges of writing complex business with a multi-decade time-frame. Those include: complexity, information asymmetry, data availability, equity between customers, and customer engagement. 

Contrary to the viewpoint in the article I think COFI has had a substantial effect already. An enormous amount of work by industry groups has been done to try and understand, guide, and change what goes on inside businesses, channels, and the conversations with customers however they engage, to address the real difficulties listed above - much of it has been work in progress and pre-dates COFI and the conduct review, such as the FSC Code of practice. I track every product change, every pricing change, at least a dozen products that had been unchanged for years have been updated and pricing revised. At least one product line has essentially been abandoned by the industry as a whole.  That might be good - but being un-replaced there is a lot of unmet insurance need. Other changes are not solely conduct driven, but are related, like the acquisitions of bank insurers by specialists and the opening of new channels. There has been more change in the industry in 2019 than anyone thought possible in, say, 2017. 2020 looks like being even busier. Contrary to the pessimism displayed by the BusinessDesk piece few pieces of law or regulatory change can claim such success.

MBIE Consultation Opens on Disclosure Regulations

From the team at MBIE: 

We are now seeking feedback on the draft regulations that will set the disclosure requirements that will apply in the new financial advice regime.

The Financial Markets Conduct (Regulated Financial Advice Disclosure) Amendment Regulations will give effect to the Cabinet policy decisions made in February 2019. We are now seeking feedback on the content of the regulations themselves. In particular, we are seeking feedback on whether these draft regulations achieve the policy intent and whether they are workable in practice for the different ways in which advice can be given.

You can read the exposure draft and make a submission here: Submissions close on 8 November and we would greatly appreciate any feedback you might have.

Key points: 

  • As discussed previously, dollar disclosure
  • Disclosure of scope of service
  • Disclosure of conflicts and how they are managed - probably the latter part of that is the more interesting bit


Partners Life changes to bonus commission

Partners Life have announced they are changing their current bonus commission criteria effective 1 October. Partners will be removing the current volume criteria for bonus commission and underpinning current bonus levels for a period of six months.

They state in a recent newsletter: We are currently working on alternative quality-based criteria to replace the current criteria for bonus commission. We intend to seek feedback from the industry to ensure we design a model focused on measurements that will recognise good customer outcomes from an effective date of 1 April 2020.

These changes, along with the recent changes made by Asteron Life which also remove the link between bonus rates and volumes of business, will be reflected in the latest commission comparison report. 

The direction of travel in remuneration

Commerce Minister Kris Faafoi confirmed the changes largely happening in the market with his speech to the Financial Advice New Zealand conference. The legal mechanism for this change looks likely to be a law based on the recent Conduct of Financial Institutions consultation paper. Link. The question on my mind is whether this is the destination, or simply the direction of travel - and further changes could come once the structure envisaged in the options paper is established.