Expansion of FMA power funded by market participants, and more daily news

Although the Government agreed to increase the FMA’s budget to $60.805 million in the coming years, a Cabinet paper that was recently released showed that market participants will be covering the majority of the funding through an increase to the levy on financial service providers.

“A Cabinet paper released by the ministry last week shows that participants are picking up the tab as the regulator’s budget increases significantly over the coming years.

The paper said the FMA has faced an expansion of its regulatory remit and broader cost pressures in recent years.

In April, Cabinet agreed to increase the FMA’s appropriation over three years to $60.805 million by 2022/23.

Cabinet agreed that the majority of this increase – $23.501 million per annum by 2022/23 – would be funded via an increase in the existing levy on financial service providers.”

To minimise drastic increases to the FMA levy, increases will be introduced in phases over the next three years.

“The funding and levy increases are now being phased in over three years instead of two.

“This is to lessen the impact of increased levies on financial services businesses at a time when revenues may be lower because of the economic impact of Covid-19. This adjustment complements the other lines of support the Government has been providing businesses to cushion the impact of Covid-19,” the paper said.” Click here to read more

In other news:

FMA: FMA is promoting Financial Advice’s Money Week

FMA: Proposed full licensing conditions – submissions close 7 August 2020

FSC webinar: Research Report 2 Launch

RBNZ: AMP Life documents explaining structure and purpose of new arrangements


Legal and regulatory update: introduction of RBNZ bill and details on FMA levy amounts

28 July 2020 – The government, RBNZ and Treasury announced the Reserve Bank of New Zealand Bill was introduced to Parliament. This is the first of two bills resulting from the Phase 2 review of the Reserve Bank of New Zealand Act 1989. As part of the broad-ranging review, the Government has decided that the current Act will be replaced with two new pieces of legislation – the ‘Reserve Bank Act’ and a ‘Deposit Takers Act’.

 

29 July 2020 – FMA and MBIE advised of the release of details of FMA levy amounts for the 2021/22 and 2022/23 financial years, and the outyears. It also covers the levy amounts for the new Financial Advice regime, which commences on 15 March 2021. Further details are available on the MBIE website at https://www.mbie.govt.nz/about/news/changes-to-fma-levies/ and at https://www.mbie.govt.nz/business-and-employment/business/financial-markets-regulation/crown-entities-we-monitor/financial-markets-authority-funding/


nib partner with Ronald McDonald House, and more daily news

nib announced that they will maintain their partnership with Ronald McDonald House Charities to support families at this time. During lockdown nib worked to provide 28 rooms in both Auckland and Wellington with necessary appliances to ensure social distancing requirements were met by all. The $20,000 investment ensured each room was equipped with a fridge, kettle, toaster and microwave.

“Deemed an essential service by the Ministry of Social Development during Alert Level Four, RMHC New Zealand, like many other services, had to adapt to ensure they could continue to provide free accommodation to families when their child is in a hospital away from home.

In order to meet isolation requirements, 28 rooms across the Auckland and Wellington houses were converted into self-contained units, to enable long stay families to remain in their ‘home-away-from-home’ during lockdown.

With the communal kitchens closed, nib bolstered its existing RMHC New Zealand national partnership with a further investment of $20,000 to enable each room to be kitted out with a fridge, kettle, toaster and microwave to ensure families could function safely in their bubbles. A further 12 rooms were also supplied with kettles for short stay families, so social distancing could be maintained.”

Amy Tribe nib foundation Executive Officer has said that nib is proud to continue supporting Ronald McDonald House Charities.

“nib foundation Executive Officer, Amy Tribe, says nib is proud to continue supporting an organisation that helps so many Kiwi families, especially during a time of such difficulty.” Click here to read more

Nib partners with Ronald McDonald House  July 27 2020

In other news:

FMA: FMA released an update of its Immediate Priorities during Covid-19 response and recovery over the next 3-6 months together with a related FAQs webpage

FMA: FMA upset at KiwiSaver report leak

BNZ: BNZ economists expect “straightforward” OCR hold

Financial Advice: Non-Bank Lenders discussing different market requirements and products which are available


Consumer NZ seeking to end the sale of funeral cover, and more daily news

Consumer NZ has again criticised funeral insurance policies citing high premiums. Jon Duffy, Consumer NZ CEO used an example of an 85-year-old policyholder who has paid $18,900 in premiums after taking out a $10,000 funeral insurance for herself and her son in 2003. Fidelity Life denied requests to refund the additional amount paid in premiums as the policy had worked as it was designed. Jon Duffy has said that charging customers excessive amounts to cover a guaranteed event isn’t acceptable.

“Consumer NZ has taken aim at the poor value of some funeral insurance policies, highlighting a complaint it received from a customer who paid $18,900 in premiums for a policy worth only $10,000.

 

Consumer NZ chief executive Jon Duffy says the customer, an 85-year old woman, took the insurance out in 2003 to cover herself and her adult son, and was given cover of $5,000 for each life insured. Over the next 17 years, she paid out almost $9,000 more in premiums than the policy would ever have paid out.

 

The insurance was provided by Fidelity Life, which has refused to refund the additional premium and says the policy had worked “as designed.” Duffy says that since funeral insurance covers an event which is guaranteed to happen, selling funeral policies that result in customers paying thousands more than they would ever get back “doesn’t wash.””

This is a curious position - to define the value of an insurance policy solely by the payment that would come from it. For example, over the years, I have definitely paid in many thousands more in premium for car insurance than they have paid me out. It enables me to drive on the roads without fear of ruining someone else's life, or my finances, by an expensive crash. I will never receive back in claims what I have paid in premiums, but I still got - and continue to get - good value from the contract. 

When asked to comment the FMA stated that funeral insurance had been identified as a product that offers customers poor value in their joint life insurer conduct and culture 2019 review.

The FMA appears to have a more nuanced view, simply citing poor value:

“In response to an enquiry by Insurance Business, the FMA noted that it had already identified funeral insurance as a product that “often provides poor value” in its 2019 review into life insurer conduct and culture, conducted alongside the Reserve Bank. 

 

“The review considered funeral insurance to be a ‘poor value product’ and consequently had poor outcomes for customers,” it stated. “[The review] also provides an example of poor conduct involving funeral insurance.””

In part, poor value is a function of the small sums insured in these products: the administrative costs of insurance companies, especially using manual processes common for this market as many of these consumers struggle with the internet, make each policy subject to a relatively high component of administrative costs. 

Consumer NZ is looking to end the sale of funeral insurance and other products that offer customers poor value.

 “Consumer NZ says it will push for a law change that will prevent companies from selling funeral insurance, along with other products which offer poor value.” Click here to read more

I think that Consumer are referring to their support for new draft conduct law, which is also supported by the industry in concept. The advantage of a principles-based approach is that blunt instruments, like banning all funeral cover, can be avoided. After all, if you are 67, have several serious conditions, and no financial assets, but you wish to avoid burdening children with your final expenses, then a $75 a month will cover that financial risk, right now. There are simply not many other solutions, except save, and the cost will be borne by others should you die. Of course, if you keep paying it until you die, you may pay more than the sum insured. Life insurance is something best replaced by financial assets at some point in your life. 

FSC Connect Webinar : Media, Journalism and Opinion through COVID-19

FSC: Get In Shape Session 6: An opportunity to redesign your advice process

Financial Advice: Trusted Adviser mark achievable for all members over time: Shanks


FMA survey findings, and more daily news 

Part two of the results of the FMA’s investor confidence survey have been revealed.  Although the focus is on investment, it is interesting to see the current thinking of New Zealanders in terms of accessing financial advice. The survey found that males are more likely to seek out an adviser. Although only 17% of respondents were Asian, they made up 30% of the total respondents that would seek help from an adviser. Gillian Boyes, FMA investor capability manager has said that more people are looking for financial information. 

“Those looking for an adviser were significantly more likely to be male – at 63% compared to 49% across all investors, with investments outside KiwiSaver, working full-time and more confident in New Zealand financial markets. Nearly 30% of those looking for an adviser were Asian – Asian people were just 17% of the survey respondents.

 

FMA investor capability manager Gillian Boyes said advisers would need to try to tap into other markets and find people who were not necessarily even thinking about investment advice now.

 

She said people were generally much more engaged and looking for information about investment and finances. “It’s an ideal time for advisers to reach out.””

During Money Week, Financial Advice will run a joint event with the FMA at The Base in Hamilton to address questions the public may have around money.

“The FMA and Financial Advice NZ will run an event during money week at which people will be encouraged to bring their money questions to advisers at The Base shopping mall in Hamilton.” Click here to read more

In other news:

Financial Advice: Financial Advice set to hold hour-long webinar every day of Money Week for consumers

Financial advice: Money week webinars are as follows:

·       Monday 10th: Financial Planning – Hannah McQueen

·       Tuesday 11th: Mortgage Discussion – John Bolton

·       Wednesday 12th: Insurance Discussion – Peter Leitch

·       Thursday 13th: Retirement Planning – Liz Koh

·       Friday 14th: Investment Discussion – Paul Sewell

Revealed: New Zealand's Top Advisers 2020

Partners Life: Expressions of interest now open for our 3 day New Adviser Training Course - August 2020

FMA: Proposed standard conditions consultation submissions close 5pm on Friday 7 August 2020

 

 


Industry participants react to gastric cancer claim denial, and more daily news

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


Increase in Australian mental health disability claims, and more daily news

The Australian FSC reported that the number of mental health disability claims made in Australia has increased by over 50% in the past five years. A KPMG report showed that from 2013 to 2018 mental health disability claims increased by 53%, placing it in the top three disability claims.

“Mental health disability claims have soared more than 50 per cent over the past five years, putting strain on an industry that struggled to make any money at all in 2019, a new report commissioned by the Financial Services Council shows.

The report, compiled by KPMG, finds that over the five years to 2018, mental health claims costs rose 53 per cent, making it the third most common category of disability claim, behind accident and musculoskeletal, and ahead of cancer. For men, mental health-related claims were 125 per cent higher than the 2013 figure.”

Regardless of mental health exclusions being in place, mental health claims have increased. KPMG actuarial partner Briallen Cummings has highlighted that the increase is actually just the same people claiming for longer periods of time. Cummings has suggested that the increased number and duration of mental health claims could be a result of the shift in societal perceptions of mental health illnesses.

“The meteoric rise in mental health claims comes despite a years-long effort by major life insurers to introduce preventative mental health measures and programs aimed at getting people back into work.

KPMG actuarial partner Briallen Cummings said there was not actually an increase in the number of claims. Rather, the surging mental health claims bill was a result of the same number of people claiming for longer.

She said this could reflect a profound shift in public attitudes that had seen the stigma around mental health disappear. She said this had caused a "a real change in behaviour".” Click here to read more

In other news:

FSC: Confirmed speakers for Generations Conference are:

  • Rob Everett, FMA CEO
  • Glenys Talivai, Public Trust CEO
  • Mike Woodbury, Chapman Tripp partner
  • Jane Wrightson, CFFC Retirement Commissioner
  • Ryan Bessemer, Trustees Executors CEO
  • Alexia Hilbertidou, GirlBoss founder

Katrina Shanks: a financial adviser gets a taste of her own medicine

FSC: three weeks left for FSC 2020 Awards nominations

Christchurch dad's tumour surgery struggle after arrival of newborn twins


Compliance culture

While not necessarily immediately obvious, everyone in financial services needs a compliance culture to meet the expectations of the regulatory environment now in place, even while noting it is being developed further to capture conduct concepts.

Further, Boards and management often have their own additional internal requirements that are expected to be met. Regardless of size, all businesses need compliance culture in place, even if that simply means ‘ensuring that things are done the way we decided to get them done’. A good friend, who is also a business coach, puts it this way: ‘never put in place a rule you aren’t prepared to enforce’. New law and regulation ask us to put in place rules and policies – so we must have a way of forcing ourselves and others working in the business to observe them.

The customer-focused nature of most governance requirements means that the implementation of a compliance culture ensures that you focus on them. If we take a look at financial adviser businesses, they deal with risk, may handle client money, and now have new requirements to abide by, it is evident that a compliance culture necessary to have in place to ensure that regulator’s expectations are met.

How do you build a compliance culture?

  1. Start with a whole of business approach – Compliance needs to be a focus from the Board down through management and on to the individual workers at all levels.
  2. Commence with an emphasis on higher risk business operations – Identify those risks with the greatest probability of occurrence and/or the potential to have the greatest impact, and concentrate management and mitigation on those risks
  3. Build from your core activities: if you give advice, advice process is the heart of your operations.
  4. Learn – read the guides, laws, contracts, and regulations that together form the sum of the commitments that your business must meet.
  5. Challenge yourself: what level of risk, in financial terms is unacceptable to you? If a dollar loss of $100,000 is unacceptable, you will need to eliminate the risk of that happening.
  6. Fraud is real, people can be very self-interested: ask yourself – if someone else was doing your job, how to you think they could rip off the company, your suppliers, and your clients?

If you want to know more about how to test whether your culture is supportive of compliance, make contact with one of the team.


FMA looking to obtain power over mergers and acquisitions, and more daily news

After a policyholder raised concerns over the sale of AMP Life the FMA has stated that it would like to obtain the power to oversee mergers and acquisitions relating to banking, insurance and non-bank lenders. The proposed expansion of regulatory power would give the FMA power to require a conduct assessment be completed before purchase.

"The Financial Markets Authority (FMA) wants to be given the power to block mergers and acquisitions that affect banking, insurance and non-bank deposit takers’ products.

The regulator wants to be able to require a prospective new owner of a financial institution, or a particular loan or insurance book for example, to undergo a conduct assessment first.

It says it would exercise this power as the overseer of a conduct regime to be introduced once the Financial Markets (Conduct of Institutions) Amendment Bill is passed."

The FMA has presented their idea to MBIE and has suggested that additional clauses be added to CoFI to permit the FMA to oversee future mergers and acquisitions.

"The FMA argues that in the same way the Reserve Bank (RBNZ) needs to ensure a financial institution meets its prudential requirements before it becomes licenced, so has to give its approval for a merger/acquisition to proceed, the FMA should be given similar powers when it comes to conduct.

It has discussed the matter with the Ministry of Business Innovation and Employment, and suggests clauses be added to the Financial Markets (Conduct of Institutions) Amendment Bill, which is currently before the Finance and Expenditure Committee." Click here to read more

In other news:

Department of Internal Affairs: Department of Internal Affairs advised that it is calling a list of businesses who operate in the sectors that it supervises for AML/CFT that have not registered with the Department or confirmed that they do not provide products or services that would require them to comply with the AML/CFT Act, to obtain clarity about their status.

FANZ: Trusted Adviser mark criteria revealed

'Make real money': Client sues over 'sophisticated' investor tag

This last story is well worth a look too. Here is a quick snippet. It is worth considering that compliance structures are now complex. If clients do not understand the consequences of their choices within the establishment of the nature of the relationship, then it is likely that advisers, advice providers, and even product providers will be blamed: they have experience and information on their side. This may be hard to distinguish from a client who knew exactly what they were doing and simply reach for any and all means to recover losses that they should take responsibility for. It is always complicated 

'A woman who says she lost hundreds of thousands of dollars on funds of fallen investment manager Blue Sky claims she was wrongly steered into classing herself as a “sophisticated” investor."


nib Putting Health into Life seminar, and more daily news

nib will be holding seminar series, Putting Health into Life and Work from July 28 to August 14. The seminars will include different speakers that will touch on different healthy living points. As part of the series group insurance as well as the benefits in the current climate will be discussed.

"Our speakers will explain the powerful reasons you can share with your clients around why health comes first and where it fits in the advice process. 

Our Group Sales team will also join our speaker panel to explain why group health is even more relevant as an employee benefit and equip you to access this market with confidence in a post COVID-19 lockdown world."

Different topics relating to health in life and work will be explored in the seminars. Topics include:

"Putting Health into Life

  • Health insurance and the public health services
  • How health insurance meets client’s needs and expectation at various life stages, while complementing other living insurances
  • Understanding life circumstances and expectations
  • Assessing value through premiums and claims

Putting Health into Work

  • Why health insurance is important to employers and their employees
  • How group health can accelerate your business growth
  • nib’s group health value proposition: putting the wellbeing of employees first
  • Supporting you to access this market with confidence"

Click here to register

In other news:

Expert says financial advice is key to emerging from a downturn

FMA:CONSULTATION: Review of 16 class exemption notices expiring in 2021

What I'm seeing at the moment - Philip Macalister's Blog