Dealing with complaints from dissatisfied clients is time consuming and strays you away from your business dealings. It is made worse if you do not keep written documents. Anand Srinivasan of Brisk Insurance recently spoke about his personal experience with disagreements about past discussions and decisions with clients. As Anand kept records, he was able to remind the clients of the agreements that they had reached with him by referring to his notes. As Anand notes, no one will remember what they said exactly after a couple of years.
Sharon Corbett, Manager Financial Markets Policy, at MBIE has made the following announcement:
The Minister of Commerce and Consumer Affairs has agreed that the start of the new financial advice regulatory regime set out in the Financial Services Legislation Amendment Act 2019 will be delayed from 29 June 2020 to early 2021.
The new regime is important for promoting consumer confidence in financial advice and the Minister remains committed to seeing the changes through. For now, however, it’s important the financial sector focuses as much as possible on supporting its customers as well as its own staff and their families.
The exact revised date of the new regime will be communicated in due course, well in advance. We expect the new commencement date to be in March 2021 at the earliest.
The transitional licensing application window will be extended until the same date in early 2021 and the new Code of Professional Conduct for Financial Advice Services will also come into force on that date.
The existing regime under the Financial Advisers Act 2008 will continue to apply in the meantime until the new regime commences.
We are still working through all the flow-on implications from this delay and the necessary legal mechanism to effect this change. We are aware that market participants are at varying levels of readiness for the new regime and that the delay will impact everyone differently.
The FMA has confirmed that transitional licensing will also remain open and the FMA licensing team will continue processing applications as resources are available and in time for the start date of the new regime in early 2021. Those who have already had licences approved or who have already submitted a transitional licensing application will not need to reapply – please see the FMA announcement and FAQs which will shortly be updated.
The disclosure regulations that were due to be made this month have now been delayed so that the commencement dates of those regulations can be updated. We hope to make these regulations available within the next couple of months.
We will be in touch when we have more details to share. We’d be grateful if industry associations could please pass the message onto members.
Thank you for your understanding in these challenging times and we hope that you are all staying well.
MANAGER, FINANCIAL MARKETS POLICY
COMMERCE, CONSUMERS & COMMUNICATIONS BRANCH
It would probably be helpful if FSLAA implementation were delayed as well. Not just for insurance advisers, but for our community as a whole. During an event in which there is a heightened consciousness of risk insurance companies and advisers are much in focus, with plenty of calls and activities from clients. There has been a jump of 20% in quotemonster usage over a couple of weeks ago, and insurers are experiencing higher levels of inquiry and application. As a sector we have a lot on our plates with getting people working effectively from home and supporting our customers. https://www.goodreturns.co.nz/article/976516526/regulation-slowing-is-fslaa-next.html
RBNZ announcement today puts a whole raft of changes on hold for a period. Are the FMA and Minister considering something similar for the wider financial services sector?
The RBNZ announcement is available at https://www.rbnz.govt.nz/news/2020/03/regulatory-relief-to-provide-headroom-for-customer-focus-and-risk-management
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.
Government announcements regarding KiwiSaver indicates continuing programme of intervention in detail in financial services.
One concept for considering the change is that large schemes of this nature always require tinkering. Most fund managers always suspected that default funds would need attention, and that fee pressure was to be expected - it has been talked about in every review, and frequently in between. The decision to force KiwiSaver managers to avoid fossil fuels pushes the private sector further and faster than government itself is prepared to go.
Taking a wider view, which encompasses the recent conduct and culture reviews of the banking and insurance sector, we now see much more frequent intervention from high level concepts such as 'culture' down to design features, such as automatic acceptance, claims payment rates, and cost.
It you missed the chance to attend the FSC Get in Shape summit or you simply wish to watch recaps of the event, you can do so now.
29 Nov 2019 – RBNZ & FMA announced that the Council of Financial Regulators had set its priorities for the 2020 year, incorporating:
- Climate change
- Financial inclusion and consumer engagement
- Conduct and governance
- Residential Property Insurance
- Credit Unions
- Review of the Regulatory System Charter
Climate change earns its place at the top of the list mainly due to the risks general insurers and banks face. For general insurers the risks are more obvious: losses due to extreme weather conditions are already a factor considered by most. That they are increasing now means that regulators are seeking those risks to be quantified and stated as a starting point for assessing systemic risk and portfolio issues.
Then exclude the points on residential property insurance and credit unions and you have a good guide to the issues that may inspire thematic reviews, or inform things like the development of license conditions for FAPs.
Consumer engagement is particularly relevant to advice process, but will also turn up as a strong theme in conduct of financial institutions. A more engaged and informed customer is more likely to make better use of their product, complain when things go wrong, and understand disclosures.
Goodreturns has a piece covering research on why there are fewer women in financial advice. They quote the percentage of female advisers as 23.5% applies only to investment advice, and can be reasonably easily verified with reference to FMA information on AFAs. I am pleased to say the in the area of insurance advice, female participation is quite a bit higher - although no easy reference source exists, the audience at Quotemonster workshops is indicative. I was struck by this comment, however:
"The study said the industry could help by normalising part-time work opportunities"
But many of the changes to the financial advice regime will make part-time work harder. In Australia advisers are telling me that the requirements of FASEA (much tougher than in New Zealand, and probably needlessly so) will make exactly the kind of part-time work the authors envisage impossible.
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.