[Weekly wrap] Looking for consolidation
This week we saw signs of consolidation in the financial adviser industry; also, new research revealed big implications for income investment while life insurance figures showed a worrying decline.
Thursday, May 17th 2012, 10:19PM
by Niko Kloeten
In what is likely to become a common theme in the financial adviser industry, Macquarie Private Wealth New Zealand has indicated its plans to bring advisers from smaller firms aboard as it looks to increase its adviser force from 40 to 70-odd over the next couple of years.
Consolidation following regulatory changes tends to happen early on, as after a few years everyone is used to the new environment and operates with it as little more than background noise. In that sense it is probably a smart move by Macquarie to make attractive offers to struggling advisers now, before either they learn to cope with the new regime or they get approached by another of the big boys.
Also this week, international market commentator Jonathan Pain told Good Returns that the Western "prism" through which the news media view the world (Good Returns excepted of course) means that countries like Indonesia, which has a large, young population, rapidly growing economy and expanding middle class, only make the news when a bomb goes off or an earthquake/tsunami strikes.
An interesting point he made was that getting exposure to these rapidly-growing emerging market economies doesn't require direct investment in them; in fact, it is often a better bet to invest in companies from "submerging" nations such as the US that have exposure to these markets such as Apple.
His comment that nobody at any of the conferences he is spoken at in Australasia has ever seen a positive news story about Indonesia is particularly relevant given our relatively close proximity to it (it is Australia's neighbour). Financial advisers have a key role to play in educating clients about how supposedly these "risky" countries are less risky than many developed ones burdened with debt.
Speaking of debt, new research from Harbour Asset Management suggests that bonds aren't quite the investment they were a few years ago due to reduced yields, while stock market yields have actually increased. Part of this is due to the risk premium attached to equities but a lot of it has to do with interest rates being artificially lowered by central banks.
This highlights one of the big problems with this approach: while mortgage holders benefit, income investors get pushed into potentiall riskier products to try and make the same return. According to the research author Craig Stent, the composition of a "balanced" portfolio may have to be revisited.
Advisers will have already had to discuss this issue with clients, particularly those who are retired or focused on income for other reasons.
Meanwhile, new figures from the Financial Services Council showed new business in life insurance written by its members fell sharply in most product categories in the March quarter.
Although one comment suggested this was a normal occurence due to the traditional January drop-off (who thinks of life insurance while relaxing on the beach), the numbers were down from the same period last year, while lapses and surrenders exceeded new business for the second successive quarter.
FSC boss Peter Neilson says the drop-off could be due to the recession, but whatever the reason these figures should be of concern not just for the industry but for the government; history has shown that when large numbers of people are underinsured taxpayers tend to pick up the tab. Those taxpayers who do have insurance effectively end up paying twice.
In other insurance news, Asteron has increased commission for advisers across its entire disability income products range and its mortgage repayment cover. According to the company, the move was driven by advisers who wanted a simpler offer as well as competitive rates.
This highlights that insurance companies have to compete not only for customers but for advisers as well. Complaining about "high" commissions and placing blame on insurance companies ignores the fact that advisers need to earn a living, and given clients tend to be unwilling to pay for upfront risk advice commission is the only way to keep them fed.
And although the overall numbers are down in the life insurance industry, Partners Life continues to increase its market share. However, it has experienced in drop in its share of new business relative to the same quarter last year, which is probably to be expected given the hectic pace at which it has expanded so far.
Do you want to become a life insurance adviser? Well, good luck finding a job at one of the country's big life insurance firms - Russell Hutchinson looked through a number of the big players' websites and found nothing relevant to recruitment of advisers. He examined why this might be here.
And finally, OPI Pacific Finance is the latest in a long list of finance companies to provide the important lesson that a guarantee is only worth the person or company providing it. In OPI's case, this isn't very much.
Niko Kloeten can be contacted at firstname.lastname@example.org
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