I predicted back in April that there was likely to be a few changes with the management at ING and that their style would change a little.

Well I feel I can say, this week, that I was right.

As reported by Good Returns this week ING’s chief investment officer, Rebecca Thomas, has resigned. We also understand that Mark Ford, the general manager of the wholesale business, has recently left the company too.

What has surprised me somewhat is the reaction to Thomas’s departure.

Good Returns approached ING on Wednesday about the story and they confirmed what we had been told the day before, plus clarified a rumour going round the market that all the investment team had packed their bags. (They are still there).

However, at the end of the day an email came through with some interesting comments. Normally when someone like this leaves the reaction is something like: “Thanks for all the good work you’ve done, sad to see you leave and best of luck. We have good systems and processes in place so investors won’t be affected. Blah, blah.”

Not this week though.

You can read the full release here – and make your own view. The comments which struck me was this:

“We were one of New Zealand’s leading investment managers long before Rebecca’s arrival, and will continue to be well after she’s gone.”

Maybe ING were just trying to play the departure down and over did it. I don’t know. But I can say after years of observing these sort of events this was different.

And of course we don’t like it when a company gives a story we have got to other publishers…but that will be the subject of another Blog in the future!

One of the great things about the Internet is that you never lose touch with people, no matter where they are. The other day the former AIA boss in New Zealand, David Whyte, sent me this in response to an article on the site:

Philip,

Greetings from sunny Melbourne, and from the land of considerable adviser regulation.

I’d like to submit a couple of points of order if I may on your article on the above mentioned items quoting my ex-colleague Michael Hewes and AIA’s practice of not offering incentive award programmes for advisers in NZ.

This was a stance I adopted when I was in charge of AIA New Zealand based firstly on the lack of funds to offer anything worthwhile to advisers, and secondly on the lack of any empirical evidence that AIA would receive commensurately more business as a result of providing such incentives.

In Asia and elsewhere in the AIG empire the organisation is a very heavy user of travel incentive award schemes for their agents. While there may be certain territories which have outlawed such incentive programmes, it is nevertheless the case that AIA in New Zealand is the exception rather than the rule.

The industry’s annual spend on such incentives is certainly significant in dollar terms, but is limited to no more that 1% to 1.5% of the total commission bill. Therefore any saving achieved by abandoning such incentives would be pretty insignificant. The suggestion that any company would pass on the saving to their policyholders is a little optimistic.

Whatever the appetite or state of preparation advisers may display, full mandatory disclosure is inevitable. Having operated as an authorised IFA in the UK with compulsory disclosure, experience indicates that good advisers need not fear this aspect of regulation. Providing an adviser is seeking to develop a genuine long-term client relationship, and not just pursuing the old-fashioned ‘product flogging’ exercises which helped to create the need for the Australian Financial Services Reform Act, then disclosure of the cost of access is an important part of building the trust needed to establish a proper relationship.

Indeed, the cost of accessing recommended products should be a relatively minor part of the identifiable value of the adviser/client relationship, and I have no doubt that there is a significant number of NZ based advisers who have already worked this out, as have many of their Australian counterparts.

Far from presenting objections to disclosure, or trying to find clever ways of avoiding same, advisers should be pressing the product manufacturers to automate the compensation explanations in their fact find, needs analysis, and product illustration software suites.

The MED discussion document on adviser regulation is a useful start, but a little frustrating.

Why? Well it seems many people wanted a roadmap which they could discuss – rather they have a zillion questions to answer.

The challenge is to isolate the direction this thing is going and decide how different it is from the task force recommendations.
What has caught my interest is this theme from the associations that they don’t like the idea of different tiers of advisers (Information only/execution, Product marketer, High level intermediary).

They see it as a threat to their existence.

Well let me say, I argued at the taskforce stage that this was an issue as there could be “boundary creep” (ie: advisers could get themselves classified into less onerous catergories).

No one else said anything. If it was an issue then why didn’t we hear about it earlier?

My guess is that some associations see this as a real threat to their membership. Tied agents may be product marketers therefore they won’t need to join an Approved Professional Body. Added to this associations are worried big groups (eg: banks) setting up their own APBs. Hence less members for associations.

No wonder they are fighting!

My challenge to the associations is that they need to show value to their membership – in some cases I don’t believe that currently exists.

What worries me is that some of the arguments put forward are more in self-interest rather than the best interests of the advisory industry.

I would love to hear your thoughts on this topic. Please email them through to me at Blog@goodreturns.co.nz

Dave McMillan – GM of the PAA responds…

Hi Phil

Firstly congratulations on keeping this subject under debate. In my view the tiered system is the weakest part of the framework outlined in the discussion document. I think we agree on that point but we may disagree on the reasons why. The PAA’s concern with the tiered system is primarily focused on the distortions in the distribution landscape that this type of approach is likely to encourage. The discussion paper proposes one of the objectives of the co-regulatory regime is the creation of a competitive market which would presumably provide greater value for consumers. Unfortunately the opposite of this may occur if the three tiered system is implemented.

1. The tiered system as it currently stands appears to assume that there is no advice component on a product sold in by a sole representative of a supplier. Clearly this is incorrect as advice must still be given, amongst other things regarding type, amount, and period of cover. If implemented the tiered system will allow incompetent advice to be tolerated provided an adviser has a sole relationship with a supplier.
2. At present we have a competitive market for the distribution of financial services in New Zealand. Most advisers have multiple agencies which means in practice that suppliers have to compete to win the business of an adviser. This is good for consumers because it ensures that products are competitive and under continual development. The tiered system would mean a partial return to the pre-deregulation days of suppliers competing by having ‘dedicated’ sales forces selling semi competitive products and consumers being limited by choice – hardly a development that would promote greater competition and benefits for consumers.
3. The proposed tiered system would encourage advisers who did not want to, or could not, pass a competence test to simply have an agency with one supplier and thus avoid the need to comply with most of the proposed regulations. The scope for some advisers to avoid the reach of regulation makes a nonsense of the proposed need for regulation to be introduced in the first place. You can not promote greater confidence in the advice given by advisers when only some of them have to comply with regulations.

As an organisation, the PAA does not see a threat to our membership base due to the proposed regulation. We do however see a threat to advisers if the three tiered system is enacted in its proposed form. I would imagine some suppliers would be rubbing their hands together gleefully at the three tiered structure as it would place a lot more power back in their hands. Our view is that the consumer, and not the supplier should have the power and that this can best be delivered by ensuring that the market is competitive and distortion free.

Also Russell Hutchinson has another view over here

Naomi Ballantyne’s idea that regulating commissions paid to insurance advisers has garnered a range of view – as one could expect.

I’d have to say I have been sitting on the fence with this one a little. It is easy to see Naomi’s view, however the idea seems an anathema to free market enterprise.

What I’ve done here is publish some of the responses we have had to the story. Have a read and if you would like to add something send an email to blog@goodreturns.co.nz

An open-minded view
The idea has merit, and deserves some animated debate.

There are enough potential conflicts of interest that turn up on an adviser’s radar screen without continuing the existing situation that encourages skewing advice towards products or product suppliers that offer better adviser remuneration (including soft dollars) than other carriers.

Some aspects of commission that merit further debate are:

• Should full commission be paid on replacement business?
• A commission cap (in dollar terms) on large premium cases. In some instances the amount of commission paid on large cases is way out of line with the effort involved in completing the case. A way around this may be to offer far less up front and more as a trail;
• Aligning maximum commissions and bonus levels on similar product lines across all carriers.

Advisers have special skills
I believe that market forces should dictate commission structures and they should not be regulated. It is also important to avoid creating a barrier of entry for new advisers wanting to come into our profession.

It must be remembered that the life insurance broker is a special breed; the majority of the population simply do not have the attributes to run a successful practice. They either lack the diverse range of skills required, or they do not have the stomach for the emotional highs and lows that will be encountered, particularly in their early years in this profession.

A personal view from someone inside a life company
I must agree with Naomi in a personal capacity certainly from the point of view that by doing this we as an industry will then focus our attentions more on attracting business by developing better products and hence as a spin off have the interests of the policyholders at heart 100%. We will shift from wooing some advisers by paying better commissions to getting support because we have better products.

The industry’s R&D areas will now need to really get their acts together as a result. Isn’t that a great competitive environment to work in?

F&G Comparison
Our practice includes a substantial fire and general book. All F&G insurers pay pretty much the same commission as one another and have done for years. Presumably they decided among themselves that this was what they would do in the interests of promoting an orderly market.

I can’t see a problem with the life companies doing the same thing, as long as it wasn’t done in such a way that advisers were disadvantaged.

Better to come from the companies voluntarily though, rather than to have it imposed upon them by regulation.

Absolute Bollocks
In this politically correct governance environment encouraged by our beloved leader (Helen) all sense is lost if you pause long enough to think not about how much you can do your client for…rather than how much you can do for them.

If it were deemed legally responsible to declare your own capital gain from the transaction, to be fair, one would have to include every other financial transaction ever completed in any day. Imagine having a certified declaration for:

Why pick on the financial services industry? We all know the mark up on some retail goods is alarming, but if we choose to buy to satisfy our need then we pay the price. If we do not like the price we either do not buy at all (regulation enough) or we shop elsewhere.