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FSC policy replacement guidelines 'irrelevant'

A form produced by the Financial Services Council for advisers to use when clients want to replace their risk policies is irrelevant, says the president of the Institute of Financial Advisers.

Wednesday, May 8th 2013, 6:00AM 15 Comments

by Susan Edmunds

The FSC, which represents life insurance, superannuation and managed fund providers, has produced a brochure and form for advisers to give to clients who are thinking about replacing risk products.

In 2010, the Investment, Savings and Insurance Association drafted some similar guidelines but FSC chief executive Peter Neilson said they never gained traction, partly out of fears that they were anti-competitive and partly because of the looming regulatory overhaul.

“Now we have regulations and the FMA has made it clear that it expects advisers to give holistic, useful advice and act in the best interests of clients. But how do you establish that unless there is a process for doing so?’

The FSC’s form says it should be whenever an existing Term Life, Disability, Trauma, and/or Income Protection policy or benefit is to be replaced, exchanged or converted.

It asks whether the adviser will receive something from the insurer in return for the new contract, for the reasons why the policy is being replaced and for details of all the risks covered by the client’s existing policy that will not be covered by the new one.

Clients are told that advisers should take into account their personal situation, medical conditions, ability to cover stand-down periods, the cost of maintaining a policy and the financial strength rating of the insurers involved.

Neilson said an earlier draft of the documents recommended that before a client changed to a new agreement, they give their existing provider a chance to make a counter-offer. “We took that out because it could be anti-competitive… obviously at that stage there is already some issue with the previous provider.”

He said the form was not compulsory for FSC members. “If it is useful, more people will use it. If not, most people will have to develop something similar.”

IFA president Nigel Tate said there were some issues with the wording of the form but the bigger problem was that it was totally irrelevant for authorised financial advisers, who had to meet high regulatory standards, anyway.

He said if the FSC could not get all its members to adopt the form, "why on Earth would practitioners use it? Everything in here is covered by regulation. It just adds paperwork and no value.”

Tate said the only benefit would be that the form required registered, not authorised, financial advisers to put their recommendations in writing.

But he said until customers who were replacing their policies with those offered by their banks were also regularly touting similar forms, it was pointless. “It’s a good way to enhance the credibility of the FSC with the Government but it doesn’t do a great deal for the consumer.”

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Comments from our readers

On 8 May 2013 at 1:59 pm Amused said:
"Tate said the only benefit would be that the form required registered, not authorised, financial advisers to put their recommendations in writing".

Given his past comments about the professionalism of registered vs. authorised financial advisers I truly hope that Mr Tate is not implying that registered advisers are more likely to replace existing policies with new ones without a good reason?

For the record Nigel the vast majority of insurance advisers in New Zealand have wisely opted to be registered and we won't be changing our minds from that decision. Deal with it and move on please.
On 9 May 2013 at 10:25 am btw said:
@ Amused: you haven't "opted to be registered". You, along with every other person loosely connected to financial services in this country, were required by law to be registered. And stop affording any credibility to registration. Its like a dog license. I know - I've got one!
On 9 May 2013 at 11:14 am Stanley Running said:
Amused I think that you will find no one actually gives a brazoo about your stand to stay registered only, nor the divisive attempt at us v them. All anyone actually cares about is higher standards in the industry as a whole, this is probably all Tate wants.
On 9 May 2013 at 2:31 pm SW said:
..Unless of course you work for a QFE. Then you do not even have to be registered.Kind of like an unregistered dog but has a micro chip.
On 9 May 2013 at 3:36 pm Amused said:
@ btw & Stanley Running: I like every other insurance or mortgage adviser in NZ had to make a decision whether to become either a registered or authorised financial adviser. The alternative open to us was to exit the industry and many people have chosen to do from all accounts. RFAs been seen as less professional or "credible" than our peers who have opted to become authorised is a belief that needs to be stamped out. It’s a personal choice whether an insurance or mortgage adviser ultimately elects to become authorised and it does not automatically equate to any increased professionalism or level of integrity (which Tate seems to be alluding to)

My own experience of dealing with an authorised financial adviser was that they approached me seeking cover last year and then later wanted me to share the insurer’s upfront commission with them once the policy was put in force. If I didn't agree to this they would then approach another adviser who would. I told him to go see another adviser. So gents if that’s the kind of higher “standards” we can expect from someone who is an AFA I’m content to stick with my dog licence thank you.
On 10 May 2013 at 9:05 am btw said:
@ Amused: The reality is that with the FAA and the FSPA government enacted the most ineptly conceptualised and drafted legislation in my 25 yrs of practise. This not only created enormous confusion and misinformation (with agents and investors affording false credibility to "licensed" operations, e.g. David Ross (yes, he was an AFA), but simultaneously lowered standards across the industry (whether all participants were cogniscent of that or not). Good luck.
On 10 May 2013 at 10:59 am Paul Carrick said:
How did this get to AFA V Registered,
As an adviser , I know many advisers who are "Registered advisers that are doing a great job.
What this should really focus on is adopting a common practice for all people who offer insurance and change peoples policies.
I thought this issue was already covered off on applications across all the providers, in that the client signs a replacement advice form.
I would concur with Nigel in that another form and brochure is just more client overload and may not serve much purpose for those who already have a process.
Fair to say the above comments wouldn't help consumers feel great about the industry that is meant to serve them.
maybe everyone should think about this ..
On 10 May 2013 at 12:56 pm Stan Running said:
@Amused, do you think the AFA became aware of an obscene 220% upfront, something that doesn't have to be disclosed to a client? Maybe a look at this would raise a lot of standards and also get rid of churning.
On 10 May 2013 at 2:51 pm Amused said:
@ Stan Running, I don't quite get what you are driving at sorry Stan. Advisers don't control what insurance companies decide to pay for new policies put in force. Do you seriously think the AFA asking me to share my upfront commission with him isn't a concern??? It sure as heck was a concern to the insurer in question.

Look, this is not a "dig" at AFAs. We are getting off topic as Paul says above. I've just used this example to illustrate that good ethics and professionalism don't automatically happen just because an adviser happens to be an AFA. This extends to the subject of replacement business.
On 10 May 2013 at 3:42 pm w k said:
What high standards? 1)High educational standards, 2)high service level standards, 3)high ethical standards or 4)high standard of advice? They are quite different.
Item 1 tell how much studies one has gone through.
Item 2 tell how well one treats/contact/respond to his clients.
Item 3 tells how honest and professional one is in his practice.
Item 4 tells how knowledgeable is one in the product he sells/promotes and is able to apply them according to the needs of his clients.

Those are my understanding. I stand corrected, as I have only been in the industry for 30 years.

What does the regulators/authorities actually want? Which of the above issue/s do they want to address and how does the current regulation address those issue/s? Any ideas?
On 11 May 2013 at 8:14 am RWAW said:
I have a client of 3 years with company A paying $500 p/mth for Shareholder Protection cover incl. TPD. They receive a renewal from Company A with a substantial premium increase and call me to review the policy. I find I can save them $70 p/mth and give them a better Strategy rated TPD product in the process. What the hell do i do? I'm supposed to act in my clients best interests aren't I? Yet insurance companies and their bosses continue to bring up 'churn' as a serious problem in our industry. What they seem to want is clients for life who they can treat however they wish and charge whatever they want. It should be noted that one of the biggest noise makers in this arena is more than happy for their bank staff to replace perfectly good products for their inferior products without any thought on the impacts to the clients of doing so! Would be interested in others comments re this. Thanks
On 13 May 2013 at 2:57 pm Mortgage Broker since 1999 said:
I'm a RFA and have done 90% of my AFA papers but don't want to become an AFA.
3 years ago I sold a couple Kiwisaver, and 2 years later an AFA told them they should go with him and change their KiwiSaver to another provider.
The husband stayed with me and the wife went with the AFA, they were both only putting in $100 per month.
This AFA held agencies with both providers, so he didn't need to transfer them to another provider, how ever he transferred them to the other fund because got paid 80% more trail with the new provider.
The couple came to me very concerned because the wife had $1,500 less in her Kiwisaver balance than the husband.
So much for getting better advice from an AFA.
In my area 70% of AFAs are working under a QFE, so they are not giving clients the best products on the market for their clients, but only the products they sell.
Just not right !!!
On 13 May 2013 at 3:11 pm Anon said:
RWAW, will you be taking full upfront commission for the replacement policy?
On 15 May 2013 at 6:22 pm RWAW said:
Yes
On 17 May 2013 at 12:05 pm MJS said:
RWAW - good on you. The work involved in re-underwriting is as onerous and time consuming as the first time around. As well, you have the increased responsibility of ENSURING beyond the shadow of a doubt that the terms on the new policy are at least as good as the replaced one.

I see this all the time from one particular company. The product was the best at the time, and the price acceptable, but 3 or 4 years later, the price is well out-of-whack and the benefit definitions no longer 'market leading'. What else CAN you do on review? Whether the client was complaining about the cost or not, a REVIEW should include a new survey of the market - on both terms/definitions and cost.

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