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Report tore apart FSC

A disclaimer on a report issued today by the Financial Services Council shows how divisive it is.

Monday, November 23rd 2015, 5:00AM 3 Comments

by Susan Edmunds

The Melville Jessup Weaver Review of Retail Life Insurance Advice report has been released by the Financial Services Council.

The tab for the report was picked up by FSC members but many have been angered by its findings. Asteron Life, AIA and Partners Life have tendered their resignations from the FSC because of it.

The report says: “This is an independent report prepared by Melville Jessup Weaver. The report was commissioned by the Financial Services Council and funded by the FSC and its members. Some FSC members believe there are matters covered in the report that are outside the scope as approved by the funders. The report’s findings and recommendations are MJW’s alone and are not necessarily the views of either the FSC or its members. This should be made clear in any reference to the report.”

It had been suggested the report would form part of the FSC’s submission to the Financial Advisers Act review but chief executive Peter Neilson said that would not be the case.

Partners Life managing director Naomi Ballantyne said her firm’s membership of the FSC was premised on the organisation’s role being to raise awareness of and to promote the benefit that the Financial Services industry delivers to New Zealand.

“Of particular importance to Partners Life was the agreement by FSC members that the council would avoid undertaking any projects relating to distribution models in recognition of the particularly competitive nature of the various distribution models employed across the membership base. Instead, the position of the FSC as a council would be that consumer access to a wide range of distribution choices, would be of the highest value.”

She said Partners’ agreement to participate in funding the report was on the basis the report would not simply be a New Zealand version of Australia’s Trowbridge report, but instead would be a genuine attempt to understand the market, would be impartial; would be based on in-depth consultation; would be a detailed analysis of actual data and the scope would cover the way remuneration conflicts in the advice process might negatively impact customers and how those could be eliminated without significantly reducing consumer access to the widest range of distribution options.

“During the consultation process it became very clear to Partners Life that the MJW team came to the meetings with a pronounced bias against independent advisers and rather than genuinely ‘consulting’ with the industry, were simply trying to ‘sell’ their opinion. Our experience of the process was that any opinion we expressed or evidence we provided to them that did not support their predetermined opinion was immediately dismissed. Partners Life was not the only FSC member company to have this experience, as a number of members shared similar experiences at FSC meetings,” she said.

Ballantyne said when the initial draft of the report was eventually provided to the FSC, it was clear that the scope of the report was almost exclusively focussed on advisers and their commission.

"Not only was this contrary to the agreed scope of the report, there was absolutely no balance in the report relating to the value that independent advice and advocacy delivers to consumers nor the value to insurers of having commission costs that are 100% variable based on new business volumes instead of incurring fixed marketing costs, irrespective of new business volumes. The report also did not differentiate between the commissions received by advisers, and their actual net remuneration after taking into account their marketing costs. The report also did not analyse the impact of the recommendations made on the size of the IFA distribution channel and, by default, the impact to insurers of significantly reduced distribution capacity and the impact to consumers of reduced choice," she said.

Ballantyne said there was little attention paid to conflicts across non-adviser channels.

Partners provided MJW with a document restating the scope of the report FSC agreed to fund and requesting it be amended.

“When the final draft of the report was received by the FSC it was clear that very little had been amended by MJW and as a result the report remained out of scope, biased, and incorrect. Partners Life’s position was that the FSC should therefore not agree to report being released with any implied endorsement from the FSC, given the number of FSC member companies who distributed through IFA channels who would be seen to be indirectly attacking that very distribution channel, by way of their FSC membership.”

Partners volunteered to draft a disclaimer that would be included on the report to achieve that but other members of the FSC did not agree.

She said Partners’ resignation was a result of this disagreement.

Partners Life’s proposed disclaimer:

The Financial Services Council of New Zealand (FSC) represents member companies across the Savings, Insurance and Investment industries.

Financial Services Council members help New Zealanders achieve long term financial security by providing products and services which build wealth, prepare them for retirement and provide financial protection against unexpected health events.

With the installation of new regulatory bodies over the past five years the Life Insurance industry in particular, is currently undergoing a significant review of its practices and processes as they relate to New Zealand’s notable underinsurance gap.

Questions relating to the consumer and their confidence in, awareness of, and access to information and advice in respect of Life Insurance products are being asked.

The FSC member companies are very proud of the role they have played for many years, and continue to play, in the protection of the financial position of their customers when health events unexpectedly interrupt their lives.

While there has been no consumer complaint pressure on the industry for many years, the FSC has acknowledged that remuneration structures across all of the various distribution channels could create opportunities for potential conflicts of interest to arise between the remuneration requirements of the salesperson/adviser and the best interests of the consumer.  The FSC is particularly concerned about such conflicts where a consumer is being advised/encouraged to replace existing policies, given the additional risks to the consumer in doing so.

As a result the FSC in addition to some of its member companies, agreed to an approach from Melville Jessup Weaver (MJW) to fund an independent report into the way remuneration conflicts in the advice process may negatively impact consumers, and how those negative impacts could be eliminated without significantly reducing consumer access to the widest range of distribution options possible i.e. without worsening the existing underinsurance gap.

As an independent report FSC members acknowledged that the views and recommendations made in the report would not and could not, be reflective of the widely differing views of individual FSC member companies – all of whom employ their own unique business models and rely of their own research and expertise in reaching their own conclusions.

Notwithstanding this however, it is the collective view of FSC members that the MJW report has not been prepared in keeping with the scope agreed to by the FSC.

The focus of the report and the recommendations made in the report demonstrate a particular bias against the RFA distribution channel, without sufficient evidence to support this bias. In addition there is insufficient analysis of the impact that the recommendations made will have on the ability for consumers to access independent advice; to the fixed costs of the industry if variable commissions are no longer sufficient to fully fund marketing and lead generation costs; or to the cost of life insurance products to consumers if distribution competition is significantly reduced as a result of the recommendations.

As the report does not fall within the scope agreed to by the FSC, nor does it demonstrate the level of impartiality and diligence that the FSC would expect of such a report, the FSC cannot and does not agree with or endorse the MJW report.


What the MJW report recommended. Plus Minister's response

Partners, OnePath and Asteron have their say

Blog: Philip Macalister scores the report a D

What FSC members wanted

Advisers say not fair

 DOWNLOAD Full report here

Tags: financial advisers FSC Life insurance MJW Report Partners Life

« Advisers replacing policies are doing their jobsReport slams life insurance conflicts of interest »

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Comments from our readers

On 23 November 2015 at 12:47 pm Majella said:
What???? From the Partner's Disclaimer,

"As a result the FSC in addition to some of its member companies, agreed to an approach from Melville Jessup Weaver (MJW) to fund an independent report into the way remuneration conflicts in the advice process may negatively impact consumers, and how those negative impacts could be eliminated without significantly reducing consumer access to the widest range of distribution options possible i.e. without worsening the existing underinsurance gap..."

What??? So, MJW APPROACHED the FSC offering this Report? They TOUTED it...? And then, they didn't even stick to the spiel on which they 'sold' this bill of goods to the FSC?

I say, don't pay the clowns!
On 23 November 2015 at 1:07 pm Majella said:
Recommendation from the Report:
"the payment of the commission is limited to the first $5,000 of premium (per life insured)."

Huh! Easy fix there, when the premium is higher than that - use two or more companies for different benefits (which happens from time to time now, of course). See? Already, "unintended consequences" rear their ugly heads. In many cases, the Consumer will get a mix of product quality...
On 24 November 2015 at 1:13 pm RiskAdviser said:
What part of unintended consequences do people not understand? As soon as you meddle, someone is going to put an oar in and do something to gain an advantage.

We are humans and we're programmed to seek the highest return for the least effort. Set the incentives for the behaviour desired, then you might get what you're looking for. Any half baked 1st year psychologist can tell you that! Or better still a parent with small children!

Yes there's large numbers involved and it is associated with money, it doesn't make it rocket science, actually given the rhetoric in the last 6 months, flying to the moon might have been a simpler exercise.

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