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What the FMA will do next

The Financial Markets Authority has identified its target and will start to knock on the doors of advisers it is worried are churning business.

Wednesday, June 29th 2016, 3:00PM 6 Comments

by Susan Edmunds

It has today released its report into replacement business in the life insurance industry.

Looking at data from the country’s main insurers, it identified that 200 of the 1100 advisers with more than 100 active life policies on their books met the FMA’s criteria for a high estimated rate of replacement business.

That criteria was that at least 12% of an adviser’s policies lapsed and the adviser wrote at least 12% of policies as new business within one year, to least 40 lapsed in a month and the adviser wrote 40 new policies in the same month.

FMA director of regulation Liam Mason said the regulator had not made contact with any adviser that it had identified as potentially replacing worryingly large amounts of business.

But he said what the FMA had uncovered – and the potential links to upfront commissions, soft incentives such as trips and clawback periods – would guide its further information gathering and analysis work.

The FMA said it would visit advisers with high rates of replacement business to review their practices and examine whether churn was occurring.

“If we believe a financial adviser has breached their statutory duties of due care, skill, and diligence, we can take action under the Financial Advisers Act. If we believe an AFA has breached the code of professional conduct, we can refer the case to the Financial Advisers Disciplinary Committee.”

It will also give more guidance for financial advisers to help them understand how to ensure they were putting clients at the heart of what they did.

It has also developed resources for consumers to help them back better-informed decisions about life insurance.

The FMA has given its findings to the Ministry of Business, Innovation and Employment to help inform the review of the Financial Advisers Act.

The FMA could not give a timeline for its investigation of replacement business but said the work would be done in tandem with its focus on licensing entities under the Financial Markets Conduct Act.

Tags: Churn FMA

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Comments from our readers

On 6 July 2016 at 3:24 pm Common Sence said:
I hope they are knocking on the doors of the banks here . They Churn more than any adviser i know
On 6 July 2016 at 6:26 pm AFA Muggins said:
@Common Sence

No - the banks were excluded from any scrutiny. They are safe.
On 6 July 2016 at 11:02 pm blogger billy said:
No of course

FMA staff have be known to advance their careers by moving on to work for the banks

And ex commerce and justice minister Simon Power now heads Westpac Private Banking

So the politicians and FMA staff are hardly going to regulate their future employers (the banks) with anything more than a light hand.

From Elisabeth Warren in the USA

The problem of the revolving door, the movement of officials in a conflict of interest situation from government positions and into the same private sector they had previously regulated, is one of the most pernicious factors in US financial services.

It erodes the public’s trust and the revolving door compromises the public interest. We are way beyond that point, Warren said.

That's from the USA but its just the same here in NZ.

Pernicious - harmful · damaging · destructive · unhealthy · bad · evil · · malignant · cancerous · corrupting ·
On 7 July 2016 at 11:48 am Tash said:
Let me disclose I have not read the report.

Did the report identify churn by another "new" adviser. Clearly it looked at advisers churning their own book but in my view the bigger problem is an adviser coming across another advisers client and only being able to earn a commission by replacing the existing policy. Unless this is also very objectively and significantly in the client's best interests this is churn as bad as an adviser doing so with their own client.
On 7 July 2016 at 12:03 pm Tash said:
Blogger Billy. I hear your concerns but in my experience the likes of the FMA need the expertise of staff who have actually worked in the various industries, Investments, Insurance etc.

You cannot truly understand any financial services industry without having been fully immersed in all aspects of it.

Simply being able to read the governing statutes or accounting principles is not enough to impart sufficient understanding.

In my view the FMA needs more staff with actual experience - we will get better laws,regulations and decisions much quicker (efficient) and ultimately at lower costs even if they are paid more.
On 7 July 2016 at 6:48 pm w k said:
@tash: "In my view the FMA needs more staff with actual experience" i, or should i say, we, absolutely agree with you. just ask fma if they ever even bothers to interview a financial adviser who applied for a job?

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