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Get basics right: Ballantyne

Naomi Ballantyne, Managing Director of Partners Life, talks about adviser businesses and getting them ready for the future, plus an update on their upcoming roadshow.

Wednesday, August 9th 2017, 3:09PM

Financial advisers have got a big regulation change coming up and they’ve got to get their businesses ready for licensing. How well prepared do you think they are?

I think it’s quite difficult to be prepared, because a lot of the detail is still completely unknown.

But you can’t sit there and do nothing, can you?

You can’t, you’re right. I think that the detail is not necessarily the thing that will get you a licence, which is something that a lot of them are not really thinking through. With any regulated industry – we’re regulated, and relatively recently I would have to say – there are some things that regulators look at to license people in the industry to determine whether they are an entity or a person that deserves a licence. That is much wider than the detail of the product that you sell or the way in which you do your job. I think that there’s quite a lot that people can do now.

What sort of things should a risk adviser be thinking about?

There’s a couple of really basic things that any regulator is looking for. One is if you are a financially viable business. That’s number one.

You’d hope that most insurance advisers are?

Absolutely, but you need to have accounts that demonstrate that. You need to be able to demonstrate that you have a business where you can take a set of accounts to show someone and say, “Look, here’s my profit and loss over the last x amount of years”. That’s actually going to be quite an interesting challenge.

Isn’t that a basic thing that you do when running a business?

It should be, but being financially viable is not just having a set of accounts. It’s having a business that you can see is going to be a robust going concern.

What other things should they be thinking about?

I think fit and proper is interesting. Some brokers’ practices, when it’s only you, make it relatively easy to demonstrate whether you’re fit and proper (maybe!) if you haven’t had a criminal conviction and you haven’t been charged with fraud or run away with people’s money etc. But if you’re responsible for other people and have a slightly bigger business – when you have a Board of Directors, for example – then it’s really important that the Board of Directors actually has the wherewithal and capability to take the liability that directors take and that it’s driving the business forward. There’s a reason for fit and proper directors to be on the board of a financial services organisation - it adds value for the consumer.

How about their qualifications and professional development? Is that something else?

Absolutely it is. I think there’s an argument in saying that we don’t know the qualifications that are going to be required, but I can absolutely guarantee you that there are no qualifications that would be wasted, because learning is the really important part. Even if you don’t know in the end what the qualification is going to be, doing some study now that is in line with the industry you’re in won’t be wasted, and might help with being able to demonstrate you’re a fit and proper person.

Do you think many insurance advisers have tertiary qualifications or Level 5 certificates?

Not many. Those are two different qualifications and I would say there’s probably a bigger group of younger ones that have tertiary qualifications, in any case. In terms of Level 5, I don’t think that there’s many, but there’s no reason why you can’t do that and start down that path now.

Would you say they need to think about whether they want to be an adviser, what licence entity they want to belong to, and also what the groups are going to do around their members?

Yeah, and I think that’s a really difficult question for a lot of them as well, because you don’t know how much it’s going to cost for an individual to get a licence. You may think that you want to be licensed on your own and you would have to say that, logically, getting a licence for yourself would be a lot easier than getting a licence where you have to demonstrate that you can control other people. But, if the only way the cost of that can be borne is with scale, then that cuts that conversation out completely. 

One thing which is clear is that it’s going to get much more expensive belonging to the dealer/aggregation groups. Those groups can’t just be aggregating for commission any more, they have to be delivering really good services. What are your views on a shake-up there?

I agree with you. I guess they have a choice: they can become licensed entities, in which case they’re going to have to be selective about the people…

But if they do that, a lot of people who are members won’t be any longer, will they?

Well, that’s what I’m saying. They’ll probably have to be quite selective, because you take liability on board for the people that you have under your licence. You’ve got to be comfortable that liability is not going to swamp you, or that you can demonstrate the wherewithal to fund the liability in the event that there’s an issue. If any of them decide to become licensed entities, they’ll have to get smaller before they get bigger. I also think that they’ll have to invest quite a lot of money into systems and processes to control the outcomes for the consumers that they are now liable for, in terms of the advice. If they choose not to become licensed entities, then they choose to be service providers to licensed entities. They’re going to have to really consolidate on that service. It stops being about members and becomes a service that’s offered to the industry for a fee.

Anything else in that space they should be thinking about?

Documenting what you do. Even if you think what you do will change with licensing, it’s much easier to change it and redocument it when you already know what it is. A lot of people think they have a system or process - what they mean is that they do something similar all the time. What they don’t have is, “If someone was to come into my business, I could demonstrate to them a document that says that every time I find a client I do this. This is how I use the system and processes. This is how I deliver my advice.” Even if there wasn’t regulation, that’s the thing you have to sell. If you’re an insurance adviser at the moment, for example, and you don’t have documented processes, no-one other than another insurance adviser can buy your client base off you and all they’re buying is a client base. If you have a business where someone can come in and turn the key and run that business, then you’ve got something that is of more value, with more buyers and more competition.

I spoke to one of the banks recently and the person who ran their third-party distribution said that in the mortgage space, some of their top writers don’t even have a CRM system. How can you do that in this day and age? That can’t be sustainable?

Yeah. We have a lot of conversations around regulation forcing people to do things, but you kind of go, “Well hang on a minute, a good business looks like this anyway”. Especially one that wants to scale up. You need the shoulders or the infrastructure to build on, otherwise you just fall over. You throw volume and ultimately it falls over. Licence-ready really, if I could use another word, is running a viable business that you can demonstrate to others is a viable business. That’s a significant step towards getting licence-ready.

Are companies like yours going to step up and help these guys, or are they going to have to get off their butts and do it themselves?

I think we’ve obviously got a vested interest in having a robust advice distribution network. For me, that’s always been an independent advice distribution network, because I truly believe that clients being given a choice and having an advocate that can hold a life insurance company to account – either with its products, in terms of what it’s selling, or claim time, in terms of the decisions it’s making – is the best answer for a client. If the industry is delivering the best answer for the client, that’s good for the industry and we succeed. That’s the reason for me being so focused on independent advisers. We need a robust independent advice channel going forward. We will support people who are building the infrastructure to enable that to happen.

Is there any update on where we’re going with replacement business or if the FMA is going to come out with guidelines?

I hope so. I’ve spent a lot of time and effort with the officials talking through the risks to the consumer of replacement business, but also the value to the consumer in replacement business, in terms of trying to identify what the problem truly is. You hear a lot of people talking about churn and they’re often life companies that are losing business. Their argument is, “It’s not fair, I’ve paid commission for that etc.” and I go, “But if your product is no good, that’s your fault and the client should be moved.” There’s an awful lot of advisers who move clients when it’s not in the client’s best interests.

Are there a lot who do that?

I think there are. The really interesting thing, and the thing I’ve struggled with most in all my career, is when people talk about churn; the FMA does it too, they go, “That adviser is rolling their book from one company to another”, and there’s very little of that. For example, we have a lot of advisers who give us 100%, or close to 100%, of their business because they believe that for most clients, we’re the right answer. Our product ratings support that. But when they come across a client that someone else sold for us, they may sell that client something else and roll them out. I don’t know how you live with yourself if you do that or how you justify that. If you’ve sold all these people this product, but everyone you find that isn’t one of yours that’s in that product, you move. It won’t only be us, it will be other companies that also have that issue. That’s the problem. Replacement business in itself is not the problem, it’s the reason for the replacement business and the risk to the client in doing that. I hope we come out with some guidelines that say, “Here’s the process if you’re going to give replacement advice.” The process will cut out the opportunistic people who are just rolling it because it’s too much like hard work and too much, effectively, liability on their part to do it. It should be paid commission if you do the right job, but then you should do the right job. I’ve always been about the process. We’ve got an advice process and we need a replacement process that’s even more robust, because there’s more to lose.

Do you think the officials and regulators have got their heads around the issue?

I’ve had some really engaging conversations with them, but it’s been some time since then. I don’t know what’s progressed since then to understand whether they’ve tackled that point. There’ll be a lot of vested interest, because if you’ve got a distribution channel that doesn’t want to do that work, because that’s hard and expensive, then maybe you’d be arguing against that. I don’t know who’s winning that argument.

You’ve got a roadshow coming up soon. What’s that about?

The roadshow is trying to tackle the conversion rate from all the work that an adviser does to get an application through to a life insurance company, then all the work that we do to try and get it issued. About 25-30% of those cases don’t issue, so it’s a lot of work and a lot of clients that don’t get cover, when clearly the adviser had already done the work to convince them to take it. This roadshow is about trying to educate advisers and give them some tools and ideas for how they might be able to get that stubborn 25-30% of clients across the line.

Will that make a big difference to everyone’s business?

Yeah, because you don’t have to sell one more policy and you make 25% more. And 25% more clients get the cover that they need. That’s got to be a good thing.

Tags: banks Churn financial advisers FMA GRTV Insurance Advisers Life insurance Naomi Ballantyne Partners Life qualifications regulation risk

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