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Rough start to the year

We've had a reasonably rough start to the year with reporting and political tub-thumping. Between the Reserve Bank report, the Australian Royal Commission report, and the governments on both side of the Tasman, it's fair to say Financial Services has had a rough time.

Monday, February 18th 2019, 9:16AM 4 Comments

by Jon-Paul Hale

Jon-Paul Hale

What has been astounding to most that I have spoken to; is the supposed focus of the reports delivered was to be on the behaviour of the institutions in financial services, and yet they seem to have been a thinly veiled cover for having a crack at financial advisers of all types.

So much for the integrity of the process!

It has been said that the Reserve Bank has gone rogue, I don't agree with that statement so much as the Reserve Bank has no jurisdiction over insurers and financial advisers, which they stated in the early part of their report. So it makes a mockery of the whole damn thing. 

I've said quite a bit on social media in the last few weeks, as I struggle to understand why the industry continues to allow those outside it to reinforce their incorrect perceptions by remaining silent.

Silence is often interpreted as guilt. Frankly, much of the industry has little to be guilty about, so stand up and say something already!

In the last week or so I've pretty much had the opposite of everything the Reserve Bank report has suggested.

We've had two claims paid by Partners Life under their specific conditions cover. A cover that is pretty unique in the market.

Funny enough, with one of them, if we hadn't advised what we advised, the client would not have received a claim with any other product provider or product structure.

With the other, it was paid last year, with the client going to his bank this last week and being told he has a crap adviser because he's paid commission. On top of that, his insurer has poor products and poor financial strength, so they should move to that bank's products because they were far better.

Long story short, that bank wouldn't insure my clients occupation, so they couldn't get close to offering the same cover and on top of that their product would not have paid the claim he had paid either.

More on this in a second.

So yes, the banks are saints, and the advisers are thieves... well if you believe the Reserve Bank report.

So you've probably picked up on a theme here already, yes, I'm talking about the Reserve Bank report. Specifically, the comments about commission, culture, and product offerings that are client focused.

First the commission thing. I recently dug into the FMA's report on soft dollar incentives. Much of the report does paint the industry in a questionable light.

However, the findings about soft dollar incentives were very interesting. Something the FMA has kept relatively quiet about while the industry gets hammered on conduct.

The facts do not back up the statements in the media and from Government.

From the report on the link below

During the review period we found:

  • 42% of products had an independent product rating.
  • 81% of sales related to products that had an independent rating.
  • Where products had a rating, sales of products with a higher rating were greater than sales of products with a lower rating.
  • There was no evidence that soft commissions affect the sales of higher- or lower-rated products.

I'll say that again for those hard of eyesight. There was no evidence that soft commissions affect the sales of higher- or lower-rated products.

This is the link to the full report. 

So if the commission and soft dollar incentives aren't causing the harm to the consumer what is?

Oh yes, that's right, it is the products and services and not the conduct of banks replacing good cover with crap cover.

Let's have a closer look at what my clients' personal banker was possibly selling from current research.

Trauma Cover:
AIA A- 88.1%
AMP A- 88.4% (closed for business now)
ASB B+ 85.5%
Asteron Life A+ 95.9%
BNZ Life D 63.8%
Cigna E 49.8%
Fidelity Life A 89.7%
MAS A- 87.1%
OnePath Life A+ 93.1%
Partners Life A 91.4%
Pinnacle Life D 63.7%
Sovereign B+ 85.5%
Westpac D 70.3%

Income Protection (Agreed Value):
AIA B+ 82.4%
AMP B+ 82.4% (closed for business now)
ANZ Bank E 27.6%
ASB B+ 80.3%
Asteron Life A+ 92.4%
BNZ Life C 70.1%
Fidelity Life A+ 90.2%
OnePath Life A+ 88.7%
Partners Life A+ 90.1%
Sovereign B+ 80.3%
State C 71.6%
Westpac E 47.2%

Information from Strategy Research January 2019. Percentage rates are a reflection of the maximum possible for the benefit in that category.

So the Reserve Bank is saying insurance products are not client focused and advised in ways that benefit the consumer.

Let's review that list again.

Of all the provider products distributed by advisers, they are rated A or B. AMP has left the building and AIA & Sovereign are yet to deliver a product refresh since their merger was announced.

For the rest, they are direct products or bank products. These are the products that need the Reserve Bank to take a shot at specifically. They are the ones causing the harm in the market, and advisers have been saying this the whole time I have been in the industry, which is nearly 20 years.

Frankly, how does the regulator put up with the Aussie banks offering E rated products to consumers? The quality level vs the premiums charged is borderline fraud when compared to what that premium can buy elsewhere.

No, I am not a fan of banks selling insurance, they do it poorly, and they leave clients with the perception of being covered as they expect when they certainly are not.

So going back to my client in the bank branch talking to the Personal Banker.

There was no needs analysis
There was no advice on levels or types of cover
There was no product comparison
There was no replacement advice
There was no analysis of my clients' medical situation
There was no research or evidence to support their statements.

So please someone explain to me how a bank can call this advice?

Secondly, under the fair trading act, we have some rules about false and misleading statements, of which there were many in this one interaction. Each of which has a hefty fine for companies if convicted, as Youi was a couple of years ago.

My own daughter's experience wasn't too dissimilar when she turned 18. Her bank ASB said to her you need to look at life cover and suggested $200k of life and trauma. She then went to mum's bank Westpac, and they suggested $300k of life and trauma.

She came to me and said you do this stuff, don't you?
Me; Yup.
Her; So what do I do?
So my first question, what are you going to do with $200 or 300k of cover?
My daughters' comment, I don't know.
What did they base this on?
I don't know.

Yes, they threw numbers at her, didn't explain what it did or why she might want it, and certainly didn't do any analysis of her personal situation.

There was no discussion on income protection, she was working and earning at this stage, and no discussion on medical either.

It was cookie cutter sales, one size fits all and like the suit on the rack, taking an average approach but not actually fitting anyone along the way.

The facts remain, as found by the FMA and known by everyone in the industry:

  • Banks cause harm to clients in the insurance space.
  • Advisers put clients into better positions with the advice they provide.
  • Commissions, soft dollars and remuneration have little to no impact on the advice given to consumers.
  • Adviser products are client and consumer-focused, the bank products are not.
  • Advisers do use analysis, research and put the client first in the majority of cases.
  • Advisers that don't research every case, generally examine the market from time to time in defining how they give advice.
  • For the majority of consumers, without special advice needs, if they are placed with Asteron Life, Fidelity Life, OnePath Life or Partners Life, they are receiving a cover that is comparable to some of the best available. Sovereign and AIA need that refresh ;)
  • Direct sales insurers are just that, sales only. They aren't geared for advice, and they don't give it. Clients of these providers are often the ones complaining about poor outcomes. Yet somehow it is us advisers who are at fault here too???
  • Banks sell a product. They don't give advice, though they often leave clients with the impression they have had advice, and they certainly are not putting customer needs before their own.

We all know where the issues are. We all know where the noise needs to be made. It is time to make it.

If you have an avenue, and no not your BDM or insurer, to an MP or someone in the media, bend their ear. Make your voice heard.

Because at the end of the day these people throwing stones at us are going to determine our fate one way or the other.

Independent advice has a place in New Zealand, it keeps the banks, insurers, and other financial institutions on their toes and focused on consumer outcomes.

Advisers are the only ones who do this.

Tags: financial advisers insurance Jon-Paul Hale Opinion

« Insurance conduct report shows lack of understanding: AdviserCommission: The gun that needs to be in the right hands »

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Comments from our readers

On 19 February 2019 at 2:33 pm First Time Caller said:
Nothing more be said here, absolutely bang on JP. This article needs to be spread far and wide, maybe an industry body could put this on the front page of the paper
On 19 February 2019 at 6:14 pm Paul J Burns said:
If anyone ever nabs me - slagging off the banks (or any competitor) they are justifiably welcome to publicly call me a self-centered bigot.

However I agree with the good intentions behind JP's commentary. A thriving life insurance industry is too vital for the economic, moral and civil good of any decent minded society for it to go into great decline.

It's been proven that for Life insurance to be sold in the style and quantity that befits such a society, that the high volume good intermediaries must be rewarded so as to make it worth their while to stay in the industry.

So I've no concerns about the long term sustainability for such intermediaries.
On 19 February 2019 at 7:19 pm RichardM said:
Totally agree with JP.
How the FMA has the audacity to allow this fraudulent bank system to carry on is staggering.
So will banks charge fees for their 'advice"?
Oh, and by the way, is FANZ taking up the cudgels on this subject?
On 20 February 2019 at 7:31 pm sheryn said:
I agree. An excellent overview of the situation. Your summary reinforces to me that I made the right call with the product providers I recommend. Customers appear to be collateral damage in this situation, so there has to be some other undisclosed agenda to identify why the regulators are choosing to target Advisers so unfairly.

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