Conduct and culture, the bits we should be talking about

From the comments around the industry in the last couple of weeks, the commission thing has been and has always been a red herring.

Monday, March 11th 2019, 9:29AM 2 Comments

by Jon-Paul Hale

Jon-Paul Hale

The Government needed something to cover up the appalling results from the home build scheme, and threw us under the bus.

Yes, we needed to make noise on it, as to not do so suggests complacency and agreement, something we don't agree with them on at all.

It is pleasing to see that those involved in making the rules are coming out and reaffirming their position that advisers need to be paid and a commission is a vehicle that is acceptable for remuneration.

As we heard before the Reserve Bank stuck their nose in with their dodgy opinionated report.

Which interestingly enough the insurers have remained quiet on, and we have heard little from them about any specifics that they have had highlighted. From the rumours and comments, it sounds like the insurers still haven't been told anything. Which reinforces the view the Reserve Bank was full of hot air.

What has also been apparent though is the continued speculation on what might change or what things might mean?

I've mentioned this elsewhere before; we're used to rules that either say we can or we can't and not rules that say do what you think is right.

Particularly in the insurance space, as the policy wording is sacrosanct and principals play little to no part in the operation of the policy as a legal contract.

So a change from prescriptive rules to principals and regulations is going to be a significant culture shift for many.

I've been involved with the Health & Safety scene for some time, both before and while being an adviser.

The changes that have applied since 2016 in this area are an excellent example of how our new legislation is likely to work.

Unfortunately, most businesses are still ignoring what has changed, however, WorkSafe and their ticket book are having a field day, and it's starting to gather momentum. $260,000 fines for severing thumbs changes attitudes very quickly.

The FMA has made quite many statements about not having the rules to pursue and prosecute advisers, especially in the RFA space, which is why we see little action against RFA's when they do do something dodgy.

Moreover, when the FMA have applied something they have copped flack as a rule applied is a little square peg round hole in terms of fit for the issue.

What we do know from the H&S experience is that WorkSafe likes to pursue things in the courts. Principals based law works well in a court setting, as precedent governs the application of the law and it also allows movement of interpretation over time.

Meaning the FMA won't have to have further law changes to pursue a change in unacceptable market behaviour.

Which brings me to the point about conduct and culture.

This is the real stuff the whole regulatory review is about, not how we are paid but how we conduct ourselves. Moreover, if that means we lose a few people along the way along with their bad behaviours, that's sort of the point.

One thing I have seen from most advisers over the years is a desire to have prescriptive rules, and then they go from there. It gives them the railway tracks to do what they do.

So to a degree this is still going to apply. The difference is that Advisers are going to have to figure out and define what that is for their own business.

Me being me, that's what I did before I started as an adviser. The difference for me is that I didn't start in someone else's practice under their rules and systems.

I defined my own after my experience as a Development Manager, both with adviser businesses and NZHL's operation. Excellent training ground on what works and what doesn't, and probably should be a career pathway more advisers should take before they enter as advisers. Also being a qualified engineer with a systems background helped.

My point in saying this is in my time as a BDM very few advisers could tell me how they gave advice. They struggled to be consistent in their definition of how they come to the types and levels of cover they sold.

Sure some were selling by the template, $500k Life, $100k accelerated trauma and they're done. That's not advice, that's policy sales. If you're doing this, then yes, you have a huge learning curve ahead.

There were very few in the '00s who were using their own advice systems, some were hugely complicated, most were reasonably straight forward, and it allowed them to be both consistent and ensure they didn't forget things in the planning.

Those with systems always did better on the metrics of sales volumes, API values, persistency, and the most important in my book, claim outcomes. 

Which is why the Partners Life tools released last week are exciting advisers because it takes away some of the hard thinking about defining what your advice looks like. I wrote about this in an earlier article, so more here.

We have seen this in the past with the various offerings from insurers and dealer groups. Sovereign had LifeMap back in 2002/2003; there have been all sorts of needs analysis and reporting templates since.

Tower had an excellent suite of advice tools not long after in 2003/2004, with Steve Parsons running around selling Toshiba tablets and earning the nickname Moses.

Most of this is not new, what is new will be the requirement not only to write it down for the client but to define what you are doing for the regulator.

And while I commend the providers for building tools to help advisers, there is one caveat on using them as they are presented. That is these tools will homogenise your advice processes if left unchanged and on the default settings.

It will tend to make all advisers look like every other adviser, and that is what will continue to make us look like salespeople. Because Gareth in the Hawkes Bay, Paul in Wellington, and Sheryn in Christchurch will all look the same as Anand in Auckland if using the tools out of the box with no changes. It's also referred to as regression to the mean, which is the opposite of most advisers reasons for doing what they do.

Yes, they get you, the individual, but that isn't what makes your brand or business valuable. It is how it works and operates that makes it valuable. So that needs to be different and distinctive for it to have value over the bod next door doing the same thing.

However, they are a great place to start when you have nothing or little that is useful in the new regime.

It's like Pita Pit and Subway, looking outside in they sell food that is loosely described as sandwiches. If you wanted a sandwich, you'd pay $2.50 at the local lunch bar. However, you want a fancy sandwich, so you go to one of these places. Now if they didn't distinguish themselves in some way, how would you know which one to choose?

This is my point about you and your business, and it is also my point about the incoming regulation.

It is a good thing for you to define who you are, what you do and how you do it.

It will make you a better adviser and a more attractive and valuable business.

Tell me; What's wrong with that?

Tags: Jon-Paul Hale Opinion

« Chatter about churn and commissionChurn keeps coming up in discussions, everywhere. In the insurers, with advisers, and with regulators. »

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Comments from our readers

On 19 March 2019 at 12:52 pm Unencumbered said:
When a conspiracy theory is the opening to an article, one needs to look more closely at what the intent here is. I don't think any involved party is suggesting Advisers not get paid. The focus has and should be "is the client getting good Advice that allows them to make an informed decision" and this should include declaring any influences that may have impacted the Advice given.

I know that JP has a good advice process that he has developed for his business and this allows him to provide truly independent Advice.

For those that have not taken this step, it is my opinion they should re-think the business they are in. The rolling out of Provider Advice processes provides a similar coercion factor to that of commissions and the reality is that the appropriate process is not hard to develop for an Adviser who wants to provide good advice and let the sale follow, too many focus on the sale and arrange the good advice to suit.

Needs, Problems, Recommendations, declaration of influences and implementation - its not hard.
On 20 March 2019 at 7:40 am JPHale said:
Always enjoy a good conspiracy theory, that one was the one I heard from commentators and advisers the most.

I personally prefer the one on the opportunity to score points from the Aussie Reserve Bank report and solve the problem this side of Christmas of FSLAB being a solution to a problem the public is not that aware of.

However, your points are quite valid, the homogenisation of advice under a providers sales process does tend to hide the product focused sales behind the veneer of advice.

That said, for those still only drawing pictures and selling off the back of a paper napkin or fag packet, they are a step in the right direction.

And yes, it doesn't take much to sit down and think about how you give advice and put the pieces together around that.

While the FMA report on soft dollars said that they weren't the issue perceived that same report also highlighted that only 41% of the products in our space are independently researched and rated. Which is both a concern and an opportunity as 81% of products sold had a rating.

Are clients missing out on more suitable products because they aren't rated? Or is it a case that that 59% of products available are just so poor not to be considered unless you're a VIO and that's all you have?

I expect as we get further down the track of licensed advice we will also start to see the link between needs and product solution become more of a focus. For now, the mantra is fit for purpose, which is top level, is the label appropriate, which may or may not fit the regulators' requirements in time.

But that's still a way away, we need to get past the first hurdle of change, having legislation. Which seems to keep being pushed back.

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