FSC committee to probe ‘viability’ of adviser distribution
The Financial Services Council (FSC) is to put the adviser distribution of insurance products under the microscope next year.
Friday, December 7th 2012, 7:01AM 
10 Comments
by Benn Bathgate
FSC chief executive Peter Neilson said the FSC’s newly-formed Life Insurance and Advice Policy Committee would “address the viability of the adviser distribution chain for financial services.”
Neilson said the idea to examine the role of adviser distribution arose from FSC research on underinsurance.
“It looks as though we’ve got a potential market with much greater need that we’re currently providing for,” he said.
“In the past we’ve disproportionally relied on the broker distribution channel, and the question that arises is with things like income protection, why are we selling to less than 20% [of the population] rather than 50%?”
Neilson said at present, the adviser model worked well for selling to the top 10-15% of the community, but was failing to penetrate further.
“We’ve got to use all of the channels better than we have done previously, and [examine] how we can build on the broker channels,” he said.
“We have a very good business segment, touching quite closely to 20% of the population through the broker chain. How can we extend that on a cost effective basis and have more products being sold by brokers to more people.
“If we’re serious about going from a niche market to a much bigger market, what are we going to do?”
Another issue Neilson said the FSC committee would examine is how to encourage people with more diverse backgrounds into the advice space, and how to utilise the relationships advisers have with clients’ to discuss a wider range of needs.
He said the committee aimed to put together a discussion document which would be put to the adviser organisations “to have a wider conversation with the sector, agents, brokers and their organisations.”
The FSC Life Insurance and Advice Policy Committee members include Naomi Ballantyne (Partners Life), Milton Jennings (Fidelity Life), Damian Lawrence (Sovereign), David Carter and Nadine Tereora (Asteron Life), Therese Singleton and Anthony Merritt (AMP).
Benn Bathgate is a business reporter for ASSET and Good Returns, email story ideas to benn@goodreturns.co.nz
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Comments from our readers
After talking directly to 350 direct income protection inquires this year the key reason these people don't have and continue to not have income protection is price. If you are a typical kiwi over the age of 40, who doesn't have the support of a corporate income, it is just too expensive. People cover the perceived major risks and focus on living. Life cover is often taken because they want the worst case covered and maybe some trauma, but any more is often too much.
Kiwi culture and the attitude we'll get by is alive and well and redundancy is a commonly voiced concern by clients.
Cost of living has a huge impact on disposable income, but age and occupation make premiums unaffordable for the average household.
Solve these and income protection rates will increase but until then, who pays?
To 'IP Adviser' - as you are aware the worst case is not death, it is being so severely disabled as to never working again. A clear way to cut premiums to an acceptable level is to push out the waiting time to at least 3 to 6 months and add TPD. One of the reasons for the high costs below age 50 is often inappropriate structuring of the insurance plan. Above age 50 IP is expensive, but clients still insure their car, and long-term disablity is more likely and more severe than a car crash.
As you say - it is really about
'perceived risk' rather than actual risk. So the question for the industry is how to make the public aware of the real risks.
I applaud the FSC for starting to raise this issue, as there does not seem to currently be any good ideas on how to change NZ attitudes. One obvious issue, especially in Auckland, is how to get into the ethnic groups. The reluctance of many adviser groups to employ new adviser's whose first language is not English is a real hindrance.
Even with varying wait periods, split structures and reduced payment terms it often exceeds budgets and they have their challenges in the real world too.
Education, trust, mixed messages all contribute to the situation we have. Migrants from certain parts of the world have fundamental mistrust of banks, insurers and authority in general, all hurdles to get over.
A concerted consistent education approach from all players needs to be taken, if it's the FSC which leads the way, it's a start and good for all of us. It will take time and patience. Though we still don't have financial literacy taught in our schools, surely this would be the easiest place to start for those yet to find this out the hard way?
While I feel some anxiety about the FSC's true motives (exploring direct/alternative distribution as an ALTERNATIVE) to advisers, I agree that there is too little info on the subject of penetration - rather than trying to increase the size of our slice, the pie just needs to get bigger.
This is the Commission for Financial Literacy's page for schools. It is well used. http://www.cflri.org.nz/financial-literacy/schools
This is from the November edition of Tukutuku Korero. It's all about new initiatives in FL for schools. http://www.edgazette.govt.nz/Articles/Article.aspx?ArticleId=8708
And this is an example of a real school doing real good work with real stuff. http://www.stuff.co.nz/business/money/6979797/Kids-learning-the-tough-lessons
Let's not forget the young enterprise programme, and economics classes, if called another name, which are still compulsory at year 9 (3rd form) level, and many schools carry on at year 10.
I do get really sick and tired of people listing things that schools should do, as if adding yet another burden to schools will solve their particular problem. NZ schools do very very well thankyou very much. NZ kids are constantly in the top ranks of the OECD testing results, with more ethnic diversity, more socio-economic challenges and less taxpayer funding per child than the countries we are compared to.
Perhaps our schools could do more, but what would you like them to do less of?
The regulatory requirements on advisers mean that the processes that must be followed take far more time than might have been the case previously, and that is generally to the consumers' benefit. BUT, it means that advisers can deal with fewer clients, if they're doing the job in a professional manner.
So with an increasing population, the business needs more advisers, and therefore, Peter Neilson might get his members to invest in recruiting and training and they might find that the problem gets solved... Would achieve more than yet another talk fest!
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In the 1950's we had around the 5th highest standard of living in the world.
Things such as income protection, for a majority of the population, is a luxury they don't have money available for.
Remember that the FSC is representing profit driven corporates. They are merely looking at new distribution for their products.
We need to address root cause problems rather than continuing to band aid, through legislating and committee decisions.