Latest AFA numbers

I've done set B but wont be AFA for a while. Investments aren't my main focus, however it's clear that AFA is the standard to aim for, but not right away. I prefer to stand aside, let the regulators do their "we're taking action/doing something/justifying ourselves to the public" thing, while I get stuck in and try to have a better year than 2010.

Seems I am part of the majority right now too, so is set B really a reliable indicator? Maybe there never has been one.

A lot of RFAs have completed their National Certificate (so have done set B) but have no intention of becoming Authorised. A lot of industry BDMs have also been working towards National Certificate, so have also done set B. With the new disclosure rules from 1 July (ie RFAs don't disclose fees/commissions)there has been a big swing away from becoming an AFA.

I, too, have met all the requirements to qualify as an AFA, but why bother? When there was only this one option, I diligently pursued it, at significant cost in time & treasure. Bah! So, now that I don't have to take that path, why would I, given the substantially higher cost and so on?

RFAs unite!

There has been a lot of misinformation feed to the adviser community on the supposed "benefit" of AFA status and what it would mean for an adviser’s business in the new regulatory environment. The numbers above show that the vast majority of advisers have clearly opted to be registered instead and why wouldn’t they?

RFA's rock!

I think RFA's may be doing themselves a disservice if the comments above are anything to go by. You only need to look at the Australian experience to realise that the RFA option will be short lived before further regulation comes in. In addition with the global push for commissions to be removed, RFA's living off insurance commissions and overriders may have a limited lifespan if they don't upskill

@ Muggins. In what way am I doing myself a disservice by not spending vast amounts of money that I dont have, to get a qualification that may not mean anything to customers, and exposing myself to a greater amount of scrutiny in the process? I dont have to BE an AFA in order to operate like one.

80% or more life insurance is sold through intermediaries, and the persistency rates at the 'others' is believed to be rubbish. The regulators are already aware that underinsurance is a problem, and that alternatives to commissions for insurance salespeople are highly problematic and would likely worsen underinsurance.

The large institutions have proven very effective at lobbying, hence qfe's can sell cat.1 and RFA has less disclosure etc.

So if we consider that models other than commission wont work, and the lobbying that is going on then Muggins is unlikely to be proven correct.

I think we will be long dead before they remove commission for life insurance in countries with a population size of NZ. Because of this we simply don't have the ability to charge fees at an appropriate rate.

Regan and anon2. I’m not in disagreement with you. I too make a good part of overall remuneration from insurance and happily disclose up front actual dollar and % income I make from the actual sale with each client – interesting huh? And none of them balk at it. I also charge direct fees for planning work. Interestingly Asset Magazine just had 2 articles in the same edition, one the results of research which showed clients don’t care how much commissions are when they are told and are happy for the insurance person to receive it and another article where Obama is saying all commissions in the U.S. will be gone in 2012.

The point I was trying to make is that this is the first leg of regulation. If the only offering by an adviser is insurance sales and income is by commission, it’s a risky business moving forwards as it’s not disclosure that is the issue but more regulation and potential removal of commissions. Your clients don’t care how much commission you make as long as you also can and do provide choices and don’t disguise how recommendations are made.

Regan, if you think you can operate like an AFA and be an RFA/QFE adviser, you had better revisit the legislation, as they are worlds apart. If you are holding yourself out to be like and AFA and you are not an AFA, you will be in the firing line for some pretty harsh stuff.

I can assure you that for me the AFA requirements have been a horrendous toll on income time and fees to regulators and trainers, and I’m dreading the prospect of a levy apportioned to AFA’s due to the cost of regulation. If it happens and it’s too high I’m either out of business or to RFA status doing pure insurance sales, or getting a job somewhere. We are all in the same boat, just doing different things.

Muggins raises an interesting last point. If an authorised adviser decides at a later date that they’ve had enough of regulators looking over their shoulders every five minutes or simply cannot afford excessive compliance costs to their business can they then simply elect to be registered instead? Naturally this would limit them from selling/advising on investment products but it might be something a lot of advisers opt for if the regulators go overboard.

Tried to stay silent on this one as I believe that everyone who has studied over the past year is a much better adviser for it, even if they no longer travel down the AFA path.

The following statement by AFA muggins shows how misinformed some people are.

"The point I was trying to make is that this is the first leg of regulation. If the only offering by an adviser is insurance sales and income is by commission, it’s a risky business moving forwards as it’s not disclosure that is the issue but more regulation and potential removal of commissions."

Commissions on risk products are in no danger of being banned in the foreseeable future. Reduced maybe,but due to the underinsurance in New Zealand banning is not a current option.


What is on the horizon is the likely ban on trail commissions for products such as Kiwi Saver, especially if the Government decides in the future to make Kiwi Saver compulsory.

Product providers have consistently encouraged advisers to build up a large Kiwi Saver base by giving them projections of massive future renewal streams. I would suggest to AFA Muggins that it is a risky business for these advisers going forward and not risk advisers.

Simon, my understanding is that a RFA can still merrily advise away on all products - they just have to avoid giving "personalised" advice as part of that. Get legal advice of course - but check out s. 15 of the Act.

Ron, I have no intention of entering into an argument over the commissions issue. I agree, commissions on investment products will probably go, and most AFA's will then use a wrap platform to get around that where they can an continue to rebate management fees and make it more expensive for the client by having to charge fees above the rebate plus the GST that has to be added on. If markets are going well, that approach is palatable to the client. If markets are dropping, again the value add gets questioned by the client.
Although it's unpalatable to advisers that insurance commissions may drop or disappear, (I'm with you on that) denying the possibility may mirror the denial a lot of us had about the regulation we are now embracing through compulsion.

Thanks Ron. I agree completely.

Good comments muggins, although I will clarify. I will be taking my time becoming AFA. I dont mind not paying large mounts that I dont have to, and avoiding scrutiny that would interrupt my business. I do plan to continue doing cat2 stuff only, and will give class advice (Simon alluded to that) and refer cat.1 to others. I also plan to disclose like an AFA, and act under/ascribe to/ the code, like an AFA IE be more professional - like an AFA - thats what I mean by 'act like one'. It sickens me that QFE and RFA's have such inferior disclosure requirements compared to AFA.

Now, I should get back to work.

btw, my understanding is that an RFA can only give personalised financial advice on a category 2 product, but can give class service to a retail client and financial adviser service to a wholesale client.

Food for thought: What if the client had a commission free channel (accompanied by useful tools and a significant advertising campaign) to purchase any financial services product? What if the large institutional asset gathering machines decided that the future backing of intermediated advice was too expensive & inefficient relative to phone and over-the-counter sales?

What does any of this have to do with the above – simple: Every shortcut that the industry pursues (whether in isolation or collectively), gives the customer one more reason to distrust intermediation and look for alternatives.

It is important to understand that the Regulator is trying to re-install confidence in the NZ financial services industry through increased transparency and a minimum education level.

It may be worth reflecting on this before wading through the trash above.

Independent Observer. a commission free channel is great - as is a fee free channel. The issue is that you are talking about a QFE type arrangement or direct purchasing off a product provider without analysis which will limit choice and clarity. A case in point is most Bridgecorp investors went direct. Intermediation is no problem with clarity and disclosure and absolute transparency - then the client has choice based on understanding. If the client doesn't feel they get value from advice, they don't use the adviser.
The problem is that regulation which is supposedly to protect the consumer will make advice beyond the ability of most to afford it. THAT is a bigger problem. Clients who cannot afford advice will be left with guess work, rumour advice and Kiwisaver.
Your ongoing issue with intermediation is unique to this industry? or are you also thinking retailing should be banned so that we buy consumer goods direct from manufacturers as well?

Independent Observer. A commission-free channel sounds great, but it has been tried many times around the world over the years and has never worked. It seems that the cost of your "significant advertising campaign" to entice would-be buyers to actually buy, is pretty much the same as the cost of commission. Don't you think that if it would work, every life insurer in the world would be doing it now! It'll never fly, Orville!

Someone qualified in human behavior said many years ago that it is difficult to contemplate the world without oneself living. People don't generally go out to buy life insurance - it's not Rinso...

After 42 years as a life and health insurance adviser, I can recall only 2 or 3 occasions when I was approached by a buyer! Otherwise, it has been my role to persuade the buyer to do what is right for his/her dependents, and I'm proud to have done it. I've paid many claims and have earned the commissions that I have been paid.

The majority of life and health insurance advisers are darned good people doing a fine job for the clients they serve. They are motivated by the possibility of earning more than an average income by working harder and smarter than others are prepared to do. Commission provides that incentive! Recognise that advisers remunerated by commission don't get paid if they don't work! Industry stats indicate that the majority of people who start as insurance advisers fail - they don't have the self discipline necessary to succeed on a commission based remuneration system. If insurance advisers were paid by salary, you'd get a bunch of unsuccessful bods drawing salaries for failing and the cost of insurance would go up!

The system has worked pretty well for many years - it ain't broke! Don't fix it!

Cheers.

It is highly unlikely that commissions will ever entirely be gone from insurance based products, we are just too good at what we do, if there was a better way they would be doing it!

But the title is about RFA versus AFA versus QFE. I doubt that the general public will be in awe of AFA status professionals - they just want protection from the cowboys and what has gone on in the past.

The following is from an article written by someone who knows a thing or two....

"There is probably no surer way to increase your investment returns than to limit what you pay in fees and commissions. The same is true for what you pay an investment advisor. By educating yourself in financial matters and doing much of the work yourself, you can save thousands of dollars per year and, in most cases, out perform professional advisors" - W Buffett

I think he may be onto something here?

Well said Graeme!

Yes well said Graeme. Excellent comment!

To expand on Rays comments:
The underinsurance problem is countered by the oversold problem that I regularly encounter when running an risk assessment and opportunity cost analysis. The cash flow methodology used by the adviser cohort composed of brokers, insurance company advisers and banks with their straight line multipliers, coupled with CPI adjustments are counter to the logic that, as financial resources grow insurance need declines. Robust NPV analysis demonstrates that the opportunity cost from oversold insurance for a 40 year old can be as much as $350,000 at retirement, for average earning households. This is unconscionable.
That this adviser cohort does not yet need to be assessed to AFA standard now is thanks to their insurance company and banking industry overlords vociferous lobbying. It does not mean that they won’t need to be in the future. Robust cost analysis that is now being placed at the Authority’s portal will see to it that the charlatans of the financial services world are required to meet expanded regulatory requirements.
And what drives the oversold problem . . . commission?