Regulation leads to poor quality: Academic

Dr Naylor needs to spend some time in the field meeting advisers, instead of sitting in offices and looking at the FSPR for stats. The quality of insurance advice in New Zealand has lifted since the introduction of the regulations. Any theory saying otherwise is flawed. In my humble opinion.

I think I might do a report on how many "useful" comments come from non-advisers who are quick to opine. On second thought I have only so much time, and really ought to be focusing on my rich-middle-class clients (oxymoron, surely).

Hear hear Mr Leitch.

Shame that the good Doctor's great work on the FSC research is to be undermined by comments such as above.

On the one hand an in-depth study shows lots of people need advice, and in all it's forms. On the other hand, most advisers are useless.

gee, thanks.

Not sure where Dr Naylor gets the information to conclude that "marginal people have left the investment area and moved to insurance". Most of the segmentation of the advisory industry into either risk or investment took place long before regulation arrived. There may have been some advisers operating in both areas, who due to the burden of regulation, decided to concentrate on risk, but I can find no evidence to suggest that these are lower quality advisers. Indeed, by concentrating on risk exclusively, and not being distracted by the investment scene and all the volatility issues attaching, it's possible to argue that consumers may now have access to higher quality specialist advice.

Some more research required, I suspect, before such definitive statements regarding adviser quality can be supported.

Well said Barry.

Does Dr Naylor actually know what is involved in the day to day role of a “useful” insurance adviser? Is this the same Dr Naylor who was trying to tell advisers a short while back that their time is too valuable to be spent negotiating the offer of terms for their clients?? Does he even understand the advocacy role that insurance advisers actually play for their clients when it comes to them securing cover? (or claim time as per Peter Leitch from the PAA mentions above)

Why is the FSC consulting with an "academic" on the subject matter of underinsurance anyway? Surely meeting with some experienced insurance advisers who have been operating for 20+ years would add far more knowledge and potential “insight” into the issue of why so few New Zealanders have income protection cover etc?

For a so called acedemic these comments are just pathetic. Scaremongering and self promotion anyone?

Ahh - its good to get feedback from a few idle comments to a reporter. Warning - few more ridiculous comments follow:

My view of advising in insurance is that you need a good overview of the cash flow weaknesses and financial position of the client before you can look at insurance. Also there are areas which can cause a client to go bankrupt but can’t be insured. As an insurance adviser you can’t be blamed for this, but you have still lost a useful client. So I argue that an adviser needs to see insurance as part of an overall financial planning process, including cashflow, investments, estates, etc. This is the CFP 6-step process, and is also the CLU approach. So it is quite standard. Of course advice for particular clients can be brief (advise needs to relate to income earned) but the overview needs to be kept in mind. This is not that easy a thing to do. This is what I define as 'useful advise'.

There are roughly 6/7,000 in the industry. From that I naturally exclude any bank staff or phone-centre staff, or insurance company reps. These 'sell' insurance, they don’t ‘advice’ on it. Telling someone what is in the product you sell is not advice. Tying insurance to a mortgage you have just sold is not advice. Trying to sell someone on $50,000 per year, $500,000 of life without asking a single financial question is not useful. Being restricted to the products of one or two suppliers is a real problem if your client suits another supplier. So you can easily get down to 2000 or 1500. The figure is ‘top-of-my-head’ but is ball park and may even be generous.

1) Peter - who I have respect for - has misunderstood.Given that correct advising takes time each adviser has fewer clients than a salesperson would. Thus we need a lot more than the current number of quality advisers - so I agree with Peter. I also agree that advisers need to do a good job at application time so there are not problems at claim time (given the current terrible state of NZ insurance law this is not easy). However pretending that there are still not a number of sales focused advisers out there is head-in-the-sand-stuff and harms the industry
2) Barry Read- just because I have not visited your office doesn't mean that I don't meet many advisers.
3) Amused - where you got the idea that I think advisers 'shouldn't negotiate the terms of offer to clients' is puzzling - what I did say is that advisers should spend more time with clients and less with paper work. And yes - I do understand the advocacy role - this is the kind of high-value role which skilled advisers should be doing. Look - my views are international industry standard - if you want to know them read my book at your local library or the CFP syllabus or the FMA criteria.
4) The knee-jerk anti-academic reaction is indicative that some in the industry still think of themselves as a 'trade' rather than a 'profession'. You do not get accountants reacting this way. Broker - when you see me at an industry conference come and say hello - I'm not all that pathetic.

But seriously - even though insurance is Cat 2, so RFA, the new regulation requires those who provide it ensure it is sold correctly and is appropriate for the client. While the FMA are initially focusing on investment (AFA)advisers, I am sure they will look at insurance advisers in time. Do you think the FMA will take anything but the international standard view of what is appropriate adviser behaviour? How about judges when court cases occur? This is not lightweight stuff.

What a shame such an article was made public, it does nothing to improve our industry and just highlights that sensational old fashion academics are still alive and well!!. How offensive perhaps he should become an adviser and realise that some clients choose to be underinsured, some clients cannot afford to be fully insured . A frustrated adviser who awaits Dr Naylor to list those that he thinks are OK!!! oh wise one?

"There's good people but the number of bad people has multiplied" Now that is a fact. The high level of commissions has allowed groups to form and bring low quality advisers into - what is it again "a profession".

Well said Dr. Naylor.

I still maintain, despite (or maybe because of) the above comments, that Dr Naylor needs to conduct more research before making definitive statements about the quality of RFAs (i.e. non-Authorised advisers), and the processes they undertake.
For example, from the Dispute Resolution providers records, how many cases have been heard surrounding the mis-selling of life insurance products? Would this be a pointer to the quality of RFAs in the market?
I also find it a little odd that an academic researcher makes comments based on estimates such as 6000/7000 souls in the 'industry' - which industry, and isn't the variance estimate fairly significant? Again, drawing the numbers down to "2000 or 1500" is a significant variance which would surely stand more precise calibration.
Anyway, I agree that the state of insurance law is dreadful and restricting product selection is likewise disagreeable. But the QFE model was installed as part of the regulatory model in response to the tied agencies and banks. That's the reality of the environment.
Whether the semantics regarding advising or selling are important or whether the recognition that, as R.L. Stevenson observed, "Everyone is selling something" is important, remains to be seen.
Even Dr Naylor sells! In his case, it's his credentials to conduct academic research and pass comments as per above - and even a plug for his book (see above) - good one!! Now, is he advising you to buy his book, or is he trying to sell you his book?
Niko Kleoten had an interesting and pertinent item here not so long ago on selling - well worth reading again in the context of Dr Naylor's remarks.
Selling is not the devil's work!! Advising a prospect that you recommend they effect adequate financial protection requires a certain level of human interaction, empathy, and articulate competency. Some would call that selling, others might call it selling advice. Either way this fatuous death-wish for selling per se - without adequate definition or research - leaves much to be desired.

Dr Naylor I disagree that in order to give good insurance advice it needs to be part of the overall financial planning process - information overload for the client! Obviously you need to know debts, incomes, affordability etc but if you look at the top insurance advisers who attend overseas conferences year after year - most focus on insurance and are not 'financial planners'. Yes we sell insurance - get over it.

David - unfortunately for me I've never received any royalties from my book, it's not in that kind of sales bracket. Time spent with industry tends to decrease my academic prospects. Thus the only thing I attempt to sell is my opinions. I also have nothing against selling, after all insurance is a product which needs to be sold, and excellent interaction skills are required.
However there is a clear difference between a straight sales process and an advice process. It is not a matter of what someone 'calls it' - it can be proven in court. The industry needs to re-read the Armitage v Church case very carefully.
Broker - note I said "advice for particular clients can be brief."

My comments were made within the fact that the world is changing for insurance. FMA has made it clear that insurance providers must show 'care, diligence and skill'. Products must fit the client. This applies to AFAs, RFAs or QFEs. Culturally NZers were reluctant to sue financial advisers - this is now broken.

In terms of Insurance advice being a "profession" care is needed in sales - if a doctor tries to sell their 'special' operation without examining you, or a lawyer tries to get you to sue without asking any questions - what do you think the reaction of their disciplinary bodies would be?

Anyone who now makes a straight attempt to sell insurance without doing a demonstrably competent client fact-find is now taking the risk of a law suit or FMA redress. We are in a brave new world.

As an aside, the industry needs to abandon the term 'prospect' immediately - it would have a disastrous impact on a jury.

David Whyte I applaud your response to these "Post Hole Digger" comments .

David you could not have put it better !

Dr (non medical) Barry needs to acquire some Life skills (excuse the pun)
All economic activity around the world begins with a successful sale.
I have never undersold anybody merely put in place what I was instructed to do.

After all it's their money.

I wish those reacting so strongly to Dr Naylor’s comments shared his courage of conviction by coming out from behind their non-deplumes! Well done Barry and David!
And with that, I’ll now stick my head up to be likewise shot off by these same brave non-deplumes…
We at RMS have worked in the financial services sector for over quarter of a century – 14 years directly in the adviser space and 13 coaching and training 100s of advisers. So we think we’re as well qualified as any to pass comment.
I too find it just a little offensive when academics wade into our sector, and seemingly with little or no real life experience of it, pass judgement upon it.
Nonetheless, that does not mean that there is no truth in what they say! Indeed, I would suggest that there is truth on both sides of this argument, and that it might be useful if we all sat up and took heed of these people before those bloody bureaucrats do, and ruin our wonderful sector forever!
Our feedback to the financial services sector – perhaps more particularly those in insurance, would be that our direct observations while in the adviser space combined with our less-direct observations through the eyes of those advisers with whom we work, leads us to conclude that good, comprehensive unbiased ‘financial advice’ is somewhat thin on the ground. Like it or not, this is evidenced by both the under insurance of which Dr Naylor speaks (and which is officially accepted) and the relatively low API that plagues the insurance sector!
And before you blame that on the consumer and affordability, many InControl users are living testament to the fact that a comprehensive fact-find combined with thorough and thoughtful data and needs analysis leads to high quality financial and insurance advice, and that in turns leads to bigger and better sales results. It isn’t rocket science!
And before you take my head off for saying that… Yes indeed, that was both a statement of fact and a plug for InControl and good financial advice. We do not have a problem with selling!
So why don’t you stop shooting every poor bloody messenger who tries to give you a heads up, and instead have the courage to review whether what you’re doing is actually acceptable in the 21st century?
Now for the total take my head off statement. I agree with Dr Naylor’s comment about “usefulness”. Liking the truth or not doesn’t change the truth; Consumers can buy perfectly good insurance just about anywhere today. They don’t need you to do that! They can buy the stuff from the Warehouse for goodness sakes!
Whether you’re an AFA or RFA (Note both acronyms stand for Financial Adviser), you only become truly useful when you’re adding value that the consumer can’t get from those direct sources – and that’s high quality, unbiased financial advice. And before you say that your value-add is qualitative insurance advice – get over it – almost all insurance is of high quality today!

Without wishing to complicate matters further... it needs to be noted that Armitage was only a negligence action. Unfortunately the court didn't properly address the much greater obligations that Church also had as a fiduciary (although it noted that Church was a fiduciary).

It is these extra obligations that, in my view, marks the real difference between advisors (fiduciaries) and salespersons.

Without wishing to complicate matters further... it needs to be noted that Armitage was only a negligence action. Unfortunately the court didn't properly address the much greater obligations that Church also had as a fiduciary. It is these extra obligations that, in my view, mark a real difference between advisors (fiduciaries) and salespersons.

Well said Chris! Have to agree with you 100%!

However, despite that I am an RFA, I never use "Financial Adviser" to describe what I do. I am a "life and health insurance broker", and while I certainly advise clients in respect to life and health insurance, I see no need to change my description of what I do.

Dr Naylor: Responding to your 2:10 post.

I have to agree with what you say and note that it's sad that some of those who post on this site hide behind nom-de-plumes and then attack the messenger!

I have one issue - for me, and I'm sure for many of those who've been around for a while, the "sales process" has always involved a detailed client fact-find, detailed analysis of the information gathered and identification of needs. These steps followed by presentation of the analysis in comprehensive written form with recommendations of appropriate product to fill any gaps in insurance coverage. I struggle with the implication that this is not a "sales process". It's what competent life and health brokers have been doing for many years!

I guess that it is the advent of regulation that has spawned the various providers of education writing about the processes that we have been following before we knew that they were processes!

Cheers.

Responding to The Colonel (6:41 this morning!

"There's good people but the number of bad people has multiplied" Now that is a fact."

Really? I'd be keen to see your source of this "fact"! I suggest that the majority of life and health insurance advisers are good people doing a good job for their clients! While there are "bad eggs", I suggest that there are no more now than there were before regulation.

"The high level of commissions has allowed groups to form and bring low quality advisers into the business".

Again, where's your evidence? You have made what are, I suggest, baseless claims without a shred of evidence in support. In so doing, you do not add to the discussion!

To Graeme - exactly my point re the lack of empirical evidence in some of the statements made in this thread!

For example, "Naylor said the higher regulatory burden on investment advice had led to less capable advisers focusing on the life sector." This is a assertion with absolutely no evidence to support it, no research to reference, and no basis in fact.

To Dr Naylor - with respect, the point you make re royalties is facetious. In the context of an academic, being published and promoting your published works raises profile, as you well know. And it would be a pity if some of your myopic academic colleagues, were to discourage your engagement with the industry. After all, academics and their institutions are renowned for being completely free from all commercial interests, never stoop to selling their products - particularly overseas - and pay no attention whatsoever to such tawdry metrics as the TLS global rankings.

To Chris - at least some anecdotal evidence is better than none. And your point re the value add which a broker/adviser brings is highly relevant. If a broker/adviser cannot communicate the value he/she brings to the prospective relationship, then the relationship is likely to be at best transient, at worst, non-existent.

The object of the exercise for the industry should be to attack under-insurance across the board by whatever means at its disposal - that includes multi-channel distribution strategies. The research provided by Dr Naylor is an excellent initiative - compare this body of work to the ridiculous shadow-shopping "research" conducted by Consumer Magazine a few years back. However, we need to examine some of the conclusions more closely - see www.dcwhyte.com - the Laird's Gathering.

Thank you for your kind words Graeme.

Unlike the good colonel, we are certainly not taking issue that there are any more or less bad eggs in the sector – who’d know? Just that other than for moving insurer’s products and putting food on their family’s tables, 'advisers' are not useful to the profession or the consumer unless they take the time and care to provide high quality, unbiased 'financial advice'.

Our observation is that there are basically three camps in the sector:

1) The hawkers who do little or no fact find and analysis – instead primarily selling stuff based on features and benefits - and frustratingly, there still seems to be a good number of these out there and my gut tells me that much of the problematic churning and twisting comes from this lot;

2) Those who begrudgingly do a rudimentary fact-find and analysis but who really just want to get to the sale the fastest dirtiest way possible;

3) The camp you and I are in Graeme – those who see themselves as financial and insurance professionals first and foremost, and who love the financial-advice sales process and for whom a bloody good insurance sale is just the natural outcome of an advice job done well!

And to the good colonel and his claims that there’s all these bad eggs running around; come out from behind your non-deplume and produce your evidence, and if you are factually right - I’ll be the first to back you up! Otherwise keep your musings to yourself!

The trouble with people like Dr Naylor is that they have existed within the confines of academia for so long they don’t understand how “the real world” works when dealing with the general public. Despite best intentions implementing a detailed needs analysis or six step advice process for every single client seeking personal risk cover is NOT a reality.

Many insurance advisers would attest to most of their clients having no desire (or patience) to be put through the six step process or be “bombarded” with a financial planning style session when discussing their personal risk insurance requirements. As another reader said above it’s simply information overload! with only one end result. Most clients would tell the adviser to pack up their bag and leave if they attempted to take them through the six step process. The result been that they would a) be unlikely to take any cover whatsoever or b) in frustration they head off down the road to the local bank whose staff member with their sales targets for the month will be only too happy to give them a cheap and nasty policy with inferior cover to what the adviser could have offered them originally.

Rather than completely alienate your client you are far better off to give them what they actually want now and at the annual reviews chip away at them so that in time they do end up with a good level of overall cover appropriate to their circumstances. Meantime cover your backside with a few indemnities signed by the client and if the FMA ever comes knocking simply show them that these were your client’s own wishes. To think that a court of law would ever rule against the adviser i.e. disregard the wishes of the actual client themselves (whom the Financial Adviser Act was supposedly written for!) is nonsensical. Any reasonably competent lawyer would never allow the FMA bring a case to trial in the first place and the FMA wouldn’t be so stupid as to even bother as the client will be on the side of the adviser.

To summarise - It’s easy for an academic like Dr Naylor to say advisers must do this and must do that to be deemed "useful" but reality is slightly more complicated than applying a set of guidelines and expecting every single client to willingly jump through a set of hoops. This isn’t an episode of The Dogs Show (showing my age now) whereby the sheepdog obeys the commands of the farmer’s whistle and the sheep allow themselves to be forcefully herded through the next set of gates. We need as an industry to make applying for cover an “engaging” experience for our clients not a process whereby it becomes so complicated for them that they switch off or find another excuse not to even sit down with us in the first place. Many most assuredly will if given the opportunity! New Zealanders already have a clear aversion to personal risk insurance hence the stats provided from the FSC. Let us not exacerbate that even further now.

It would be a new folly if the new regulatory regime that is supposed to improve the advice process to clients actually saw fewer people take up cover as an end result. I could think of little worse given all the money, time and energy spent to date on regulation so far.

So anyone who doesn't use RMS InControl is now nothing more than a hawker? Awesome.

I see that non-deplume “Broker” still has not found his/her courage to come out from hiding! It’s so easy to throw sticks and stones that way - isn’t it! And how you read into my commentary that anyone who isn’t using InControl is a hawker is absolutely beyond me and perhaps reflects on your intelligence sir and on your own sales style?
I think “Amused” raises very worthwhile points indeed – though it’s a pity he/she doesn’t just come out from behind their non-deplume! You are right when you say that many clients are resistant to receiving full financial advice. We have observed that there are three primary elements of resistance one must overcome if a client is to buy into a Full Financial Advice process: They are 1/ Laziness, 2/ Apathy, and 3/ Market Conditioning.
And this is where selling truly becomes all important! We call it the sale before the sale. A skilled sales professional should be able to turn the vast majority of these clients around to wanting Full Financial Advice – and yes I am selling when I say that we at RMS provide sales training and sales tools to help advisers achieve this!
I believe that the vast majority of advisers who primarily operate on a Full Financial Advice sales model and who have mastered the sale before the sale (irrespective of whether they use RMS InControl or not), will testify that sold well, the vast majority of clients will indeed buy into Full Advice and that the sale’s outcome is almost always a bigger better sale! And that Mr Naylor means better protected clients!