Entity licensing could be detrimental to insurance advice

Entity, instead of individual, licensing is one of the changes that has been proposed in the Ministry of Business, Innovation and Employment options paper on the Financial Advisers Act review.

Some commentators have said it could help regulate a larger number of advisers, if changes bring advisers who are not currently authorised under more regulatory scrutiny.

Fidelity Life chief executive Milton Jennings said the suggestion risked killing off advice. “It hasn’t been that successful in Australia.”

He said the smaller entities tended to be bought by institutions. “We are a country of small businesses, to have this personalised advice from small practices is critically important. I’d like to see that continue and try to grow it.”

He said entity licensing was all about consolidation. “We’ve seen a lot of consolidation over the last 10 years, it continues to happen, the big swallow up the small firms because they want the economies of scale. Organisations like Advice First, Camelot, Lifetime, they’re out there buying up agencies.”

Big firms were sometimes the only operators with the funding to buy companies that had accumulated books with strong renewal bases, he said.

“The big organisations have the funding lines and take them out but that’s a risk for providers because your distribution is sometimes being bought by the competition.”

Jennings said he had made a submission to that effect to the Financial Advisers Act review.

Comments from our readers

On 19 February 2016 at 8:18 am Jeff Page said:

I cannot see how licensing entities would mean fewer independent operators.
Surely if the entities held the license and the Advisers were operating under that entity, then that would enable the Advisers to get on and do what they are very good at doing, and that is give Independent Advice. The entity would take on all the responsibility & cost for making sure that the advisers were operating in a compliant manner. Milton is making the assumption that if Entities are licensed then the Advisers who are attached to that entity loose their independence.
The three companies listed above, Advice First, Camelot & Lifetime, have advisers who are all Independent. They hold agreements with all the companies and the Advisers place their business with the Company that best suits the clients needs.
How does licensing an entity like, Advice First, Camelot or Lifetime, lead to fewer independent operators?
Jeff Page

On 19 February 2016 at 8:40 am dcwhyte said:

Having seen the Australian "Entity Licensing" model in action, I'm inclined to agree with MIlton. More detail is needed before assessing the merit of this proposal - e.g. what constitutes an "entity"?, how does a sole trader "entity" breach differ from an individual breach? This, like some other issues in the Options Paper, needs more air-time in order for the intent - and the potential consequences - to be properly understood and discussed.

On 19 February 2016 at 1:47 pm Referee said:

I am not in favour of entity licensing either for the reasons that Milton and David have stated. Certainly it is easier from the regulator's point of view - one large entity is easier to control and can be clobbered with much higher penalties than the small independent operator.
On the other hand, what's happened in Aussie is advice has become very 'sterile', at the expense of individuality - too many Statements of Advice are so heavily controlled that they are missing the target for true personalised advice.
"Before you take down the fence containing the stock, make sure you fully understand the consequences." It's not broken, so leave it alone....

Entity licensing could be detrimental to insurance advice

Entity licensing could be lead to fewer independent operators in New Zealand’s insurance sector, the departing chief executive of Fidelity Life says.

Friday, February 19th 2016, 6:00AM 3 Comments

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