Advisers vindicated in latest report

Advisers have been vindicated by a report that unearthed serious problems with many of the country’s biggest qualifying financial entities (QFEs), one product provider says.

Thursday, July 19th 2018, 6:00AM

by Susan Edmunds

The Financial Markets Authority yesterday released its report into QFE insurance replacement business practices, which found many were putting profits before client interests.

The regulator is considering action against three.

It follows earlier research into the way independent financial advisers dealt with replacement policies, which raised concerns that commissions were incentivising them in a way that was detrimental to clients.

Naomi Ballantyne, managing director of Partners Life, said she was not surprised by the latest report and had said for some time that advisers' commission was the wrong thing for regulators to focus on. Potential conflicts of interest were more prevalent elsewhere.

She said vertically integrated organisations, as many QFEs are, had a much bigger problem when they were giving ostensibly independent “advice” but were really focused on selling a product, with minimal advice. “This report highlights that.”

Partners was one of the QFEs included in the report but she said her firm only operated a QFE of salespeople who could step in as locums for advisers when needed, with strict replacement business processes. She said she hoped hers was one of the two QFEs that were found to have high-quality internal processes and policies.

Ballantyne said the report validated what she had been saying that the focus on commission was not where the true problems were. “Advisers are an easy target.”

AMP NZ managing director Blair Vernon said his business had been proactive in raising its concerns about the types of behaviour cited in the report, with the FMA. It was an outlier in terms of its approach to replacement business, he said, and had censured advisers in the past.

Its "unrelenting" stance on replacement business had made an impact in commercial terms, he said. “We stepped off the merry-go-round of replacement business that is reported as new business, even though the market as a whole is not growing much.”

Katrina Shanks, chief executive of Financial Advice NZ, welcomed the report. She said it highlighted where the industry could do more to help build public confidence and trust and the importance of centring the client in any interaction.

It was too soon to say whether the new legislation would address the issues highlighted, she said, but it would be important that Financial Advice NZ was part of the conversation as the new regulatory regime was designed and introduced, to ensure a level playing field for all advisers.

It will have a meeting with Commerce Minister Kris Faafoi at the beginning of August to discuss, among other things, whether it is possible for it to join the working group developing the new code of conduct.

Financial Services Council chief executive Richard Klipin said his organisation and its members were committed to working with the FMA to lift industry practice.

“As the FMA notes the priority must be ensuring good outcomes for customers, yet it appears when it comes to processes and practices around replacement business this has not always been the case.

“As an industry we acknowledge this and are working hard to ensure our policies are driving the best outcomes for clients.

“The sector is going through a significant period of change relating to conduct with the progress of the Financial Services Legislation Amendment Bill and the Financial Advice Code Working Group. We strongly support these measures.”

The FSC will introduce a new code of conduct in September.

Tags: AMP Churn Financial Advice New Zealand FMA Partners Life