[The Wrap] Next round for CWG; Hat tip to group of AFAs; At least sunlight on QFEs
It's been a big week with revelations around the practices of QFEs when it comes to replacement business, release of submissions to the Code Working Group and of course a band of AFAs standing up on KiwiSaver. Here's our take on things.
Friday, July 20th 2018, 4:29PM 
1 Comment
Arguably the biggest, but not necessarily the ugliest was reading through the responses to the Code Working Group's proposals.
There's a lot of reading in and we still have more to do, but one can't escape the view that the proposals put forward were unworkable. I've listened to quite a few presentations on and by the CWG and keep coming back to a view that its task is nearly mission impossible.
To write a code which is simple and crosses all forms of advice and meets its objectives is a big ask.
Of course, there is hope and optimism they can do it, but doing so by the end of the year (when the outcome of FSLAB is still unknown) is not something I would bet on.
The idea that an entity is responsible for advice given, rather than the adviser giving it is something that is difficult to support.
One view that was proffered today was this: "If the submission process had been a boxing match, CWG would have ended up battered and bloodied."
For something a bit more positive it was fantastic to see a group of AFAs prepare a well-researched paper on required changes to KiwiSaver.
Big hat tip to these people.
If you haven't seen the work they did then let us know, by sending and email, and we can make it available.
The third story to grab headlines is the FMA's report into how QFEs handle replacement business.
Our reading on it is that QFEs and vertically integrated organisations are a far bigger problem in this area than independent financial advisers. I plan to write a piece on a personal experience with our bank.
There is a real issue with FMA naming the organisations it reviewed, then saying two were good and three may face some form of action. It won't name organisations and therefore ends up tarring the whole industry and doing very little to help boost consumer confidence in the insurance sector.
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The near impossible task is made harder with the lack of legislative clarity not having the select committee report and law before the house.
Then there’s the FMA’s response to the legislation, how it is able to ‘police’ the rules and how they implement licensing.
Not to mention MBIE reviewing disclosure independently of all of this and the upcoming review of life insurance legislation.
The CWG is critical to the process but is also somewhat at the mercy of the other players and has potential to end up with duplication or requirements that are unworkable within the legislation that is set.
My view is CWG sets the rules for adviser conduct on a one rule for all basis for all players and then the FMA defines the specific requirements in the licensing process with licensing of the various disciplines in a more prescriptive way. (With the ability to broadly adjust it as needs of the market change in a similar way to how a GI insurer adjusts house policies every renewal)
Then we have a tidy rule book, put together like a life insurance policy for each business
An umbrella policy wording (the code) and then the disciplines under that, life (life insurance), trauma (finance), tpd (mortgages), income protection (investments), waiver (Kiwisaver), medical (general insurance). (Not in any particular order or selected just to illustrate my point)
Then you have a rule book (policy document) able to manage each business in the way it operates without creating a massive amount of unnecessary overhead for everyone concerned, including the regulator.
Which is the approach by most life insurance providers.
There seems to be an expectation that the CWG will come up with a code that covers everything, in the same way an Asteron Life policy document works. It has everything in it but you may only have a life cover policy, which means 80% of the policy document doesn’t apply. The Asteron Life approach confuses clients, to repeat the same process with the code is asking for significant confusion, more holes to step through and a playing field where the one with the deepest pockets gets to exploit the flaws.
Keep the code simple and principles based and we’ll have a measuring stick that’s meaningful that the regulator can use effectively without tying smaller operations up with unnecessary documentation and red tape.
On the QFE report, really pleased to see some vindication of Independant advisers, yes some have problems to fix but the problem isn’t as big as people think with independent advisers. The large volume highly transactional businesses have always been the problem, they have always left carnage behind them. By virtue of their size and the consumers lack of knowledge they have always managed to sweep stuff under the carpet.
A poorly informed consumer doesn’t know how to navigate a problem with a large corporation, so they give up quickly. By virtue of the situation they don’t have the resources to fight, so by and large these consumers get lost in the traffic.
The QFE review is vindication for those consumers who haven’t had a voice. While many QFE’s did ok or well, all of them will have had their issues too. It’s not possible to get perfect score in a large organisation if you use the same measuring stick you use on an individual adviser.
For those consumers that have been harmed I do hope they read the reports, unlikely, and take their provider to task if they have experienced harm. Because it’s not their fault that the provider hasn’t executed the process professionally.
Their fault is in not having the knowledge to be able to make the judgement call they had a problem, which comes back to the education in our schools on financial literacy, which is a debate for another time...