Predictions for 2021 – from the Laird’s Desk

With a New Year now upon us we asked David Whyte to once again offer his thoughts on what may lie ahead over the next 12 months.

Saturday, January 2nd 2021, 1:56PM

by David Whyte

This time of year, we often pause for reflection, consider that which has happened over the last 12 months, and contemplate what may lie ahead of us over the next 12 months.

Looking back at last year's predictions, these can be consigned to the wastepaper basket – Covid -19 overtook everything and anything with such rapidity as to render forecasts for 2020 irrelevant.

However, we did see an acceleration in the application for transitional FAP licenses – albeit considerably later than anticipated due to the pandemic. And there has been a consolidation among what were previously referred to as ‘Dealer Groups’.

There were also significant changes to the Income Protection product in Australia, and while the same impact may not have arrived in NZ, this is still a risk product worth monitoring.

The forecast of investment market volatility certainly came to pass – but for an entirely unforeseen reason. The subsequent market rebounds continue to defy gravity.

But what is in store for us in 2021?

March 15th, 2021 will see a historic milestone finally arrive – the culmination of the 5-year review of the Financial Advisers Act 2010. The Financial Market Conducts Act comes into effect as do the provisions of transitional licensing, and the revised Code of Conduct for advisers. The full implications of the entity licensing regime have yet to emerge, but it is already apparent that simplicity is a far from appropriate description,

While the March date will finally see the AFA, RFA, QFE, terms abandoned, we will have FA, NR, AB – and possibly IP (interposed person) to explain to consumers (or has the term interposed person been dropped from the lexicon?).
Simplified, rationalised, and made easier for consumers to comprehend?

You be the judge.

But it is what it is, and we just must get on with providing the best service and optimal outcomes for clients – just as most of us have always done.

But there will be consequences to the course of action preferred by the regulators.

The true cost of maintaining a FAP license is likely to become prohibitive for some and while there has been a measure of self-congratulation in certain quarters for the numbers of transitional licenses applied for, I suspect the celebrations may be premature.

The additional commission payments provided to advisers to help navigate Covid and the run-up to March 15th will come under pressure to be reviewed and possibly removed.

With the time taken to meet compliance obligations adding to indirect costs, the one/two person entities will struggle to survive.

The added direct expense around professional indemnity coupled with a downward trend in valuations will have the effect of reducing numbers as the smaller businesses seek the comfort of larger organisations better able to spread and absorb the additional costs of staying in business.

Whether this is a ‘good thing’, or a ‘bad thing’ is open to debate, but certain business models are clearly more adaptable to regulatory impost than others.

Darwinian Capitalism in action – not the survival of the fittest, the biggest, or the strongest, but the most able to adapt to the new environment. If size were the sole determinant of survival, dinosaurs would still rule the earth.

I expect there to be further rationalisation in Adviserland and perhaps also in the risk product provider space. Whether there are too many life insurers is another topic for debate but here again market forces and regulatory activity will drive survival or consolidation.

Change can be challenging, uncomfortable, and threatening but there is an inevitability about change in the financial services industry. Some will step out, while others will step up – given the experience of last year, it would be a brave soul to predict with any conviction what the New Year will produce.

However, the resilience shown by the New Zealand population in the face of crisis, the response of financial advisers to client concerns during the lockdowns and difficulties, and the acknowledgement by the Authorities of the importance of financial advice, combine to suggest that we have excellent opportunities ahead of us to make meaningful progress in 2021.

David Whyte was the general manager of AIA New Zealand and chief executive of the Ginger group. He know runs DCW Consulting.

Tags: Opinion