GRTV

How financialadvice ischanging

Philip Macalister speaks to Naomi Ballantyne, managing director of Partners Life, on how the industry is looking under the new regime and the issues with PI cover.

A few month into the new regime with advisers. What are you seeing in the marketplace at the moment and has it changed behaviours?

We've already seen some immediate changes. We've seen a spike in agency transfers in March. So we've seen an increase in the number of people that are selling their books.

Who's buying the books?

We've lost four BDMs to become advisers.

But that's a good thing, isn't it?

It is a very good thing for the industry. It will be very good for us because they clearly know us and what we're about so hopefully that will translate to them trusting us with their customers. It's hard for us, we've lost an awful lot of experience and relationships [there] but the timing of the regulations has prompted advisers that they've worked with to go, "Hey, I'm needing a successor. I know you well and I can trust you with my client base – would you like to come into business with me?"

Would you have expected that to happen?

We've always expected that the career path for BDMs is either management within the company, a narrow channel, or go out and become advisers because of what

they've learnt and they've seen different structures, what works and what doesn't. To get so many happen all at once is around timing of the regulations and them having an opportunity to buy a client base. They can start with an income stream as opposed to starting from scratch.

You're on the hunt for a few new people.

We will be. A number of our BDMs, we've recruited from within so we're certainly going to look to that first.

Any changes in the business coming in? New business, replacement business?

That's a really good point actually, Philip. We expected it to happen but we didn't expect to see it happen quite so quickly. We have always thought that the regulations would slow replacement business down, not that there shouldn't be replacement business but we've also been on that receiving end of opportunistic churn. I'll give you an example, advisers that write all of their new business for us but when they come across a new client that's already got a Partners Life policy, suddenly there's another company that's better for that client. And from that persistency point of view, they think we're invisible because they're not the broker that brokered the business.

But the new regulations have made people stop and think, should I and can I justify that and what trouble will I get myself into?

We thought it would take time to flow through but we've just done our most recent measurement and we're probably one of the only companies that can measure – and has always measured – the percentage of business we get that is replacement. We were sitting at around 40% for the last five years of our business's replacement and the other 60% is new – top-ups or brand new business. In the last quarter, it's dropped by 10%, that replacement business so it's about 30%. That's a big drop.

Do you think advisers under the new regulations are thinking more about replacement business? And does that indicate that maybe they were doing things that they shouldn't have been doing before?

I think most advisers, nothing's changed because when they replaced business, they were genuinely doing it where they felt that it was right for the client. I think the few that weren't doing that and thought that they were kind of invisible so it was a nice bit of money on the side, are rethinking that strategy.

It'll be interesting to track those numbers and see what happens.

It will be. But there should be a healthy degree of replacement business because people's circumstances change and companies change.

Absolutely, policies change and …

Yeah, exactly. But it'll be interesting to see what the normal level should be and in an environment where you really have to work to justify that as opposed to price.

And I guess that's partly what the regulations were designed to do.

They were, 100%. We thought it would take time for that to have an impact but it seems that it's having an impact much quicker than we thought.

A year on from Covid, how are volumes?

Depressed compared to before Covid, better than they were in the height of that issue, but I think advisers are still doing a lot of work retaining customers.

Yeah.

For two reasons. One, because Covid created some financial strain for a number of customers and that is still flowing through and also there's a requirement to prove that you're servicing. There's probably a fair bit of activity going on to demonstrate that they've been working and are reviewing their customers. That kind of removes focus from finding new customers. Again, I think that will play itself out. I think the economy's going to be interesting, inflation rates increasing, is that going to put more cost pressure on people?

Well, also, it's going to push premiums up, isn't it?

It will push premiums up but incomes are not going up at this point so it's going to be an interesting thing to see how that plays out. I think the original industry's gone because Covid has washed through, that's gone, and now it's much more about the general economy.

And the other big issue out there for advisers is PI insurance, what are you seeing there?

It's really interesting. We still insist on PI insurance because when there's financial liability, if the advice is wrong, then you need to make sure that people have got the cover to defend against that or a fine, for example. But we're having advisers say, "But where are we going to get it from?" And I had an adviser talk to me not so long ago saying, "I can't get PI insurance for nominated representatives, or I can, there's one option, it's 10 times more expensive than it was before." And so, expressing a real concern that we, insurance companies, need to change our rules because …

They're saying drop it out of your agreements?

Yeah. And actually when I sat down and talked with this particular individual and pointed out, "Well, are you planning on these people being nominated representatives for the long term? Or are you planning on them becoming financial advisers and going down a qualification path?" Because that's important to the insurer and the absence of them knowing that their risk is mitigated so they can look at this in a different way, the only thing you've told them is you're going to have a whole bunch of people who are not ever going to be qualified selling insurance in a regime where there's a significant liability, right? It's not just fill in an application for insurance, it's go and talk to the insurer and explain your business and how they should not be concerned overly about the risk that you have. I think that advisers need to engage. Insurance used to be a tick the box, "I bought it from my broker and their dealer group provided discounted insurance. I didn't think about how much I should have or specifically what I require compared to what that guy requires."

Now, I think they actually have to behave like we do, which is go to our insurer and say, "This is the nature of our business, here's the risks, here's how we mitigate them so you can have comfort and that you can quote insurance for us."

They actually have to really think about what PI is all about.

Exactly.

In the past, it was a tick box exercise.

Exactly, because we forced it on them.

How do you think this will play out in the future? Do you think we're going to get new players coming into the market?

I think we will when it is known what the liability is, how active the regulator is going to be in terms of enforcement and what size the fines [will] be.

Because that was a big issue, wasn't it? Because the previous company were worried about the liability, particularly for smaller firms.

But we've also got a regulatory environment in NZ, which is principles based. On the one hand, that's a good thing because it means everybody's got this little devil/angel on their shoulder saying, "Could you justify this? Could you explain this?" Rather than, "If I tick a box, I'm okay." The downside is, from an insurer point of view, you've got no idea how the regulator's going to interpret things because you've only got guidelines, not rules. As a result, as an insurer, for that liability, you have no certainty about what you're taking liability for and it will push price or availability out of the market until there's precedents set.

And sort of related to that, are you getting any feedback to how the FAPs are going and taking responsibility for their members? We're hearing, in the mortgage space, there's some pushback going on.

I'm not hearing that. Before the regulations came into effect, we had dealer groups, for example, saying they were going to be FAPs and taking responsibility. Then, in some cases, that didn't play out, leaving members to scrabble at the last minute. Since then though, the FAPs that are in place, I’m not hearing in the life insurance space people talking about leaving, etc. A

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