ASSET JUNE JULY 2016

JUNE / JULY 2016

FAA REVIEW PROPOSED CHANGES REVEALED

Naylor responds to NZIER

PAA on new association plans

Don't worry about the rules 01

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LEAD STORY

UP FRONT

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04 EDITORIAL Combined association could have strong voice 07 OPINION In defence of commission 08 NEW ZEALAND NEWS 09 AUSTRALIAN NEWS 10 PEOPLE

FAA REVIEW

New appointments

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PROPOSED CHANGES REVEALED

The Ministry for Business, Innovation and Employment has released its recommendations for changes to the Financial Advisers Act. What does it mean for you?

Diane Maxwell

REGULARS

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{OPEN TO QUESTION} { INVESTMENT }

{ INSURANCE }

06 What do you think of the proposal to form Financial Advice NZ?

22 NZIER adviser report examined

28 Don’t worry about regulators

26 A place for advice

30 FMA churn investigation results

18 Introducing digital component to business a fine balance 20 Inflation outlook is key

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UP FRONT

{ FROM THE EDITOR }

NEW GROUND FOR IFA AND PAA

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WHEN THE IFA AND PAA REVEALED this month that they want to work together to develop a new adviser association, the response from advisers was overwhelmingly positive.

The two organisations were at pains to point out that it was not a merger – the two existing groups might not necessarily have to close once the new one, Financial Advice New Zealand, was operating.

But the two want to develop a plan for a new organisation that will better represent the interests of the industry.

They say this will provide a better outcome for consumers who might more fully understand just what it is that a financial adviser actually does.

It is something that has been brewing for some time. The two organisations have been working ever more closely together. This year’s annual conference will be the second the two have held as a combined effort.

Consolidation seems sensible – in an industry where very few advisers are members of any professional body, having too wide and varied an array of options serves no

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one well.

Under the new regulatory environment, post FAA-review, industry bodies may be able to have more of a voice – but one unified one is much more likely to be listened to than a number of disparate opinions.

A new organisation would also have more financial clout if it is able to grow its member numbers beyond the 2000 who are a member of the IFA or PAA at present. It would be more stable and perhaps more able to create a wider array of adviser development and CPD opportunities.

The only criticism I have heard of the move is that not all advisers are the same. While the presidents of the IFA and PAA talk about boosting the image of “financial advisers” in the eyes of New Zealanders – what constitutes a “financial adviser” varies a lot.

Some financial planners, who deal with clients on a fee basis, are worried about being lumped in to a homogenous body that also represents the far more numerous ranks of financial advisers who take commissions and offer advice on risk products.

The two have different needs and perspectives and it will be important that whatever body is developed, mechanisms to represent all the diverse facets of the financial advice industry are still in place The IFA and PAA are correct that something needs to be done to improve the public’s opinion of financial advisers. There is very little public recognition, for all the good they do. This is partly because it’s hard to get people to talk publicly about their financial wins – they are much more likely to turn to the media when a claim is denied than when it is paid out. But it is also a basic lack of understanding of what is available and how it could help them.

Anything that puts the industry into a stronger position to advocate for itself should be welcomed.

Susan Edmunds Editor

HEAD OFFICE 1448A Hinemoa Street, Rotorua PO Box 2011, Rotorua P: 07 349 1920 F: 07 349 1926 E: editor @assetmagazine.co.nz PUBLISHER Philip Macalister EDITOR Susan Edmunds SUBEDITOR Phil Campbell CONTRIBUTORS Russell Hutchinson, Naomi Ballantyne, Michael Naylor, Tony Vidler DESIGN Jonathan Harding ADVERTISING SALES 07 349 1920 027 437 7527 SUBSCRIPTIONS Dianne Gordon P: 0800 345 675 E: subs@assetmagazine.co.nz ASSET is published by Tarawera Publishing Ltd (TPL). TPL also publishes online money management magazine Good Returns www.goodreturns.co.nz and The NZ Mortgage Mag All contents of ASSET magazine are copyright Tarawera Publishing Ltd. Any reproduction without prior written permission is strictly prohibited.

ISSN 1175-9585

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OPEN TO QUESTION

LIZ KOH

TIM FAIRBROTHER,

TO WHICH ASSOCIATIONS DO YOU BELONG?

TO WHICH ASSOCIATIONS DO YOU BELONG?

MONEYMAX

I am a long-standing member of Chartered Accountants Australia and New Zealand, the Institute of Directors and the Institute of Financial Advisers.

WHAT DO YOU THINK OF THE PROPOSAL TO CREATE A NEW PROFESSIONAL BODY? The creation of a single professional body is long overdue. It will help increase our credibility with the public and our negotiating power with regulators while also offering the opportunity to avoid duplication of cost and effort.

WHAT ONE THING DO YOU THINK IS IMPORTANT TO GET RIGHT FOR IT TO BE A SUCCESS? If this new body is to be successful we need advisers to get in behind it, put their differences aside and work together. We need take the positive view that it will work rather than being sceptical and looking to find fault.

RIVAL WEALTH

Different advisers in our business have affiliations with their specialist area of advice - IFA and IBANZ .

WHAT DO YOU THINK OF THE PROPOSAL TO CREATE A NEW PROFESSIONAL BODY? I think forming a “super” association is a great idea for our industry to get a voice with consumers, suppliers, and government.

WHAT ONE THING DO YOU THINK IS IMPORTANT TO GET RIGHT FOR IT TO BE A SUCCESS? Relevance: historically there has been a big divide between investment, risk insurance, general insurance, and mortgage advisers.

The attitudes in the past have been very different around disclosure of remuneration, CPD, attaining qualifications, supplier support, overseas trips, and advice vs selling. One has not been better than the other, just different.

Under regulation, the different areas of advice expertise are merging closer together culturally under a new set of new rules, which is about to change again. So making the new association relevant to risk insurance, investment, and mortgage advisers will be the most important thing for the new association to get right.

KEVIN HICKLAND, APEX ADVICE

TO WHICH ASSOCIATIONS DO YOU BELONG? I belong to the PAA.

WHAT DO YOU THINK OF THE PROPOSAL TO CREATE A NEW PROFESSIONAL BODY? In my view there is no real need as the professional bodies that operate now from my experience do a good job on behalf of the advisers, none more so than with the recent changes and submissions with the Government and FMA. The PAA and other groups organise ongoing adviser education and conferences along with training and continuously feed market information, trends and comment to the advisers.

They have a recognised linkage with product providers and they certainly are a strong mouthpiece with Government and legislators. In my view for our market size we have sufficient professional bodies and they do an advisory job that meets the market requirements in this ever-changing industry

WHAT ONE THING DO YOU THINK IS IMPORTANT TO GET RIGHT FOR IT TO BE A SUCCESS? Any new organisation would have to offer something significant over and above what is available now.

OPINION

IN DEFENCE OF COMMISSION-PAID ADVISERS Consumer education and information, expert advice and guidance, product choice, claims advocacy, market competition – how can a distribution channel that delivers all of these be ‘broken’?

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peaking as a builder of three of New Zealand’s largest and most successful life insurers over the past 30 years, all of which achieved their success on the shoulders of the IFA market, and all of which have paid upfront commissions to achieve this end, I am uniquely placed to comment on the value of and the problems with this distribution channel.

The current fervent attempts to completely discredit this channel, through assertions of unethical, selfish, and greedy behaviour leading to detrimental outcomes to consumers, are at best arising from misguided but wellintentioned ignorance, or alternatively from a cynical attempt to significantly diminish market competition for provider owned, tied, aligned or controlled distribution channels so they can further maximize their profits at the expense of consumers.

In either case they are completely wrong. The IFA channel is not broken. More New Zealanders buy life insurance products from IFAs than from any other channel. IFA-advised clients buy more types and higher levels of cover than clients from any other channel. Logically, that would lead to IFA-advised clients being paid more in claims than clients of other distribution channels.

Underinsurance gap Consumers who have been advised by IFAs become significantly more financially literate than those who have never been advised.

Without the IFA channel the NZ underinsurance gap would be unimaginably horrendous.

All distribution channels exist to sell as much business as they possibly can.

An IFA offers a choice of product provider based on their assessment of product value for their client. To be free to make this choice, the only viable remuneration structure is commission. Any other remuneration structure will have an undue influence on the product choices made available to the consumer.

It is very easy to identify the value that IFAs bring to consumers in general in terms of the competitive pressure felt by product providers who choose to distribute through IFAs. A quick glance at the ratings tables of the various product research engines instantly

business that exists in all distribution channels where new sales volumes are the primary key success driver, irrespective of the remuneration structure.

Replace policies

{ NAOMI BALLANTYNE } demonstrates the product value differences between product providers who choose to compete for distribution and those who don’t.

The primary costs of distribution for any life insurer can be summed up as follows: ➤ Attracting consumers to consider life insurance. ➤ Educating those consumers to the extent that they can make a purchase decision. ➤ Enabling the consumer to apply for and be accepted as a customer. ➤ Providing ongoing service to the customer. ➤ Educating the customer about their need to review covers over time. ➤ Facilitating cover reviews. ➤ Retaining customers in the face of competition.

The structure of how these costs are paid is a commercial decision for the product provider. If they choose to have costs that are variable depending on outcome then they pay upfront commissions. If they prefer fixed costs, irrespective of sales volumes, then they might pay for advertising and lead generation campaigns themselves, rather than rely of the distribution channel to pay for it out of commissions. Neither is right nor wrong, better or worse.

Yes, upfront commissions have the potential to unduly influence adviser behaviour, particularly around replacement business, but no more or less than the influences to replace

Wherever a person is expected or needs to meet new business volumes, they are at risk of behaving in a manner that could be detrimental to the client, which is particularly risky for the client if that behaviour results in a recommendation/suggestion to replace existing policies.

It is therefore the behaviour that is the common issue, not the distribution channel nor the remuneration structure.

All face-to-face distribution channels irrespective of remuneration structure have the potential to deliver conflicted advice. Without disclosure the consumer is blind to all of these potential conflicts. There are more risks to consumers in replacement advice than there are in advice relating to the purchasing of new coverages.

Consumer awareness In other words the things that are broken and need addressing are simply consumer awareness of potential conflicted behaviour and the replacement business process – not commissions.

Why, after all these years, do I still passionately believe that commissioned independent advice is what’s best for consumers?

Because, while the commissioned IFA channel presents more or less the same level of risk of conflicted behaviour as all other face to face channels, it has always delivered more value to New Zealand consumers and life companies than any other channel, full stop.

My wish for this year is that IFAs, the life companies who are brave enough to compete for independent distribution, and the regulators, are able to drown out the noise coming from those who do not wish to compete, those who are seeking a platform for fame, and those who are just simply ignorant.

Naomi Ballantyne is managing director of Partners Life.

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UP FRONT

{ NEWS FROM NEW ZEALAND }

Adviser helps train new AFAs

Duncan Balmer

At least one financial adviser is doing his bit to help boost the number of AFAs in New Zealand.

Duncan Balmer has established an educational college, New Zealand Academic and Learning Institute (NZALI) in Auckland specifically to deliver the Level 5 course content necessary to become an AFA. Students study the course content as part of the college’s Level 7 (degreelevel) business management diploma.

Partners gets multimilliondollar investment Partners Life has nailed a $200 million capital injection from a US private equity firm.

Earlier the company had been looking at an IPO on the New Zealand sharemarket but decided to pursue the private equity path for new capital because market conditions last year became volatile and unfavourable.

Under the deal, which was recently inked, US-based Blackstone will put $200 million of new capital into the company over the next two years, giving it a 45% stake.

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NZALI has been granted consent to assess some of the papers (the consent process is something a school goes through with NZQA), and The Skills Organisation (formerly ETITO) will assess the other papers.

The students will also intern with Balmer’s division of Balmer, Jeffs & Co, a business jointly owned with Rob Jeffs in Christchurch.

Balmer says the current intake are all foreign students, although a New Zealand resident who aspires to become an AFA could study the financial planning specialisation alone.

“Our intention is that graduating students will be able to approach New Zealand employers (most probably the migrant divisions of the big banks, and the big funds management companies, and bigger advisory businesses) with a degree-level business management diploma, the AFA papers, and internship experience with a large independent financial planning practice,” Balmer says.

“That’s not a bad combo.”

$1.9m start for PAA Legacy Trust The Professional Advisers Association is looking to realise $2.9 million from the sale of its holiday homes and expects to use the bulk of this money for its proposed legacy trust.

It froze the scheme last year and has been going through a sales process.

PAA chief executive Rod Severn says after credits and other expenses are paid a balance of $1.9 million will be used to form a legacy trust.

The trust may use the money to pay for learning and development services, Government lobbying or consumer awareness programmes.

All holiday houses in Rotorua, Taupo, Queenstown and Papanui were sold to PAA members through a closed tender process.

Nelson and the two Australian properties did not sell through the tender process; however, Nelson has now been sold via a real estate agent.

Code changes likely by year’s end A new code of conduct for authorised financial advisers has been submitted to the Financial Markets Authority for approval and is likely to come into force by the end of the year.

The code committee for Financial Advisers has formally recommended a revised draft Code of Professional Conduct for Authorised Financial Advisers to the Financial Markets Authority (FMA).

This paper was to be released in June.

Key changes include recognition of the new qualifications available for advisers and moves to make it easier to offer limited advice.The code includes a new requirement for advisers to attain the components of the New Zealand Certificate in Financial Services (level 5) that are relevant to their

work, and significant changes made to Code Standard 8, which covers suitability of advice.

The committee had wanted to address problems around the provision of advice to clients not wanting a full personalised service.

Under the new code standard, advisers are required to clearly and effectively communicate the nature and scope of a personalised service. An AFA has to take reasonable steps to ensure the client is aware of the extent of any limitations on the scope of their service, and attendant implications.

"Where a class service is provided, the client can be taken to have agreed to the nature and scope of the service, although the AFA must still take reasonable steps to ensure the client is aware of the limitations of the service provided,” the committee says.

UP FRONT

{ NEWS FROM AUSTRALIA }

Tax changes may not be super

Australians in New Zealand and Kiwis working across the ditch are being warned to check what impact recent Australian Budget changes might have on their superannuation.

The Australian Government has imposed a number of superannuation changes in its latest budget.

Among them are a new lifetime cap of $500,000 on after-tax superannuation contributions – those deposits made outside deductions from income.

It is also imposing a maximum pension balance of $1.6 million, and limiting the amount of contributions per year, with the tax concession applied, to $25,000.

Tony Negline, head of superannuation

for Chartered Accountants Australia and New Zealand, said New Zealanders who were working or running businesses in Australia could be affected.

"If they are saving here and investing in the super system, some will need to rethink what they are doing, especially if they want to return to New Zealand to retire," Negline said.

The $500,000 cap could also affect Australians who have left to work in New Zealand, saved money here and then wanted to transfer it back. That transfer could now attract a tax bill.

"If they wanted to retire and have money in KiwiSaver, they have got to be careful about how much they save in that system and how much they want to transfer because there is a limitation on what can be put into the Australian system."

People on both sides of the Tasman should analyse the changes and how they might be affected, he said. "Otherwise there may be tax penalties. They need to assess how the new levels affect their plans."

Chartered Accountants Australia and New Zealand is calling for the Australian Government to review its policy and address the concerns of those who might be caught by the changes.

Couples do better together Coordinating personal finances and investment portfolios would give couples a better chance of reaching their shared long-term financial goals, says investment firm Vanguard.

Vanguard head of market strategy and communications Robin Bowerman argued couples investing or saving together “can be highly positive”, particularly in light of the country’s recent superannuation changes in its Budget.

Proposals such as the $500,000 lifetime cap on non-concessional contributions and the $1.6 million cap on the quantum of a super pension account “underline the benefits of a coordinated

savings effort”, Bowerman said.

He suggested having the higherearning spouse split eligible concessional contributions with the lower-earning spouse so that both could reach their individual contribution caps.

Such a strategy would also avoid new taxes. “Most advisers would agree that couples in a marital [or de facto] relationship who carefully coordinate their investment portfolios along with their other personal finances can potentially put themselves in an excellent position to reach their shared long-term goals,” he said.

Warning for accountants

Australia’s regulator has warned accountants they need to sort their licensing by July 1 if they want to provide financial product advice on self-managed superannuation funds.

The Australian Securities and Investments Commission (ASIC) is writing to accountant applicants for a limited Australian Financial Services License who have applied since March this year, advising them to make arrangements in case they do not receive approval by June 30.

"They will not be able to give such advice until they are granted a licence or they become an authorised representative of a licensee," the ASIC statement said.

Any accountant who provided unlicensed financial services would be guilty of a criminal offence.

Financial worries keep people working Forty per cent of Australian workers expect to keep working past 70 because of concerns about their financial wellbeing.

The 2015/16 Global Benefits Attitudes Survey conducted by Willis Towers Watson (WTW) found Australian employees had significant short and long-term financial stresses.

Inadequate retirement savings were a primary worry.

Australians ranked higher than all other developed nations for employees who believe they will work past 70, at 52%.

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ASSET UPDATA FRONT ADVISER

a new appointment email details { PEOPLE } Ifandyoua have picture to editor@goodreturns.co.nz

of those within its independent adviser channel. Atkins is responsible for servicing AMP’s corporate partners and institutional brokers, specialising in the employee benefits area.

AMP has one of the largest financial advice networks in New Zealand.

Richard Brown

AMP MAKES ADVICE APPOINTMENTS AMP has appointed Richard Brown as head of distribution and Clive Atkins as head of enterprise distribution within its advice and sales business.

It said that would better align some of its distribution functions to deliver improved services for customers.

Brown was previously AMP's national manager of its financial advisers network and Atkins was national manager of its independent financial advisers network.

Blair Vernon, AMP’s director of advice and sales, said: “At AMP we continue to evolve our business to provide high-quality support and services for all those who are part of the AMP family. We envisage a range of positive opportunities to flow from the natural grouping of some functions, including access to enhanced services for our customers and corporate partners.”

Brown’s broadened role includes overall responsibility for its distribution business, including AMP’s aligned advisers and most

Ian McPherson

SOUTHERN CROSS BOSS DIES Southern Cross Healthcare's former group chief executive officer, Ian McPherson, has died, aged 66.

Chairman Greg Gent said McPherson worked tirelessly for the healthcare industry.

“With Southern Cross, he brought a lot of experience, knowledge and respect to the health insurance sector nationally and internationally,” Gent said.

A testament to his expertise was his

We would welcome the opportunity to help you sell part or all of your client base.

We have many more buyers than sellers, all keen to provide those clients with a high level of service.

CALL US NOW

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2012 appointment to President of the International Federation of Health Plans (iFHP).

Founded in 1968 by health plan industry leaders, iFHP is the leading global network in the industry, with more than one hundred member companies from 25 countries. It made him a life member in May. Gent said: “On a personal note, he was a passionate family man. He was devoted to his wife, children and grandchildren and he certainly embodied this ethos within the Southern Cross family. He will be sorely missed.”

Dr McPherson started his career as a GP in Thames where he also practiced in anaesthetics and obstetrics. In the 1980s, he worked for the International Red Cross and was the first non-Swiss to be appointed as Medical Coordinator, initially serving on the Pakistan/Afghanistan border during the Russian occupation of Afghanistan. He subsequently worked with refugees on the Thai/Cambodian border and with Vietnamese boat people in Malaysia.

On returning to New Zealand, he held roles as chief executive of the Bay of Plenty Health Board, worked in the Department of Prime Minister and Cabinet, for the Ministry of Health, as executive chairman for Aetna Health, and as regional general manager of health for Allianz Asia Pacific Ltd. From 2002 to 2014, he was the group chief executive for Southern Cross Healthcare.

Maree Porter

021 874 231

maree@mikemoore.co.nz

ASSET UPDATA FRONT ADVISER

industry, Jack specialises in business and personal risk.

Kerr has recently joined after 10 years with Westpac Bank.

Woolford is a risk specialist and has been in the industry since 1992, recently with AdviceFirst.

Barrett has worked in the industry for the past 12 years, mainly based in the Manawatu, and has a focus on personal risk insurance. Barrett is also a facilitator for the Commission for Financial Capability and has experience in ACC planning.

Adam Boyd

ASB APPOINTS WEALTH, INSURANCE BOSS Adam Boyd has been appointed as executive general manager wealth and insurance at ASB Bank.

Boyd has been with ASB since 1995 and is currently general manager global markets, strategy and product.

He replaces Nicholas Stanhope, who has been appointed chief executive officer of Sovereign.

STEWART GROUP JOINS PLUS4 Stewart Financial Group, a leading Hawke's Bay wealth and risk management specialist firm, has joined Plus4 Insurance Solutions, the national insurance broking and financial adviser group.

Established in Hastings in 1986, Stewart Group has six professional financial advisers, five of whom are AFAs providing investment and risk management services including KiwiSaver. The team has access to a back office team to ensure that the firm is effective and compliant with the financial adviser regulatory regime.

Executive director Don Stewart, founding principal of Stewart Group, said: “As a privately owned, nonaligned and valuesbased organisation, Stewart Group has much in common with Plus4.

“While we will continue to operate under our existing brand, joining forces with Plus4 provides both entities with greater scale.”

WORKPLACE SAVINGS BOARD MEMBERS STEP DOWN Hamish Kerr

SHARE APPOINTS ADVISERS Adviser group Share has appointed six new advisers. Guy Turner, Richard Bradshaw, Paul Jack and Hamish Kerr are based in Hastings; Mark Woolford is located in Palmerston North and Sonja Barrett in New Plymouth.

Bradshaw has a focus on business and personal risk, with almost 30 years in the industry, while Turner has also been in the industry for nearly 30 years and is an AFA specialising in risk and retirement planning.

Turner is also a Chartered Life Underwriter (CLU) and an associate member of the NZ Law Society. With two years in the

David Boyle and David Wallace have ended their terms on the board of Workplace Savings.

Boyle, group manager of investor education at the Commission for Financial Capability, said the pair had both served six years and while they had been given the opportunity to extend the term, decided it was a good time to refresh the board.

WSNZ recently appointed Owen Gill as its executive director. Gill is also at the helm of the embattled Financial Services Council, following the resignation of Peter Neilson.

Boyle had said previously he hoped there would be an opportunity for the two organisations to work together. He said he was pleased to be leaving the organisation at a point where that looked possible.

Boyle said he would continue to work with WSNZ in his role at the commission.

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LEAD PROFILE STORY

THE BEST JOB IN THE WORLD Diane Maxwell is happy to talk to anyone about money – just don’t tell her it’s boring, writes Susan Edmunds.

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iane Maxwell says she has the best job in the world. It’s just a pity about the job title.

The Retirement Commissioner has been in her role since 2013, when she took over from Diana Crossan.

She had come from the Financial Markets Authority, where as head of stakeholder management she was part of the first team hired to staff the new industry regulator.

But with a background in consumer trends and banking, when the Retirement Commissioner job came up, it seemed a perfect fit.

“I often say it’s a terrible name for the best job in the world,” Maxwell says. “For me this is a dream job. Working with people of all ages to get themselves in better shape financially, it doesn’t get better than that.”

SORTING FINANCES While she now spends her working life helping people come to grips with financial concepts, Maxwell is quick to dispel the notion that she has always had her finances sorted.

She was a single mother when her daughter, now 14, was small, and knows firsthand what a shock it can be when someone who is used to a solid income finds their bank account looking lean.

“If you don’t have your money sorted, it can really erode your quality of life, your happiness,” she says.

“It affects your mental health, your wellbeing, your sleep. It can undermine your relationships and family. It’s too easy for people who work in this sector and have a buffer, properties, a diversified portfolio, to forget that there are a lot of people who don’t have that.”

Maxwell says she spent her 20s and 30s eating, drinking, wearing and driving her money. “Then I became a mum and thought ‘what have I done? This could have been okay but it’s not because I don’t have any money’.

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“You hear lots of great advice but for some reason it doesn’t register. People tell you stuff but then you have that moment when the penny drops and you think ‘that has meaning for me now’. Until it happens, it’s just words.

Something that finally sank in for me was that a lot of little spends add up to everything. I’d been lulled into ‘it’s just a coffee, a lipstick, a magazine’ but then suddenly it hit me that it actually steals your entire pay packet.”

UNDERSTANDING MONEY It was not until she was working in banking and had the complaints department within her portfolio that she started to work out what needed to change. Listening to what people complained about, she realised how little most people understood about money.

As the Retireme nt Commissioner, Maxwell has to work with retirees of today – and retirees of tomorrow. At the moment, it’s the future retirees who are getting most of the focus because that is where she can see most of the pressure building.

“Super is going to have to have some changes in the future,” Maxwell says.

“Because our dependency ratios will be 2.5 to one by the middle of the century, things will change. People will work longer which will help but there will be fewer people paying tax for more retirees. There’s no way to fudge that. At the moment someone who is earning $60,000 is paying $1800 to a superannuitant out of their tax. If fewer people are earning and more are receiving, are you going to raise the $1800? Do you revise what the superannuitant gets? Or do you take it out of health care? It’s not a cunning plan by the Government to take people’s money away, the maths won’t add up.”

A lot of focus is centred on vulnerable groups and low-income people, targets which Maxwell says have not always been popular. “Some people would rather focus entirely on those who are already sorted and

help them leverage up and maximize what they’ve got. But this isn’t about warm fuzzies, it’s about economic fundamentals. Unless we can help these people to be more self-reliant the taxpayer is going to have to fund them.”

She wants New Zealanders to start talking about money more openly and to realise that it is not a scary concept.

“I want to take the idea of managing money into a space where it is interesting, compelling, simple and relevant. In New Zealand people are a bit squeamish about wealth, even the word, but it would be great if we talked about it openly.

OVER COMPLICATING “I don’t mean how much your house is worth or how much you earn but the mechanics of saving. If we can get people engaging from a young age and taking responsibility for how much they have got and what they are going to do with it, that will help. This isn’t a big complicated complex thing. Sometimes people try to make it more complicated than it is because it makes them feel better about their jobs but it’s really simple stuff, really straightforward.”

Maxwell says she is already a long way down the road to that goal with the relaunch of Sorted. This year’s review of retirement income policy is also under way, tackling a theme a month. Recommendations will be delivered to the Government at the end.

“Last time we put a review document out it was 100 pages and people looked at it and said, ‘Are you going to raise the pension age?’ The entire thing was reduced to one conversation.

“That’s the point of spreading it out. We’re only in month one and we have already had more submissions in one month than in the entire review process last time. The themes are going to get a good airing and at the end of the year it won’t be someone saying are you going to raise the age of eligibility. We’ll have spent time on KiwiSaver, decumulation, vulnerable groups, really important things to get across.”

Just don’t tell Maxwell that she’s got an uphill battle ahead of her to get young people involved with financial issues.

If there’s one thing she’s sick of, it’s people saying, “You’ll never get young people to think about their retirement” or “Good luck with that”.

“Actually, we do. It’s just about how you tell it, how you execute it and how you communicate it. I reckon you can get just about anyone to care about just about anything if it’s presented right.”

There are already moments happening that prove to her she is on the right track. At a recent Rotary presentation, a group of young people heard she was to speak and asked to attend.

“In a month the 50-plus grew a group of teenagers and 20-somethings had heard the retirement commissioner was working and they were there to listen. It’s those little moments when you go ‘okay, this is working’.”

LEAD Y RPROFILE OTS STORY DAEL

"In New Zealand

people are a bit squeamish about wealth, even the word, but it would be great if we talked about it openly " – Diane Maxwell

LEAD STORY

FAA

LEAD STORY

Big changes are ahead for some advisers, writes Susan Edmunds.

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he Ministry of Business, Innovation and Employment’s recommendations for changes to the Financial Advisers Act have been revealed. While some of the changes have been well-signalled, there will still be some surprises.

The most notable proposed change removes all the distinctions between advisers and types of advice. Under the new FAA, definitions of class, personalised advice and product categories will be removed. So will the RFA, AFA and QFE designations.

Commerce Minister Paul Goldsmith said the revamped FAA was an attempt to get conversations about New Zealanders' finances flowing, instead of advisers being hindered by restrictions on the type of product they could discuss.

All advisers, whether they are human or roboadvice, will be required to place the interests of the consumer first and provide advice only where they are competent to do so.

Code competency

All will be subject to a code of conduct that will dictate what the requirements actually look like. The standards of the code will vary according to the different types of advice provided. The code will also set the competency requirements expected of advisers.

A blanket introduction of a level five qualification requirement for all advisers is not being promoted at this stage but Code Committee chairman David Ireland did not rule out it out as an option that could be implemented by the code.

All advisers will be expected to put the interests of their clients first.

The Financial Markets Authority would be charged with monitoring whether clients were being put first and breaches could be penalised.

Goldsmith said the changes would mean a higher bar for people who are currently RFAs as they were drawn into the regulatory net. “It is a step up for them,” Goldsmith said. “But if you look around the world, this is broadly the direction that everyone is going and is what consumers expect.”

He said it would be interesting to see whether the number of advisers in the market changed after the new rules were implemented.

Under the new rules there will be three classifications for those financial advisers, advice firms and advice firms’ agents offering advice.

Types of advice

Some concerns have been raised about the new designation of “agents”, which seems to broadly replace the current QFE model.

MBIE said the QFE structure had been

efficient and effective.

MBIE said: “There would be no legislative difference in the services financial advisers or agents could provide (but in practice, agents would be limited to the types of advice where the financial advice firm could demonstrate it is appropriate for the firm to hold accountability – for example, advice that is subject to clear processes and controls). The advice that could be provided by agents and the controls around this would be made explicit in the firm’s licensing documentation and licensing conditions.”

Agents and advisers would have to take steps to ensure consumers were aware of the limitations on the advice they received, and firms will have to take steps to ensure that agents are not incentivised in a way that does not put the consumer first.

There had been discussion during the options paper process of a carve-out of sales versus advice services. Goldsmith said requiring all advisers and agents to make clear the limitations of their services, and tell clients if they could only offer advice on one type of product, would deal with that issue.

" In all cases, advisers and agents must put the consumers’ interests ahead of their own regardless of the differing financial incentives offered by providers."

– MBIE

Consumer interests first

MBIE said: “All advisers and agents have limitations on the services they can provide.

For example, some only provide advice on one or two providers’ products. In putting the interests of the consumer first they would not be expected to consider the full range of products from across the market, but would be required to recommend the best product for the consumer from their suite and, if no product from those providers is genuinely suitable, to advise the consumer on that basis. In all cases, advisers and agents must put the consumers’ interests ahead of their own regardless of the differing financial incentives offered by providers.”

But Rod Severn, chief executive of the Professional Advisers Association, said the recommendation effectively gave agents of an institution with no personal professional accountability the ability to offer the same advice as a financial adviser.

He said that was a shift away from adviser professionalism, which fundamentally undermined the purpose of the Act. “We endorse agents providing advice on their employer’s own products,” Severn said. “We also subscribe to the concept of financial adviser firms being able to provide a full range of roboadvice. However, individuals who want to give advice more broadly than in respect of their employer’s products, should be fully qualified financial advisers only. Having competent agents is insufficient: financial advice is a profession, and the law should encourage and motivate individuals accordingly.”

Robert Oddy, of SiFA, said it was disappointing to see that although the QFE name had disappeared, the concept was

very similar.

Ireland said the definition of agents allowed scope for confusion.

“Agent is a defined term and it is well understood what it means in the sector,” Ireland said. “But the concept of an agent in this context is a different thing. We will have to see how that plays out. Many people who have the title ‘agent’ will not actually be agents.”

Roboadvice green light

The second major change allows for roboadvice. The new FAA will remove the requirement for advice tailored to a consumer to be provided by a natural person.

“Roboadvice will need to meet the same standards as a person providing advice; however the means of meeting these standards will differ. For example, while a financial adviser may be required to demonstrate competence through having passed a qualification, a roboadvice platform may have to demonstrate equivalent quality through algorithm and scenario testing,” the Ministry for Business, Innovation and Employment (MBIE) said.

Entity licensing

The introduction of entity licensing was expected, but is contentious.

All advice firms will have to be licensed. Those who continue as financial advisers will be individually accountable for complying with the legislative and code obligations on them. Firms will be

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LEAD STORY

responsible for their agents.

“This approach replicates the efficiencies of the current QFE model and applies it to all,” MBIE said. “There will be flexibility, depending on the size and nature of the firm, in how prospective licensees will be expected to meet those requirements given a ‘one size fits all’ approach to licensing and reporting is unlikely to work their agents."

To meet their requirements, licensees will be dictated by regulation or prescribed by the FMA. Arrangements for overseeing compliance in smaller organisations might be more limited, whereas a larger organisation might require oversight by a committee of senior managers from across the organisation with a number of operating procedures, MBIE said.

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The requirements for firms with agents will be higher to ensure it is appropriate for the firm to take on the responsibility of the agents. Firms with financial advisers will, however, also need to show how they support their financial advisers to comply, it said.

Improvements for AFAs

While RFAs will have new, higher standards to meet, Goldsmith said the changes could help those who were already operating at AFA level.

New simplified disclosure requirements and streamlining licensing and reporting requirements would help ease the regulatory burden for many of them.

The system of adviser business statements (ABS) – which are required to be

maintained but do not have to be regularly submitted – is up for review and likely to change.

MBIE said it was likely that costs on AFAs would be reduced.

“There also appears to be missed opportunities for efficiencies. AFAs working for a QFE are effectively regulated twice – by the FMA via individual licensing and by the QFE through their ABS and licensing process,” it said. “Further, there is limited ability for advisers working in the same firm to consolidate their compliance activities.

For example, AFAs working in an adviser firm need to be individually authorised by the FMA and produce an individual ABS. There is limited ability for an adviser firm (whether comprising three advisers or one hundred) to leverage economies of scale in

LEAD STORY

its compliance activities,” it said.

“QFEs are approved at the firm level with an upfront fee of $4886, while AFAs are required to be individually authorised, with an upfront fee of $1145 per adviser.

This means that a small-medium-sized advisory firm with 10 advisers is currently required to spend almost $11,500 in direct fees compared with large QFE firms with potentially hundreds of advisers. The scale of this disparity means that AFAs are imposed with disproportionate direct compliance costs.”

Goldsmith said the load should be made lighter for people who were already authorised. “For some of the current AFAs, it will definitely reduce the cost of compliance.”

But Fred Dodds, chief executive of the Institute for Financial Advisers, said some investment advisers were wondering where they would fit in the new regime.

“I’ve had calls saying where does the CFP qualification lie?” Dodds said.

But he said it was positive that all advisers would have to meet the same requirements, and consumers should end up better off. “A grey area is what do I have to do to play in the game? If I decide I want to be an adviser in February next year and sell life insurance, what is my hurdle to doing that?”

More details would become apparent as the consultation process was worked through, Dodds said.

Sue Brown, of DLA Piper, and formerly of the FMA, said she had concerns for some financial advisers adjusting to the new regime. She said it would be hard for some businesses that had already invested thousands of dollars in shaping their businesses for the current regime to then restructure them to fit new rules.

“Financial advisers tend to be small businesses and their resources to adapt to change can be quite limited.”

A proposed timeline is yet to be revealed but Brown said it would have to be made public soon.

Commission

The Ministry of Business, Innovation and Employment said it did not recommend a commission ban as part of the FAA review because that would not be a “silver bullet” to improve the quality of advice.

It said commissions themselves were not harmful, and were just a means of funding the distribution cost of the adviser channel.

Removing them could limit consumer access to advice.

A ban on commissions would not directly target poor conduct, it said, because the recent FMA report had shown not all financial advisers had high levels of replacement business, despite all being paid commissions.

It also would not address conflicts of interest for advisers in in-house distribution models.

But MBIE said it and the FMA would monitor advisers’ conflict to ensure its measures were sufficient. If they were not, more action could be taken. It may also ask advisers to report on the soft commission they receive and will ask providers to disclose what they offer.

Natalie Cameron, chief executive of AIA, said it was a relief to see that New Zealand was not following the Australian example of heavy commission restrictions.

“It’s pretty forward-thinking of the regime here,” Cameron said.

AIA would be happy to support advisers who dealt with its products to help them meet higher standards that would be required of those who are currently RFAs, she said. “I would also expect a significant transition period.”

She said it would not be a bad

"It’s good to have a code of conduct. I can't understand how you would allow anyone to give advice to anyone on a personalised basis without the requirement to meet standards of behaviour, particularly for financial services. " – Paul Goldsmith

WHAT MBIE EXPECTS THE IMPACT TO BE On AFAs:

Minor transitional costs associated with re-packaging compliance material. AFAs could co-ordinate licensing activities at the business level to save money.

AFAs who work for QFEs no longer have to be regulated twice. Savings associated with efficient reporting and compliance activities.

On RFAs:

Costs associated with meeting higher competency standards. Costs associated with obtaining a license to provide financial advice services and preparing new disclosure material.

Costs associated with meeting conduct obligations. Costs associated with increased disclosure requirements.

Greater credibility and professionalism.

On QFEs:

Minor costs associated with updating compliance material to reflect conduct obligation and new disclosure material.

Minimal transition impacts as proposal retains broad approach to regulating QFEs. Ensures firm processes are robust. Costs associated with meeting and demonstrating compliance with conduct obligations.

thing to have more focus on the soft commissions offered.

Sovereign chief distribution officer Richard Kilpin also welcomed the proposals.

He said they seemed to fit into a global move towards higher standards and simplified structures but would represent a fundamental change for the New Zealand market.

He said advisers who were currently RFAs would have some decisions to make about the right business model in the future.

“Our role through this is to work with advisers to help them make good and informed decisions,” Kilpin said.

Naomi Ballantyne, of Partners Life, said the only real disappointment of the proposals was that there were no direct measures to tackle replacement business – but she said that could potentially be governed by the code of conduct.

“It’s good to have a code of conduct.

I can't understand how you would allow anyone to give advice to anyone on a personalised basis without the requirement to meet standards of behaviour, particularly for financial services. That’s something I have felt was missing right he way through.”

Goldsmith said he hoped to have the legislation into the house before the end of the year. But he said it was important not to rush it. “This is an area where there are so many opportunities for unintended consequences.”

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SPECIAL LEAD STORY REPORT

RULES FOR GOING DIGITAL

THE ART OF RUNNING A TWO-SPEED COMPANY

The challenge of running a so-called “two-speed company”, one in which a more traditional offline entity operates alongside a digital business arm, is one that must be embraced by many local and global business.

D

oing business online certainly is the norm for today’s consumers: in the simplest terms, consider how often you go into the branch of a bank compared to what you do online. The challenge of running a socalled “two-speed company”, one in which a more traditional offline entity operates alongside a digital business arm, is one that must be embraced by many local and global

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business. Doing business online certainly is the norm for today’s consumers: in the simplest terms, consider how often you go into the branch of a bank compared to what you do online.

The business in which I work, Perpetual Guardian, is the result of the coming together of New Zealand’s two oldest fiduciary services companies, which were founded roughly 115 years before the widespread

advent of the internet. As a standard trustee business, we have a strong branch network working with clients to provide personalised solutions. However, over the past two years, I have worked with our founder Andrew Barnes and others to establish our digital business, Kõwhiri, as New Zealand’s foremost provider of online will services.

We have built a range of online solutions that mean clients can now choose how

SPECIAL LEAD YROTS STORY REPORT DAEL

they want to do business with us, whether online, in-home or in-branch. We are now taking those solutions to the legal market and helping lawyers collaborate with clients online and improve profitability. We dramatically accelerated our growth and capability recently by securing the acquisition of DPL Professional Ltd, the recognised global leader in intelligent will-drafting software.

The DPL Professional software is used to write over 650,000 wills every year by trust companies, lawyers and specialist willwriting businesses in New Zealand, Australia, South Africa and the United Kingdom.

As the COO of this two-speed company, I am responsible for managing the day-to-day operations that help our 16-strong branch network, and for providing digital services to younger New Zealanders and new global markets. It’s an exciting challenge that the founders of Perpetual Guardian’s original entities could never have imagined. It also extends beyond trustee services into the legal fraternity, where most of New Zealand’s wills are written – which makes LegalTech, and the provision of online solutions to lawyers, integral to our overall proposition.

What was a traditional offline-based business now includes both a digital business and a digitally enabled service business. The success of the evolution essentially rests with adherence to the maxim of ‘enhance the value chain’. What, then, are the rules of the two-speed game as I see them?

1

CHANGE IS NOT OPTIONAL

The essential functions and value of a fiduciary services provider continue to stand the test of time, but New Zealand’s demography has changed significantly. The challenge for our business is to improve our existing well-honed services while delivering services to a greater variety of Kiwis than ever before – younger people, new migrants and people who don’t regularly come into contact with legal or financial professionals. If digital is to be a core component of a growth strategy, the board and leadership team have to be aligned on the objectives (including financial), culture and risks. Collaboration is critical to agility, and conversely, debate over conflicting objectives regarding digital value is a killer.

2

GET TO KNOW YOUR CUSTOMERS ALL OVER AGAIN

Look at your existing and prospective customers with fresh eyes. We commissioned independent research alongside our own that has helped identify the best way to reach some people with a pure digital proposition.

Products such as eWills or Kinly will be easy for those who have grown up with online banking, while others were adamant about having close contact with a client manager.

Clear client segmentation helps us identify who wants a different model of delivery, which services must be improved with the use of technology, and which we should keep delivering unchanged. When you are serving

three generations of one family, which is not uncommon in our business, you must be able to deliver services so all parties are comfortable.

We have refurbished offices around the country, filling them with contemporary art and making them warm, inviting spaces that staff and customers want to be in.

3

6

DIGITAL REALLY IS DIFFERENT

Establishing sustainable, innovative digital capability requires recognition that the approach, skills and technologies are truly different to those of traditional IT. Our goal is to accelerate change both within our company and the wider estate planning industry by being the leading provider of software to the industry. Having evaluated a range of alternative approaches, we determined that the best structure to achieve that goal was to establish Kõwhiri as a focused external company. Since that time we have acted as a start-up, accountable to the value we provide to the market, and have been working to get new people, capability and the right relationships to deliver valuable services.

4

DIVERSITY IS MORE THAN A BUZZWORD

‘Two-speed’ refers not just to digital and offline but to developed vs developing markets, as a BCG Perspectives report explains. For many companies, a key outcome of digital investment is gaining exposure to global markets and opportunities, and this rationale formed part of our decision to acquire DPL. Each country in which DPL operates has its own approach to estate planning, which provides us with access to global best practice. The South African market is dominated by banks and the UK market by smaller will-writing businesses, while most wills in New Zealand are prepared by family lawyers. Digital estate planning is as much the way of the future as digital banking, and as a multinational business we can now design and refine our services for the diversity of the market we serve.

5

STICK TO YOUR KNITTING

It may seem contradictory in a conversation about tech and diversity, but it’s important to remember that your core business enabled you to grow to the point of expansion. Investigate new business models and invest in digital but don’t try and revolutionise everything at the same time.

Not every digital investment that you make will be the next digital ‘unicorn’ that takes off like a rocket. If it does, follow it, but in the meantime work on aspects that reposition you better with your customers. Make every client touchpoint better.

Air New Zealand – an organisation I admire – reinvented every aspect of the client experience that passengers disliked, from booking and check-in to the in-flight experience. Their new proposition makes them a ‘first choice’ airline. Likewise, strong and adaptable businesses have inclusive, supportive cultures that attract, train, foster and retain talented people. In our own business, we have invested in our network.

THE CUSTOMER IS ALWAYS FIRST

Not just right, but first. It seems an obvious point, but good companies can come undone by getting caught up in their own goals and ideas, forgetting their customers have to choose them in the first place. It will seem clear in hindsight, but I guarantee that when you start out, what your customers are really looking for will surprise you. Having lots of ideas is great, but a clear focus on the direction you want to go, and the agility to adjust based on feedback, will deliver a better result for your customers and your team. By delivering incrementally – the oft-cited ‘minimum viable product’ – and measuring obsessively, using the immediate feedback possible with technology, you can ‘listen’ to what interests and engages your clients, and then tune their experience to what they are wanting.

7

RETHINK HOW YOU GOVERN

We have strengthened governance at all layers of our business to accommodate the hybrid approaches required for our two operating models.

We measure the progress of our core business against traditional budgets and key performance indicators as many businesses do. However newer, purely digital initiatives work more like a start-up, with funding and outcomes defined at specific milestones outside of the annual planning and budgeting cycle. More granular measures are also used to measure progress, as revenue alone will not provide the detail necessary to determine if you are on track to achieve your goals.

8

DO NOT FEAR FAILURE

The mantra and culture of most companies is ‘do it right first time’.

As hard as it is to say, the pioneering nature of digital means a lot of experimentation and a certain amount of failure. In a twospeed business, the experimentation will occur alongside the established services, so an important part of the process is internal – all staff must understand the process and objectives, even if they are not directly involved. Above all, be bold – be nimble, give things a go, don’t overpromise or over-commit. The digital adventure has many different paths and choices, many of them untrodden. Focus on improving your core business, and use cloud solutions and good partners to help you choose the right path.

Lincoln Watson is the COO of Perpetual Guardian and Kõwhiri. New Zealand’s leading statutory trust business recently refreshed its 15 branches around New Zealand, and offers a range of online Will services including eWills, My Bucket List and MyDigital Vault.

Lincoln can be contacted at Lincoln.

Watson@pgtrust.co.nz and on (09) 909 5232.

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INVESTMENT

{

}

The Inflation outlook is key Central banks are navigating a “new normal”, writes Christian Hawkesby.

W

ith the mainstream media providing almost blanket coverage of the housing market, it is easy to forget that this is just one consideration for policymakers. The surprise interest rate cuts by the RBNZ and RBA earlier this year are a useful reminder that central banks are ultimately tasked with target CPI inflation. In our view, the medium outlook for inflation is absolutely key for investors.

Central bankers are genuinely in unchartered waters. Having successfully tamed inflation in the late 1980s and early 1990s, inflation became so well anchored around 2% through the 1990s and 2000s that it fell off the radar of investors. Instead, markets focused on the economic cycle as an indicator of central bank actions. However, persistently low inflation is the new problem.

In economic history, the 1970s and 1980s stand out for high and variable inflation that stifled economic activity and scared financial markets. This was a global phenomenon, which prompted a widespread shift to inflation targeting in the late 1980s and early 1990s. While the Reserve Bank of New Zealand (RBNZ) was a pioneer, it was really a global effort across developed countries that successfully tamed inflation to settle around 2% for much of the next 20 years.

Indeed, central banks were so successful

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With heightened uncertainty about traditional relationships, central banks are being forced to wait until they see actual inflation rising before they start removing monetary stimulus.

- Christian Hawkesby

at inflation targeting that traditional economic relationships began to breakdown, with annual CPI inflation almost completely insensitive to state of economic activity. With inflation expectations so firmly anchored around inflation targets, through the 1990s and 2000s, CPI inflation outturns were relegated to secondary importance by the market.

In that environment it made much more sense for bond and equity markets to focus on leading indicators of economic activity.

The primary role of central banks through that period had simply evolved to ‘leaning against the wind’ of the economic cycle to smooth out any remaining inflationary pressures. US payrolls numbers became the biggest data release of each month, and other leading indicators such as the ISM manufacturing survey captured the attention of markets.

However, in recent years central banks and markets have been confronted with a new problem. That is, not fighting high inflation but persistently low inflation stuck stubbornly below targets. While this has been a global theme, the issue is nicely illustrated by the RBNZ’s inflation forecasts versus actual outturns (Chart 1). There are a number of structural factors that in part explain this period of low inflation – falling energy prices, deleveraging, demographics, and technological change – but none of these capture the full picture.

With traditional economic relationships no longer holding, the behaviour of central banks has also changed. For over 30 years the unemployment rate was a very reliable indicators of central bank actions (Chart 2).

However, since the GFC the US employment rate has fallen from 10% to below 5% with almost no change in the US Fed Funds Rate.

INVESTMENT

The reason is that the US Federal Reserve has not seen sufficient inflation pressures building to take action. If anything, central banks have lost confidence that the long awaited rise in inflation back to target is

around the corner. For now, they remain more fearful of deflation than inflation.

With heightened uncertainty about traditional relationships, central banks are being forced to wait until

they see actual inflation rising before they start removing monetary stimulus.

This in itself is a delicate strategy to follow.

We know that it takes time for monetary policy settings to affect inflation. So when inflation arrives there is likely to be more in the pipeline. The danger for markets is that they could be too complacent about the outlook for inflation. This makes markets vulnerable to an inflation scare if and when these pressures do eventually re-emerge.

So we have moved into a period where the outlook for inflation has become critical not only for fixed interest markets, but also all other markets underpinned by stimulatory monetary policy. A rise in inflation that is supportive of company earnings could be positive for equities. However, an inflation shock that forced the hand of the US Fed to tighten policy quickly could hurt bond and equity investors alike.

It is not our central view that high inflation will emerge as a problem. However, with markets complacent about the inflation outlook, signs of inflation could create at the very least a temporary scare.

There is a tendency for mainstream media to become wholly focused on the housing market, and the bounce in house prices in March and April has fed this fixation.

However, it is important to remember that we are still in a CPI inflation targeting environment. What is unusual is that policymakers are in unfamiliar territory, trying to hit their targets from below. In our view, right now inflation should be the most important macro indicator on the radar of investors.

Christian Hawkesby, Director at Harbour Asset Management This column does not constitute advice to any person. www.harbourasset.co.nz/disclaimer/

021

INSURANCE

NZIER REPORT HAS FLAWS

NZIER recently released a report that looked at insurance company's profitability and distribution costs. It said, with a stagnant market and high policy and maintenance costs, companies might need to find new ways to boost revenue. It suggested a reduction in commission payments was an option. Here, Michael Naylor, of Massey University, responds.

N

ZIER’s report purports to show that the life insurance market is

shrinking, that new customers are more price sensitive and that a reduction on commissions could help reverse this.

The report has some good aspects but it suffers from major weaknesses.

It was unable to obtain relevant or useful data on life insurance needs coverage, on price elasticities, or industry market share. Therefore, the authors were forced to use proxy data on gross premiums. For some of the report’s purposes this data is not up to the task.

FLATTENING MARKET

The report uses annual increases and decreases in gross premium data as well as data on numbers of covers in place, to argue that the market is flattening. Unfortunately, it does not break this data down into categories like permanent life, term life, income insurance and trauma.

Nor does it decompose the data by age structure of the clientele.

This is unfortunate as so many trends are happening inside the data that it is just about impossible to come to any conclusion as to trends in personal insurance.

The gross trend is for a 5%-7% annual rise in gross premium. While on the face this

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looks good it is largely meaningless unless the underlying drivers are understood.

With most life insurances tied to mortgages the constant rise in average house price should lead to larger mortgages and therefore life sums rising faster than that 5%-7%. Or if the age structure of the population is increasing older, then premiums should rise even if sums don’t.

The report tries to compare premiums for expiring vs new policies, and noting that new policy size of lower than existing policies, and that premiums are rising faster than policies and tries to make a case for a market where an aging client base (riskier) is the main driver of premium rises rather than a transfer from the expiry of older client polices to new younger client policies.

Certainly there has not been strong growth in policy numbers over the last decade, indicating that insurers have not been able to penetrate outside of their traditional market segment into a more diverse society.

The report tries to estimate churn levels to distinguish sales to new younger clients vs sales to existing clients. Given that churn customers are often price-focused quality issues may play a role here.

The report does not mention the demise of the permanent life polices and the impact of this on average premium size.

It is difficult to argue from gross figures

that NZ is underinsured, because people only need as much personal risk cover as the present value of their future needs indicate. In a stagnant society, people whose risk needs are increasing will be balanced by people whose risk needs are decreasing.

Therefore it is only the factors which cause dynamicism in society, like changes in age structure or income levels or house ownership levels, which will require an increase or decrease in insurance, either in sums or policy numbers.

Cover levels also do not indicate levels of under- or over-insurance compared with actual needs. The FSC found that on average New Zealanders had adequate levels of life insurance cover, though the amounts were not correlated with actual need. The problem was not one of expanding life cover, but of selling life cover more expertly.

The FSC report also discovered that in contrast to life, levels of income, trauma and TPD, insurance cover were very low.

Females in particular did not cover their own earning ability. Given that families could hold multiple personal risk policies, changes in family composition have a major impact on insurance need and holdings.

Therefore without information on insurance needs with which to compare cover, little can be discovered.

INSURANCE

CLIENT SENSITIVITY

The report tries to use this analysis to estimate the key variable – the price elasticity of insurance sales, that is the extent to which policies sold decrease as premiums rise. The report fails, however, to recognise that the correct elasticity is actually the rate elasticity, not premiums; that as the rate per amount of insurance rises, how much does each of the sum and the scope of insurance decrease? Clients will be sensitive to this rather than premiums.

Some academic research shows that rate elasticity is possibly above negative one, so that a 1% increase in rates creates a more than a 1% decrease in demand. Given, however, that other studies show a low figure, little can be concluded which is useful in policy debates. The NZIER elasticity figure makes no distinction between the response in terms of policies sold and the response in terms of the sum insured.

The NZIER report was not able to find a conclusive answer to the elasticity question and therefore cannot make any argument as to whether a reduction in distribution costs would increase insurance cover.

The dynamics inside the market are far too complex for that kind of simple question.

The NZIER attempt does raise the question why NZ insurance statistics are so poor.

The NZIER report focuses on the cost of commission payments and argues that high commission payments are a significant financial drain on insurers.

They then add that because of a higher than one price elasticity, a cut in these commissions would increase the amount of insurance sold.

COMMISSION COSTS

The unique situation in NZ, however, is not a higher level of overall commission but a high upfront and a lower or nonexistent trail commission. Thus controls on commission, as per the Australian model, of lower upfronts and higher trail, would not necessarily reduce over-all commission costs. The NZIER does not discuss or model this.

Since changing the upfront/trail commission mix may have an impact on adviser/broker behaviour, this does need to be modelled.

The biggest issue which the NZIER report ignores is the effect which advisers have on sales. There is strong academic evidence that intermediated personal insurance better suits the client than directly sold insurance, with better quality policy conditions.

Any policy discussions around reducing the overall level of adviser commission (as opposed to changing the upfront/trail mix with no change in adviser income) therefore has to explicitly model the elasticity of insurance sold and insurance quality to adviser presence. A strong case can be made that fewer advisers could actually lead to fewer policies sold, and lower quality, inappropriate quality policies.

"In a stagnant

society, people whose risk needs are increasing will be balanced by people whose risk needs are decreasing."

-Michael Naylor POLICY SALES DIFFICULTY

It needs to be noted that the absence of compulsory personal insurance within public and private superannuation schemes in NZX, means that policy sales are more difficult and therefore more expensive compared with other countries, justifying higher commission levels.

Any policy around commissions which reduces adviser income, and therefore leads to adviser market exit, has to analyse and model these factors into account. The NZIER report tries to model the impact of a reduction in commissions, based on income bands. They estimate that a reasonable reduction in commission levels would led to a reduction in adviser levels of between 25% to 50%. Our market already has a low level of advisers per population, and any further reduction would have a disastrous impact on the personal insurance market.

With the low price elasticity of insurance and a reasonable high adviser elasticity, it could be argued that any regulation which reduces adviser commission income would actually reduce the quantity of insurance sold. It would certainly reduce the quality of insurance sold. There is no evidence of the simple price elasticity effect which the NZIER report assumes as the basis of their argument to support commission reduction.

ADVISER NUMBERS WORRY

These adverse factors are particularly

important for income, trauma, and TPD insurance, which are drastically underpurchased in NZ, seem rarely purchased without help, and thus seem to respond decisively to adviser education.

A reduction in adviser numbers could thus decrease the risk bearing capacity of NZ households drastically.

The NZIER report does not attempt to analyse the cost of distribution alternatives to advisers. It is, for example, estimated that the costs of web-based direct sales exceeds intermediated sales, with lower quality price-focused policies sold, and higher risk customers. Lapse rates tend thus to be correspondingly higher. The combine defect of this is customers with lower risk bearing capacity and insurers with no cost advantage.

A better regulation policy could be to increase the use of insurance intermediation. Research is needed into the price and quality elasticity of alternative distribution channels.

LIFE POLICIES DEMAND

The NZIER report does try to analyse the key market drivers. Because, however, they fail to break down demand into life, income, trauma, TPD, they end up focusing exclusively on demand for life policies, which as earlier mentioned, is not under-purchased in NZ. They tie demand for life insurance mainly to mortgage and rental breakdowns rather than the usual household composition. This means that demand for personal insurance risk products by single people or other alternatives is ignored.

The NZIER do make the useful point that using mortgage purchase as a trigger is not growing the market as the number of owner-occupiers is stagnating. They fail to go onto to make the obvious point that most mortgage-triggered life policies are sold by banks, and are often low quality products, with sums tied to the mortgage level, rather than actual needs, with no policy quality comparison across providers and limited sake of non-life personal risk products. Rental-households do not experience this trigger so need other sources of pressure to buy.

Reducing the number of advisers would worsen this outcome, and lead to a reducing slice of NZ purchasing life cover.

The NZIER report does usefully conclude that personal risk insurance products are being purchased by a stagnant, traditional, segment of the NZ population, and that current advertising policies by NZ insurers are not effective at breaking out of that segment. Advisers do not seem to be effectively breaking out of their segment either.

Given that NZ society is becoming increasingly diverse in multiple dimensions, the industry needs to collectively become more creative and diverse, using omnichannel methods to activate a far wider range of triggers for insurance purchase.

Research into this area is urgently needed.

FSC/Melville-Jessup-Weaver report.

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PAA NEWS

New, better voice for industry It’s time New Zealanders understood what financial advice can do for them. By Bruce Cortesi, chairman, Professional Advisers Association.

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inancial advice should be as routine and every day as brushing your teeth. But it’s not. Quality advice changes lives for the better.

But most New Zealanders don’t know it.

It’s our job to help New Zealanders be better off. But that job is getting harder, and will only continue to get harder without clear and meaningful change.

As providers of advice we know of two factors all too well. The first is that quality advice changes lives for the better. It’s not a grandiose or lofty thing to say. Countless examples of New Zealanders accessing advice, and being financially better-off for it, are evidence of this.

QUALITY ADVICE POWERFUL Whether helping clients to better understand their investment options; to pay their mortgage off faster, or to appropriately protect themselves from the unforeseen - whatever the scenario, the expertise, knowledge and care of quality advice applied to personal circumstances is a powerful thing.

The second fact, however, is less inspiring – and that is that the vast majority of New Zealanders are not benefiting from advice.

There are many reasons to point to.

Some historical issues continue to drive low levels of public trust, understanding and awareness; some are current issues that we as a profession need to address; and some relate to changes in technology and consumer trends.

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SAME OUTCOME

Together, we can help more New Zealanders access quality advice. It’s a big undertaking, but one that we can achieve with clear and meaningful action, now.

Whatever your view of how we arrived where we are today, the outcome is still the same.

Many New Zealanders are not using advice.

Many New Zealanders don’t know what advice is. Many New Zealanders don’t know who to trust to provide advice.

For anyone passionate about what this profession can help New Zealanders achieve, that’s the kind of disconnect that will keep you up at night pondering how to change it.

Together, we can help more New Zealanders access quality advice. It’s a big undertaking, but one that we can achieve with clear and meaningful action, now. It’s an undertaking that the proposed formation of Financial Advice New Zealand marks the beginning of – a representative body that will not only better represent the adviser perspective, but also better represent the consumer perspective, build public trust and support greater access to quality advice.

OPPORTUNITY UNIQUE Thank you to all members for their feedback and comments received to date. By the time this article hits the desks, we will have had many more conversations and will have begun the nationwide information sessions (held in the week beginning June 20). As a membership, we have much to discuss, and should we get the green light at the special general meeting on Thursday, July 14, when we will each have a unique opportunity to shape the direction of a representative body designed for the future of advice.

PRACTICE ASSET REGULATION DATA MANAGEMENT ADVISER

Review must ensure place for advice is clear Advice of all kinds should be encouraged in a market operating under new regulations.

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contest going is on right now between different visions of the market for financial services in New Zealand. That contest is at risk of undervaluing advice.

But it is also important not to see it as “winner-takes-all”. I think we need a varied market for financial services encompassing different levels of advice and no-advice sales.

But I think we need, most of all, to win the argument for a place for advice.

In our first example a woman died unexpectedly young and left money to her partner and teenage children. The surviving partner is said to have spent most of the money – teenage children are nearly adults and have noticed, and have sought

legal representation.

An almighty fight in which the only certain outcome seems to be lawyer’s fees and losses all round will take place. Good advice may not have guaranteed a better outcome, but it would have reduced the odds considerably.

Trustee appointment By appointing an external trustee, for example, and adding greater legal protections.

Preparation does not just work retrospectively: they also signal to people that enforcement of plans is likely to be vigorous, deterring the temptation to take short-cuts, or ignore the wishes of the deceased.

It is worth pausing to note that the

PRACTICE ASSET REGULATION DATA MANAGEMENT ADVISER

But don’t knock that market, either. Plenty of problems arise that demand good financial analysis by an hourly paid professional with no stake in the outcome any items will be insured under the policy. Its website does ask for details of what will be included in the parcel, but it won’t stop the customer buying a policy if they list an item that’s excluded".

Testing suitability

availability of legal protections to allow you to dispose of your assets as you see fit in the event of your death are not common around the world – they are an oddity of freedom allowed only in more liberal west economies – either the former Commonwealth or the United States. They do not automatically apply – advice makes them available.

In our second example, we have the package insurance that has such a long list of exclusions it is hard to imagine how it will ever apply. This is part of a review from the UK commentators ThisIsMoney: "[in the]...terms and conditions 40 items are exempt, including electrical goods, antiques, jewellery, food and anything made from metals, ceramics or glass. It means barely

This example highlights a crucial boundary issue being debated right now in the Financial Advisers Act (FAA) review: whether a noadvice sale still needs to offer some test of suitability. I have several good compliance people that argue that it should not, but this example perfectly illustrates why we need to have at least some eligibility testing.

If the insurer has the expertise to know if the customer will be unable to claim or not at the time of application then they have a duty to tell the client, not just take the money. If we do not already have a law that requires that, then we should make sure it is present in the revised Financial Adviser’s Act. Advice has a critical role to play in exposing problems like this.

Our third case is the question I get asked most often which relates to advice. Friends that know what I do sometimes ask about insurance. A common question is, “…Where can I buy…?” What follows is perhaps a good example of the state of financial literacy and an insight into how consumers really see insurance and the priorities they have – rather than those we think they should have.

The kinds of questions are about trauma cover, funeral plans, medical insurance, nonPharmac drugs, income protection claims and interaction with ACC. All of that is cheerfully missed up with questions about business and property insurance. I usually ask a few questions before referring the person on to an adviser because the answer to “Where can I buy?” is nearly always ,“It depends…” followed by an advice-giving process.

The fourth case is based on another question asked by non-insurance people: “…

How likely is that?” It is rare that find someone thoughtful enough to do a good job of their own risk planning, but every now and then, there they are, asking you how likely it is that you get a heart attack. Such inquiries are much more common after newspaper publicity about a declined claim.

Although the question gets asked about

all sorts of things the most common version is to ask how likely it is to get disabled and not get paid ACC. The answer nearly always surprises. It is also nearly always an advicebased discussion because the magic words “it depends…” crop up yet again.

Right answers or not The fifth case is one of the trickiest questions in risk advice. When faced with a plan which is too big for the budget the smarter species of client asks “…what should I cut out?” We could write a whole article on that question alone.

There may be many right answers, or no right answer. An answer with which the client can live can be found. Whatever it is a proper exploration of the problem is an advice-based discussion because usually “it depends…”

These questions – in the insurance world – are all answered pretty well by commissionremunerated advisers. Some are not good, some are amazing, and we have everything in between. I believe consumers deserve to have good answers to the questions available every bit as much as they should know what conflicts of interest may be pulling at their adviser.

But don’t knock this market too hard.

An alternative New Zealand where none of that exists would not suddenly form an orderly queue in front of the few remaining AFAs ready to hand over lump sum fees for completely un-conflicted advice without implementation.

But don’t knock that market, either. Plenty of problems arise that demand good financial analysis by an hourly paid professional with no stake in the outcome other than the fee paid and a good reference. Should I buy shares or a rental property? That question is unlikely to be well answered by either a share-broker or a real-estate agent.

Comparing options Should my friend invest their recent inheritance in managed funds or quit work and finish their law degree? If you didn’t start by listing the approach you would take to compare the options the chances are you have already anchored around a recommendation – with no data! I know several really good planners who excel at such real-world non-standard questions.

Their work is important, too.

Of course, “no-advice” counts as well.

Standing at the rental car desk in Hawaii I could have done with some advice, but there wasn’t time. In a choice between no cover and some cover, better to have the latter.

We can think of dozens more situations.

No health-questions insurance applications clipped from Sunday supplements have been a boon to many a hard-pressed family. Credit card travel insurance is also better than none.

Don’t knock this market too hard, either. A market where this could not exist would not be an improvement. Many, many more people would be uninsured.

Russell Hutchinson is director of Chatswood Consulting and director of Quality Product Research.

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PRACTICE ASSET DATA MANAGEMENT ADVISER

DON’T WORRY ABOUT THE REGULATORS Advisers should know where to expend their energy – and worrying about the rule-makers isn’t it. information flow are changing everything in how services are defined and delivered. Rules cannot be made fast enough, or stay relevant for long enough, to deal with such rapid and fundamental shifts.

So you know what? Most of us should just ignore what the regulators are doing.

I don’t mean “ignore” as in “pretend they don’t exist or are not important”. I mean it in the sense of “we should waste no mental energy or resources on the issues they are grappling with”.

{ TONY VIDLER }

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ith respect to the market regulators and professional standards leaders, they are fighting an unwinnable battle.

And the battle they are fighting doesn’t really matter to the majority of advisers, either.

The key problem that the rule-makers have is that the marketplace changes far more rapidly than best practices can be debated, defined, refined and then enshrined.

Bless them for trying though – they are just the sorts of folk I want to have beside me if my ship is sinking, because they can be counted on to bail furiously even when all is lost.

Staunch, hard-working and admirable.

The regulators curse, however, is that they are never able to bail as quickly as the water comes pouring in. It is an unwinnable battle.

RULE MAKER WISDOM Even taking into account the wisdom of the rule-makers approach to financial services regulation in NZ with the adoption of the far more pragmatic and flexible “principlesbased” approach, the reality is that new product, distribution and advice models are evolving which have simply not been anticipated or envisaged.

Consumers are rapidly changing how they obtain information and make buying decisions.

Labour and capital are portable, and flow freely across borders. Technology and free

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PRACTICE ASSET DATA MANAGEMENT ADVISER

FINANCIAL FUTURE ADVICE Let them deal with their issues. We’ll catch up with the details of their decisions later, because what is decided and how the market is to be regulated in the future really isn’t that important for the overwhelming majority of financial advisers.

My rationale for making such an outlandish declaration hinges upon the word “that” in the previous sentence. It isn’t that important because there are other things that are more important. And if we get the other more important things right, then we will have met any requirements a regulator might have of us.

Ergo, worrying about what shape regulatory thinking might take is simply a waste of effort and business resources for the majority of us.

The exception to this claim that advisers should not worry about what the regulator is grappling with is the financial planner. Those advisers providing investment planning, financial planning or portfolio management are rule-bound to a large degree, and that is only likely to get worse for them. It is the area of financial services that will become increasingly prescriptive and rule-bound as it is the intersection of two of the most significant financial services issues globally.

MEETING PROTECTION STANDARDS There is international collaboration on managing the international crime or cybersecurity concerns, and New Zealand must to a large extent fit its regulatory regime in this area to meet the international protection standards and uphold this country’s ability to facilitate Fair Trade Agreements and other commercial arrangements in the nation’s strategic interests.

Then there is the second issue of the direct correlation between consumers’ product performance and financial advice.

In simple terms, what and how advisers charge or disclose in the investment area can have a direct and significant impact on the consumers’ return, or performance of their investment plans.

Advisers operating in the investment area must therefore pay close attention to how regulation is shaping up as it will have a direct impact on their business structure, pricing and profitability, and service offer.

SATISFYING STAKEHOLDERS For the non-financial-planners, which are apparently over 80% of NZ advisers, we should relegate regulatory questions and rules to their proper place. That would be “third” on the list of stakeholders to satisfy.

For the majority of advisers the highest priority concerns are – or should be – those of the customer.

The next highest priority is the shareholders of the advice business.

Rules cannot be made fast enough … to deal with such rapid and fundamental shifts.

Then we might consider the requirements of the market regulator.

Fourth is Everything and Everyone Else.

All the other stakeholders such as supplier institutions, professional bodies, Mother Earth – all of them are somewhere further down the list in importance.

Our first priority is to deliver to our customer’s expectations. After all, they pay the bills and they are effectively our employers. The point in stating the obvious is that it doesn’t matter what an advisers licensing status is. AFA or RFA, QFE-based or standalone. Whatever the acronym and regulatory standard is which applies to it, there is a commercial obligation in the first instance to meet or exceed the expectations of the customer.

ACCORD WITH CUSTOMER TRENDS The principles which we have underpinning regulation and which were initially aimed at applying to investment advisers are actually in complete accord with consumer trends and mood. Transparency in costs and conflicts of interest; simplicity and clarity of language; professionals operating only within areas of demonstrable competency… these are things that consumers expect from any professional.

These are also the areas where consumer’s expectations are rapidly changing and rising too.

The point is that every adviser who wishes to be considered valuable and professional by their customer needs to be meeting or exceeding the rapidly changing customer expectations in these core areas of transparency, clarity and competency. The consumers will define what are acceptable standards far more quickly than regulators, and they will also enforce their view of unsatisfactory standards in these areas in the harshest possible way too: by walking with their wallets.

DEMAND BY CUSTOMERS So who cares what the rules become for (say) an RFA? The smart adviser will be way ahead of what the rules require, because their customers are demanding more. Smart advisers also know that if we don’t give the

customers the standards they expect in these areas, then alternative solutions providers will step into the breach and make the adviser unnecessary. The consumers are setting a far higher standard than the regulators are likely to in the short term, and the consequences of failing to meet the standards expected are the death of a practice.

This is why the second highest priority must be for the advisory firm to deliver what their own shareholders deserve: a viable, profitable, business.

There is of course the oft-mooted argument that without a profitable practice we are unable to continue to meet our promises to clients, and there is some moral merit in that line of thinking. But advisers are not social workers. That is not our business.

Social conscience ethic It is true that there is a strong social conscience among many advisers, and there is also a strong “social work” flavour to how we conduct our business. It is that “social worker” element which gives rise to a common problem. Typically advisory firms deliver the same (reasonably expensive) levels of service to all clients regardless of their commercial worth. It is also reasonably common for firms to work on a 100% “at risk” remuneration model.

Imagine trying to raise funds from the public for an IPO where the business model offered all clients the same (expensive) services standards, regardless of the profitability of the various clients or lines of business.

“We give all clients the same excellent service no matter whether they are worth $100 a year to the firm, or $10,000” Imagine also how attractive the business model would be to potential investors if our funding was overwhelmingly project-based and success-based?

“We receive funding on each deal which we are able to successfully negotiate to the clients and other stakeholders’ satisfaction.

If anyone in the decision chain is not entirely satisfied then we are paid nothing, regardless of how much work the firm has put into it.

Incidentally, we incur all costs in advance and none are passed onto clients directly.”

This business model is inherently risky, unlikely to be sustainable long term.

Leave the regulators to figure out what they need to figure out. The smart play for advisers right now is get to grips with, and then get in front of, your clients expectations.

Then hone that business model so that it becomes a good investment for its shareholders. They are the only two things that really matter.

Tony Vidler is an adviser to financial advisers, helping them to grow their businesses via his coaching firm, Strictly Business.

LEAD INSURANCE STORY

FMA focus on ‘highreplacement’ advisers Those identified as having turned over a lot of business can expect a knock on their doors.

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Forty-five of those replaced more than 20% of policies in a single year.

Mason said it was quite pleasing to see that the majority of advisers did not have high levels of replacement business. “But at the same time a relatively small number do seem to have unusually high levels of replacement business.”

The advisers identified as high-volume have not yet been told they have been singled out as such.

bout 200 advisers identified as “high-replacement” by the Financial Markets Authority can expect to come in for more scrutiny from the regulator.

It released its report on life insurance churn, after requesting four years’ worth of data from the country’s 12 main insurers.

It looked only at insurance advisers – not banks or other product providers – because while they might have a risk of mis-selling, the FMA said it was only advisers who could “churn”, move clients for the benefit of the adviser multiple times.

Benefits in jeopardy

High churn risk FMA director of regulation Liam Mason said: "The reason we are looking at this issue is not because we say this is the only potential issue in the life insurance market. This distribution channel covers over 40% of the in-force life insurance policies in New Zealand and is where there is a high risk of churn. This was a specific data-gathering exercise to look at churn, not a clean bill of health for other distribution channels."

The FMA took a particular interest in 1100 AFAs and RFAs who have more than 100 active policies on their books and 200 advisers who were seen as “high volume”, with a high rate of replacement business.

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We only get one bite at the pie in terms of assessing clients’ health and we can never change what we provide to them.

– Naomi Ballantyne

The report said replacement business was a worry because of a risk consumers could have claims denied that might have been accepted under their original policies if they are moved.

They could also lose benefits in their original policies, end up paying more over the long term or be over or under-insured because of poor advice.

“The type of commission was the most significant factor in whether a policy was replaced,” the report says.

“The next most important factor was whether the clawback period had ended, followed by the age of the policy. The quality of a product (known in the industry as ‘product scores’) was only a minor factor.

This suggests that some advisers are acting in their own interest.”

Policies with a high upfront commission and a lower trail commission were 1.6 times

LEAD INSURANCE YROTS STORY DAEL

more likely to be replaced after the clawback period ended.

The report said overseas trips were an effective sales incentive for advisers. Policies no longer subject to clawback were 2.2 times more likely to be replaced if overseas trips were offered as an incentive. Even new policies still subject to clawback were 8% more likely to be replaced if an overseas trip was offered.

During the review period, advisers were offered trips to destinations such as Shanghai, Prague, Las Vegas, Hollywood, Rome, New York and Rio de Janeiro as sales incentives by life insurers. The highreplacement advisers took an average of two of these trips each. One high-replacement adviser took 10 trips in four years.

On average, RFAs had higher rates of replacement business than AFAs. About twothirds of the high-volume advisers, and 86% of the high-replacement advisers, were RFAs. Some RFAs replaced more than 35% of their life policies in one year.

Mason said something that had come through clearly was that AFAs and RFAs were being held to different standards, while dealing with the same products. "We don't think that's particularly helpful for consumers. They should know what to expect from an adviser."

The high-replacement advisers earned almost 50% more from commissions on life insurance than other high-volume advisers.

More than half of advisers had 90% of their policies with one provider.

The FMA will now use its findings to focus its monitoring efforts, and will follow up the 200 advisers who were replacing the most

business. Mason said the report highlighted that while most advisers were doing well, it should focus its efforts on those who were not behaving responsibly.

The FMA has given its findings to the Ministry of Business, Innovation and Employment as part of its review of the Financial Advisers Act. It has also held talks with insurers and financial adviser groups.

Naomi Ballantyne, of Partners Life, said the report was welcome. “I’ve been pushing the FMA to do research into replacement business.”

She said it gave the FMA a target on which it could now focus its efforts.

But she said it would have been better to include banks in its research. She said it was incorrect to claim they could not churn because, with only one provider's products available to them, bank advisers were incentivised to replace the policies of every customer they dealt with. “The focus on the RFA/AFA community is incorrect.”

She said anyone who was rewarded for a sale could potentially churn policies.

The insurance industry needed to realise its customers were more exposed to the dangers of churn than other sectors, where customers might also move provider, such as fire and general insurance or KiwiSaver, she said.

Protection loss risk “We only get one bite at the pie in terms of assessing clients’ health and we can never change what we provide to them. That is what they stand to lose when business is replaced. I

don’t think consumers have any idea they had that protection or the risk of losing it.”

She has previously called for more rules around replacement business processes for advisers.

Ed Eadie, of Fidelity Life, also welcomed the debate and an open discussion of churn. “But we need to emphasise there are no specific instances of harm identified.” Eadie said.

He said Fidelity would work with the FMA as it progressed its investigations in the areas of concern it had noted.

But he said there was a risk that financial advice and the work of advisers could be damaged in the eyes of the public by such reports. “I would like to see a more balanced report across all aspects of distribution.”

Sovereign chief executive Nick Stanhope said quality advice was important. “Part of this is clear disclosure. Advice needs to be simple and affordable for consumers, and advisers need to be fairly remunerated for their services. At the same time, New Zealanders need to know what they are paying for to receive this advice,” he said.

“Sovereign believes replacement business can be healthy when it leads to better outcomes for the customer; it also encourages innovation and competition.

However, more accountability around moving customers between companies to earn additional commission is an effective way to address concerns around churn. Sovereign will continue to work with the FMA and the wider industry to ensure the customers best interests are at the forefront of everything we do.”

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Latest 1 Yr 3 Yr 5 Yr Size Morningstar Transaction Return Return Rating Return $M Overall Exit Price %

New Zealand Insurance Fund Cash AMP KiwiSaver Cash Fund 1.44 2.47 2.82 2.81 AMP Prem PSS OnePath NZ Cash 1.5364 2.51 2.91 2.93 AMP PSS Select Cash 1.4513 2.31 2.71 2.67 ANZ Default KiwiSaver Scheme-Cash 1.3698 2.75 3.15 3.09 ANZ KiwiSaver-Cash 1.2765 2.80 3.20 3.10 Aon KiwiSaver ANZ Cash 14.8061 2.41 2.65 2.64 Aon KiwiSaver Nikko AM Cash 13.7842 2.80 3.11 3.20 ASB KiwiSaver Scheme's NZ Cash 1.3912 2.96 3.22 2.96 Asteron Rtrmnt Savings Plan Deposit 10.712 3.27 3.42 3.32 Asteron Superplan 2000 Capital Fund 2.2477 2.94 3.31 3.33 Asteron Superplan Capital Fund 2.6561 2.38 2.76 2.79 Fisher TWO KiwiSaver Scheme-Presv 2758.4642 2.77 3.13 3.15 Grosvenor KiwiSaver Enhanced 1.4566 2.61 3.06 3.18 Income Fund Mercer KiwiSaver Cash -2.90 3.21 3.15 OneAnswer KiwiSaver-Cash Fund 1.327 2.66 3.07 2.97 SIL 60s + Sup Cash Fund 2.1207 2.35 2.57 2.50 SIL Cash Plus 2.1207 2.35 2.57 2.50 Westpac KiwiSaver-Cash Fund 1.3364 2.92 3.15 2.98 Fisher TWO KiwiSaver Scheme-Presv 2742.50423 3.19 3.29 3.23 Westpac KiwiSaver-Cash Fund 1.3276 3.25 3.19 3.02 New Zealand Insurance Fund Cash Non-PIE Fidelity Life Cash Portfolio 3.2287 1.39 1.68 1.62 New Zealand Insurance Fund Equity Region Asia Pacific SIL 60s + Sup Pacific Basin Share 1.927 -8.68 2.99 3.21 SIL P/R Pacific Basin Fund 1.927 -8.68 2.99 3.21 New Zealand Insurance Fund Equity Region Australasia AMP Prem PSS OnePath NZ Shares 2.1764 12.31 13.81 13.60 Aon KiwiSaver Milford 2.8426 9.16 13.11 14.98 Asteron Superplan 2000 Trans Tasman 4.2072 22.78 18.35 15.29 Fund Asteron Superplan Trans Tasman Fund 5.2945 21.82 17.53 14.52 Grosvenor KiwiSaver Socially Rsp Inv Gr 1.5177 5.00 7.94 6.79 Grosvenor KiwiSaver Trans-Tasman Share 1.2913 4.27 5.96 1.91 Milford Active Growth KiwiSaver 2.85313 9.88 13.49 15.29 OneAnswer KiwiSaver-Australasian Share 1.6592 19.26 17.10 15.43 New Zealand Insurance Fund Equity Region Emerging Markets Fisher FreedomPlan - Emerg Mkts 2.40861 -7.74 1.92 -1.98 Fisher FuturePlan - Emerg Mkts 2.40861 -7.74 1.92 -1.98 New Zealand Insurance Fund Equity Region Europe Asteron Superplan 2000 European Fund 2.2837 -4.38 10.04 9.14 Asteron Superplan European Fund 2.6673 -5.16 9.27 8.37 New Zealand Insurance Fund Equity Region North America Asteron Superplan 2000 Nth Amrn Fd 2.3264 -0.19 12.06 11.59 Asteron Superplan North American Fund 3.2922 -0.62 11.52 10.97 New Zealand Insurance Fund Equity Region NZ Asteron Rtrmnt Savings Plan NZ Equity 3.9965 23.28 18.53 15.35 SIL 60s + Sup NZ Share Fund 5.1681 18.60 16.25 15.28 New Zealand Insurance Fund Equity Region NZ Non-PIE Fidelity Life NZ Shares Portfolio 5.8567 12.92 12.53 8.77 New Zealand Insurance Fund Equity Region World AMP Prem PSS FD Intl Share Fund 1 Value 1.1114 -2.31 9.85 7.50 AMP Prem PSS FD Intl Share Fund 1.2224 -0.07 11.32 9.76 3 Growth Asteron Rtrmnt Savings Plan Intl Eqty 2.6296 2.78 11.93 10.84 Asteron Superplan 2000 Aggressive Fund 2.0022 8.64 10.90 8.47 Asteron Superplan 2000 Global Fund 2.1129 2.01 11.41 10.29 Asteron Superplan Aggressive Fund 1.8765 8.01 10.30 7.79 Asteron Superplan Global Fund 2.4771 1.40 10.72 9.53 Fisher FreedomPlan - Intl Coms 2.53787 -5.77 5.89 5.54 Fisher FuturePlan - Intl Coms 2.53787 -5.77 5.89 5.54 Fisher TWO KiwiSaver Scheme-Eq 3743.51636 4.70 10.33 8.73 Grosvenor KiwiSaver International Share 1.5872 -1.82 9.81 8.22 OneAnswer KiwiSaver-Intl Share 1.508 2.49 12.99 11.65 OneAnswer KiwiSaver-Sustainable Int Shr 1.4942 -0.10 10.50 8.55 SIL 60s + Sup International Share Fund 2.872 2.02 12.38 11.06 SIL International Share 2.872 2.02 12.38 11.06

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76.82 4.19 1.35 3.37 268.42 3.67 1.67 362.80 3.25 3.43 22.60 26.77

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3.78 0.79 3.31 5.52 31.67 2.97 24.72 67.27 7.55 34.24 4.53 0.72 12.26

4 4 3 3 3 2 2 3 3 4 2 5 5

Latest 1 Yr 3 Yr 5 Yr Size Morningstar Transaction Return Return Rating Return $M Overall Exit Price % New Zealand Insurance Fund Equity Region World Non-PIE Fidelity Life Aggressive 3.2259 6.51 10.46 6.29 0.79 4 Fidelity Life International 2.1299 -5.41 7.34 4.95 0.39 1 New Zealand Insurance Fund Equity Sector Global - Real Estate OneAnswer KiwiSaver-Intl Property 1.3371 4.85 11.06 10.17 8.61 2 New Zealand Insurance Fund Equity Sector NZ - Real Estate MFL Property Fund 3.9188 14.57 13.51 14.94 539.31 2 OneAnswer KiwiSaver-Australasian Prpty 1.784 19.84 15.07 16.44 15.70 4 New Zealand Insurance Fund Global Bond AMP Prem PSS Blackrock Global Fixed Int 1.9389 5.82 5.84 6.12 2.28 3 AMP Prem PSS PIMCO Global Fixed 2.2202 4.00 6.04 7.38 2.42 4 Interest AMP Prem PSS SSgA Global Fixed 1.9532 7.01 6.50 6.53 9.05 4 Int Index Asteron Rtrmnt Savings Plan Intl Fx Int 3.3676 6.55 6.19 6.21 1.20 3 Asteron Superplan 2000 Global Bond Fund 2.974 5.57 5.56 5.70 1.16 3 Asteron Superplan Global Bond Fund 2.8164 5.68 5.59 5.72 1.86 3 OneAnswer KiwiSaver-Intl Fxd Int 1.6659 5.30 5.70 5.86 3.01 3 New Zealand Insurance Fund Miscellaneous Westpac KiwiSaver-Capital Protect Plan 1 2.0734 5.41 13.14 11.04 11.79 -Westpac KiwiSaver-Capital Protect Plan 2 1.8614 5.40 13.15 11.05 9.96 -New Zealand Insurance Fund Miscellaneous Non-PIE Fidelity Life Options Portfolio 4.6282 11.36 7.41 4.76 14.08 -New Zealand Insurance Fund Mortgages Non-PIE Fidelity Life Mortgage 3.9694 4.11 3.77 3.25 0.61 -New Zealand Insurance Fund Multisector - Aggressive AMP KiwiSaver LS Aggressive Fund 1.3082 -0.97 7.00 7.72 229.05 3 AMP PSS DynamicMkts Growth 1.6361 -1.26 6.76 7.13 3.89 3 AMP PSS Select Growth 1.543 -1.31 6.88 7.21 32.58 3 Aon KiwiSaver Russell Lifepoints 2045 7.546 5.45 10.89 10.70 11.95 5 Fisher FreedomPlan - Growth 2.58831 4.76 8.51 7.64 7.87 3 Fisher Funds Growth KiwiSaver Fund 1.752 7.21 10.07 9.34 1106.07 4 Fisher FuturePlan - Growth 2.58831 4.76 8.51 7.64 70.26 3 Forsyth Barr KiwiSaver Growth Portfolio 1.4703 8.60 9.93 8.65 13.91 4 Grosvenor KiwiSaver Geared Growth Fund 1.7261 1.25 10.08 7.99 6.00 3 Grosvenor KiwiSaver High Growth Fund 1.324 2.46 8.88 7.30 146.53 3 Mercer KiwiSaver High Growth -3.80 11.20 9.99 100.80 4 New Zealand Insurance Fund Multisector - Aggressive Non-PIE AMP PRP Dynamic 1.8836 -1.73 6.00 6.11 107.93 2 New Zealand Insurance Fund Multisector - Balanced AMP KiwiSaver Fisher TWO Balanced 1.6226 7.04 8.40 8.08 28.65 3 AMP KiwiSaver LS Balanced Fund 1.4776 0.82 6.04 6.88 709.67 3 AMP KiwiSaver LS Moderate Balanced 1.4822 1.55 5.66 6.33 471.37 2 Fund AMP PSS DynamicMkts Balanced 1.7082 0.33 5.62 6.21 3.20 3 AMP PSS Lifesteps Consolidation 1.6601 1.39 5.40 5.78 7.29 2 AMP PSS Lifesteps Progression 1.723 0.15 5.60 6.26 2.88 3 AMP PSS Select Balanced 1.6556 0.34 5.70 6.30 47.66 3 ANZ Default KiwiSaver Scheme-Balanced 1.5702 4.38 8.85 8.93 73.21 4 ANZ KiwiSaver-Balanced 1.6381 4.47 8.97 9.20 1360.67 4 Aon KiwiSaver ANZ Balanced 22.5951 4.60 8.65 9.14 23.81 4 Aon KiwiSaver Russell Lifepoints 2025 8.1406 5.50 8.65 9.17 15.13 4 Aon KiwiSaver Russell Lifepoints Bal 8.1129 5.82 9.85 9.93 70.87 4 ASB KiwiSaver Scheme's Balanced 1.5841 4.98 8.98 8.53 802.89 4 Asteron Rtrmnt Savings Plan Mgd Neutral 3.1675 8.98 10.76 10.04 16.50 5 Asteron Superplan 2000 Balanced Fund 2.4921 8.26 10.22 9.52 10.60 4 Asteron Superplan Balanced Fund 3.1501 7.34 9.41 8.67 68.03 3 Fisher FreedomPlan - Balanced Fund 3.63273 5.06 7.23 7.12 11.33 4 Fisher FuturePlan - Balanced 3.63273 5.06 7.23 7.12 122.96 4 Fisher TWO KiwiSaver Scheme-Bal 4391.61555 5.95 8.29 8.06 524.44 3 Grosvenor KiwiSaver Balanced Fund 1.5651 3.52 7.01 6.52 323.16 2 Mercer KiwiSaver Balanced -4.45 9.02 8.38 250.05 4 Milford KiwiSaver Balanced 1.84522 5.74 11.49 12.32 94.63 5 OneAnswer KiwiSaver-Balanced 1.6597 4.60 9.08 9.29 407.15 4 Westpac KiwiSaver-Balanced Fund 1.5718 5.26 9.04 8.43 968.01 3 Westpac Retirement Plan - Balanced Port 3.3121 4.15 7.87 7.28 101.20 2 New Zealand Insurance Fund Multisector - Balanced Non-PIE Fidelity Life Balanced 4.0988 3.52 6.84 5.88 5.56 4 Fidelity Life Ethical Portfolio 3.0824 10.06 9.54 8.23 0.17 5 Name

Latest 1 Yr 3 Yr 5 Yr Size Morningstar Transaction Return Return Rating Return $M Overall Exit Price % New Zealand Insurance Fund Multisector - Conservative AMP KiwiSaver Default (Default) 1.5138 3.46 5.37 5.17 1230.97 2 AMP PSS Select Income 1.7317 4.88 3.59 4.28 2.23 2 ANZ Default KiwiSaver Scheme Cnsrv(Dflt) 1.6084 4.94 6.68 6.91 958.62 4 ANZ KiwiSaver-Conservative 1.5794 4.53 6.40 6.65 552.96 4 Aon KiwiSaver Russell Lifepoints Cnsrv 8.8968 5.20 6.99 8.13 76.91 5 ASB KiwiSaver Scheme's Cnsrv (Default) 1.6008 5.11 6.07 5.98 3087.97 3 Fisher Funds Conservative KiwiSaver Fund 1.4726 5.66 6.27 6.71 422.30 3 Fisher FuturePlan - Capital Prot 1.19303 1.51 1.50 1.65 23.37 1 Fisher TWO KiwiSaver Cash 1.59479 5.88 6.21 6.28 649.01 3 Enhanced(Dflt) Mercer KiwiSaver Conservative (Default) -5.37 7.03 6.78 998.85 4 OneAnswer KiwiSaver-Conservative 1.5947 4.59 6.41 6.69 377.40 4 New Zealand Insurance Fund Multisector - Conservative Non-PIE Fidelity Life Conservative 4.3427 5.91 5.92 5.29 11.27 -New Zealand Insurance Fund Multisector - Growth AMP KiwiSaver ANZ Balanced Plus 1.7956 4.63 9.50 10.05 183.48 4 AMP KiwiSaver LS Growth Fund 1.3616 -0.55 6.62 7.32 532.35 2 AMP KiwiSaver Nikko AM Balanced 1.6175 9.07 10.36 9.25 32.07 3 AMP PSS Lifesteps Growth 1.6451 -0.81 6.50 6.83 0.73 2 ANZ Default KiwiSaver Scheme1.549 4.25 10.03 9.97 81.43 3 Balanced Gr ANZ Default KiwiSaver Scheme-Growth 1.5233 4.07 11.17 10.99 66.57 4 ANZ KiwiSaver-Balanced Growth 1.6441 4.29 10.19 10.34 1126.86 4 ANZ KiwiSaver-Growth 1.6346 4.09 11.31 11.43 1825.94 5 Aon KiwiSaver Nikko AM Balanced 16.4818 8.46 10.31 9.23 6.27 3 Aon KiwiSaver Russell Lifepoints 2035 7.8883 5.68 9.97 10.07 12.83 3 Aon KiwiSaver Russell Lifepoints Growth 7.9326 5.77 10.81 10.68 25.53 4 ASB KiwiSaver Scheme's Growth 1.5332 4.71 10.38 9.57 840.67 3 Asteron Rtrmnt Savings Plan Mgd Growth 3.2202 10.99 12.72 11.38 31.17 4 Asteron Superplan 2000 Dynamic Fund 2.4812 9.94 11.93 10.58 2.67 4 Asteron Superplan Dynamic Fund 2.8117 9.31 11.25 9.94 21.77 3 Fisher TWO KiwiSaver Scheme-Gr 1.52405 5.63 9.49 9.09 205.48 2 Forsyth Barr KiwiSaver Balanced Port 1.5112 6.91 8.25 7.55 15.17 2 Grosvenor KiwiSaver Balanced Growth 1.5064 3.38 8.06 7.01 168.42 2 OneAnswer KiwiSaver-Balanced Growth 1.6669 4.28 10.27 10.44 359.89 4 OneAnswer KiwiSaver-Growth Fund 1.6549 4.24 11.43 11.51 264.90 5 SIL 60s + Sup Balanced Fund 3.7926 4.06 9.43 9.62 18.02 4 SIL Balanced Plus 3.7926 4.06 9.43 9.62 80.30 4 Westpac KiwiSaver-Growth Fund 1.5907 5.85 10.60 9.84 650.88 3 Westpac Retirement Plan - Dynamic Port 3.6891 4.80 9.48 8.77 105.07 3 New Zealand Insurance Fund Multisector - Growth Non-PIE Fidelity Life Growth 3.8489 2.19 8.12 6.45 2.97 3 New Zealand Insurance Fund Multisector - Moderate AMP KiwiSaver LS Conservative Fund 1.616 2.73 4.69 5.33 281.07 3 AMP KiwiSaver LS Moderate Fund 1.5316 1.92 5.25 5.87 333.94 3 AMP PSS DynamicMkts Conservative 1.7141 2.11 4.03 4.57 0.97 3 AMP PSS Lifesteps Maturity 1.636 2.16 4.08 4.62 3.23 3 AMP PSS Lifesteps Stability 1.6938 1.26 4.69 5.18 5.70 3 AMP PSS Select Conservative 1.7043 2.09 4.08 4.61 10.58 3 ANZ Default KiwiSaver Scheme-Cnsrv Bal 1.5909 4.51 7.65 7.87 26.03 4 ANZ KiwiSaver-Conservative Balanced 1.6171 4.52 7.71 7.98 650.19 4 Aon KiwiSaver Russell Lifepoints 2015 8.5005 5.30 7.27 8.22 5.05 4 Aon KiwiSaver Russell Lifepoints Mod 8.6236 5.73 8.47 9.07 16.59 5 ASB KiwiSaver Scheme's Moderate 1.6153 5.56 7.56 7.30 1041.56 4 Asteron Rtrmnt Savings Plan Mgd Conserv 2.9973 7.47 8.09 8.03 2.62 5 Asteron Superplan 2000 Conservative Fund 2.42 6.67 7.55 7.54 3.14 4 Asteron Superplan Conservative Fund 2.6497 5.76 6.62 6.65 5.73 3 Fisher TWO KiwiSaver Scheme-Cnsrv 1.6504 5.63 6.45 6.61 115.13 3 Grosvenor KiwiSaver Conservative Fund 1.5706 4.82 5.32 5.77 116.22 3 OneAnswer KiwiSaver-Conservative Bal 1.6323 4.46 7.68 8.01 136.33 4 Westpac KiwiSaver-Conservative Fund 1.5536 5.14 6.24 6.39 1914.67 3 New Zealand Insurance Fund NZ Bonds AMP Prem PSS OnePath NZ Fixed Interest 1.8463 7.11 4.46 5.47 2.34 3 Asteron Rtrmnt Savings Plan NZ Fixed Int 3.1924 6.98 5.15 6.22 1.50 4 Asteron Superplan 2000 NZ Bond Fund 2.7378 6.25 4.76 5.81 1.29 3 Asteron Superplan NZ Bond Fund 3.4972 6.27 4.77 5.84 6.64 3 OneAnswer KiwiSaver-NZ Fixed Interest 1.6278 7.51 4.87 5.74 6.86 3 SIL 60s + Sup NZ Fixed Interest 2.8753 6.86 4.22 5.16 2.41 2 SIL NZ Fixed Interest 2.8753 6.86 4.22 5.16 6.32 2 Name

ASSET ADVISER

For more information call 0800 888 361

Latest 1 Yr 3 Yr 5 Yr Size Morningstar Transaction Return Return Rating Return $M Overall Exit Price % Westpac Retirement Plan - Accum Port 3.2279 2.58 2.75 3.05 18.76 1 New Zealand Insurance Fund NZ Bonds Non-PIE Fidelity Life NZ Fixed Interest 3.9191 3.91 3.37 3.57 0.21 3 New Zealand Insurance Fund Unlisted and Direct Property - NZ Asteron Rtrmnt Savings Plan NZ Property 4.9525 ---- 1.25 -Fisher FreedomPlan - Property Fund 4.59957 9.42 8.98 7.37 0.91 -Fisher FuturePlan - Property 4.59957 9.42 8.98 7.37 7.36 -New Zealand OE Cash AMP Capital Cash Advantage Fund 1.39716 2.51 3.13 3.27 169.46 -AMP Capital NZ Cash Fund 1.62894 3.04 3.33 3.31 4163.53 -AMP Prem PUT OnePath NZ Cash 1.3612 2.41 2.86 2.87 3.27 -AMP PUT Select Cash 1.3061 2.20 2.65 2.61 3.75 -ASB Cash Fund -1.94 2.80 2.94 367.30 -Fisher Cashplus Fund 1.2731 2.56 2.70 2.58 24.65 -New Zealand OE Cash Non-PIE AMP UT NZ Cash 1.7829 0.84 1.45 1.56 1.68 -New Zealand OE Equity Region Asia Pacific Non-PIE AMP UT Asian Shares 1.7024 -7.07 7.16 5.58 1.27 -New Zealand OE Equity Region Australasia AMP Prem PUT OnePath NZ Shares 2.209 12.21 13.82 13.64 2.24 3 Devon Alpha Fund 1.5899 5.21 14.92 12.88 97.00 3 Devon Trans-Tasman Fund 3.5186 10.88 15.36 12.34 124.60 3 Harbour Australasian Equity 2.0603 21.16 15.82 14.22 134.71 3 Milford Active Growth 2.83806 9.61 13.37 15.16 722.49 4 Milford Trans-Tasman 2.04698 10.22 11.33 13.58 239.67 3 Mint Australia NZ Active Equity 2.3505 20.79 18.20 18.12 61.93 4 Nikko AM Australasian Small Companies 1.8884 16.34 12.83 10.08 1.26 2 Nikko AM Concentrated Equity 1.8638 21.57 19.05 14.20 19.29 3 OneAnswer SAC Equity Selection 2.2054 11.98 13.13 12.96 18.36 2 Pie Australasian Growth Fund 4.6923 10.71 19.13 20.04 79.52 5 New Zealand OE Equity Region Australia AMP Capital Australian Share Fund 2.28604 -1.70 3.52 3.25 195.70 1 Devon Australian 1.3077 5.68 10.83 7.84 29.65 4 Fisher Funds Australian Growth Fund 3.196 11.10 6.86 7.62 61.62 3 Fisher Funds Premium Australian Fund 1.3999 11.02 7.02 7.90 54.26 3 OneAnswer SAC Australian Share 3.7048 -1.25 2.82 3.46 34.28 2 New Zealand OE Equity Region Australia Non-PIE AMP UT Australian Shares 2.3706 -3.73 1.90 1.79 1.21 -New Zealand OE Equity Region NZ AMP Capital NZ Shares Fund 2.64986 21.53 18.95 15.74 512.78 3 AMP Capital Strategic NZ Shares Fund 2.29502 18.50 18.51 15.34 84.40 4 Fisher Funds NZ Growth Fund 6.9005 19.36 13.56 15.75 136.42 3 Fisher Funds Premium New Zealand Fund 1.617 19.12 13.79 15.90 69.57 3 Fisher Trans Tasman Equity Trust 4.5707 18.77 14.21 13.46 50.72 2 Nikko AM Core Equity 1.8333 23.75 19.03 16.01 35.68 3 OneAnswer SAC NZ Share 4.035 19.04 16.64 15.54 108.27 2 New Zealand OE Equity Region NZ Non-PIE AMP UT NZ Shares 3.316 18.56 15.59 12.63 3.18 3 New Zealand OE Equity Region World AMP Capital Core Global Shares Fund 1.22064 3.76 13.82 11.24 760.53 4 AMP Capital Core Hedged Global 1.2151 -4.80 9.26 10.16 458.80 3 Shares Fd AMP Capital Emerging Markets Share 0.88967 -13.56 0.75 0.75 70.16 1 AMP Capital Global Shares Fund 2.27821 -2.65 10.22 9.96 143.98 4 AMP Capital Resp Invest Leaders Gl Sh 1.33264 -8.74 7.72 7.96 55.37 2 AMP Prem PUT FD Intl Share Fund 1 Value 1.1624 -2.30 9.86 7.36 2.35 2 AMP Prem PUT FD Intl Share Fund 1.2578 -0.08 11.25 9.66 2.11 3 3 Growth AMP Prem PUT SSgA Global Shares Index 1.5721 2.03 11.91 10.02 5.18 4 AMP Prem PUT SSgA Global Shares 1.943 -2.02 11.15 11.44 6.43 4 IndexHdg ASB EasyFund World Shares Fund 1.3168 -1.76 10.22 9.25 136.41 3 Elevation Capital Value Fund 1.5072 6.67 8.75 7.47 24.67 3 Fisher Funds International Growth Fund 1.5362 1.48 8.14 5.56 27.86 2 Fisher Funds Premium International Fund 1.5982 2.14 8.93 6.04 56.36 2 Fisher Global Fund 4.4094 -5.48 6.49 7.25 85.73 2 OneAnswer SAC International Share 1.7226 2.62 14.71 13.50 147.83 5 New Zealand OE Equity Sector Global - Real Estate AMP Capital Global Propty Securities Fd 1.5352 3.07 11.20 11.40 158.85 3 Name

Latest 1 Yr Transaction Return Exit Price % ASB EasyFund Global Property Fund 1.3437 10.16 New Zealand OE Equity Sector NZ - Real Estate AMP Capital Listed Property Secs Fd 2.44283 19.88 AMP Capital NZ Property Fund 2.23047 19.65 Mint Australia NZ Real Estate Investment 1.7809 19.16 OneAnswer SAC Property Securities 3.1368 19.79 New Zealand OE Global Bond AMP Capital Hdgd Gbl Fixed Intrst Fund 2.28361 4.02 AMP Prem PUT Blackrock Global Fixed Int 1.7982 5.55 AMP Prem PUT PIMCO Global Fixed 2.2217 3.83 Interest AMP Prem PUT SSgA Global Fixed 1.8062 6.38 Int Index ASB EasyFund World Fixed Interest Trust 1.1065 3.18 Fisher BondPlus Fund 2.1051 4.44 New Zealand OE Miscellaneous Fisher Funds Property and Infrastructure 1.9766 9.10 KTAM NZ Australian Long Short Equity 1.32574 -Nikko AM Income 1.2688 9.60 Pathfinder Commodity Plus Fund 0.9741 2.84 New Zealand OE Mortgages Westpac Home Loan Trust 1 2.46 Westpac Mortgage Investment Fund 1 2.60 New Zealand OE Multisector - Aggressive AMP Capital Growth Fund 2.27284 -2.60 AMP PUT DynamicMkts Growth 1.6666 -1.30 AMP PUT Select Growth 1.4772 -1.40 New Zealand OE Multisector - Aggressive Non-PIE AMP UT Dynamic 1.9885 -2.60 New Zealand OE Multisector - Balanced AMP PUT DynamicMkts Balanced 1.6893 0.18 AMP PUT Select Balanced 1.5948 0.31 ANZ Invmt Fds Balanced 1.6051 4.16 ASB EasyFund Balanced 1.4428 4.41 Milford Balanced 1.81588 5.38 Westpac Active Balanced Trust 1.9815 4.35 New Zealand OE Multisector - Balanced Non-PIE AMP UT Balanced 2.1263 -0.63 AMP UT Balanced - Other 1.8358 -0.64 New Zealand OE Multisector - Conservative AMP PUT Select Income 1.6156 4.75 ANZ Invmt Fds Conservative 1.4392 4.31 ASB EasyFund Defensive 1.4971 4.50 New Zealand OE Multisector - Growth ANZ Invmt Fds Balanced Growth 1.7009 4.10 ANZ Invmt Fds Growth 1.7683 3.85 ASB EasyFund Growth 1.3777 4.12 Fisher Multi Sector Fund 2.909 4.90 OneAnswer SAC Balanced 2.7152 4.21 Westpac Active Growth Trust 1.9038 4.89 New Zealand OE Multisector - Growth Non-PIE AMP PMF - Active Growth 2.0914 -0.55 AMP UT Legg Mason Balanced 1.5995 -0.35 New Zealand OE Multisector - Moderate AMP Capital Conservative Fund NZ 2.27239 3.07 AMP PUT DynamicMkts Conservative 1.663 1.94 AMP PUT Select Conservative 1.6744 1.77 ANZ Invmt Fds Conservative Balanced 1.5231 4.19 ASB EasyFund Conservative 1.4801 5.04 ASB EasyFund Moderate 1.4801 4.98 Milford Diversified Income 1.54988 11.03 Westpac Active Conservative Trust 1.7638 3.97 New Zealand OE Multisector - Moderate Non-PIE AMP PMF - Balanced 2.4132 0.57 AMP UT Conservative 2.0552 1.17 New Zealand OE NZ Bonds AMP Capital NZ Fixed Interest Fund 1.68871 7.33 Name

3 Yr 5 Yr Size Morningstar Rating Return Return $M Overall 11.86 10.55 94.84 3 14.38 12.75 13.36 14.85

15.96 10.94 14.80 16.21

21.40 122.14 52.07 140.04

4 -2 3

5.21 5.58

5.42 135.02 5.90 1.44

2 3

6.01

7.37

2.52

4

6.34

6.44

5.35

4

3.97 5.67

4.32 54.14 7.26 128.00

-3

12.70 10.50 58.60 --- 19.83 6.96 6.64 9.62 0.11 -4.00 71.25

-----

2.70 2.85

2.51 85.33 2.63 117.76

---

7.09 6.81 6.80

7.38 7.44 7.07 3.65 7.11 13.59

3 3 3

5.94

6.51

8.52

2

5.56 5.59 8.61 8.38 10.99 8.52

6.14 6.18 8.87 7.92 11.96 7.90

5.06 37.99 164.65 126.50 337.45 170.38

3 3 4 3 5 3

4.95 4.83

5.68 13.75 5.60 0.62

3 2

3.59 6.13 5.43

4.27 3.24 6.38 41.60 5.34 123.28

1 3 2

9.91 10.96 9.71 7.31 9.53 9.99

10.12 11.05 8.89 7.63 9.87 9.24

124.18 55.45 27.07 11.44 51.07 67.40

4 5 2 3 4 3

4.42 4.36

4.40 16.07 4.60 1.55

2 1

4.78 3.90 3.97 7.34 6.23 6.96 12.47 5.36

5.22 4.47 4.51 7.64 6.00 6.70 13.48 5.45

8.80 2.23 16.82 138.74 511.96 213.72 1353.70 183.88

3 2 2 4 3 3 5 3

3.62 3.44

3.89 31.98 4.04 0.87

2 3

5.15

6.08 1770.52

4

Latest 1 Yr 3 Yr Transaction Return Return Exit Price % AMP Capital NZ Short Duration 1.2554 4.70 4.58 AMP Prem PUT OnePath NZ Fixed Interest 1.7236 6.88 4.37 Harbour NZ Corporate Bond 1.0687 5.70 4.94 Nikko AM NZ Corporate Bond 1.1612 6.25 5.59 OneAnswer SAC NZ Fixed Interest 1.6324 7.45 4.62 New Zealand OE NZ Bonds Non-PIE AMP UT NZ Fixed Interest 1.8919 4.09 2.65 New Zealand OE Unlisted and Direct Property - NZ Non-PIE AMP UT NZ Property 1.7815 17.59 10.78 Name

5 Yr Size Morningstar Rating Return $M Overall 4.39 244.18 2 5.39 1.96 3 5.29 265.41 3 6.40 292.08 5 5.35 10.89 2 3.52

0.58

3

9.52

1.87

--

Returns are calculated to 31/05/16 Returns are calculated before tax and after fees, except for the non-PIE categories, which are after tax and after fees. For more information about this table and the methodology behind the data, contact helpdesk.nz@morningstar.com or go to www.morningstar.com.au © 2016 Morningstar, Inc. All rights reserved. Neither Morningstar, nor its affiliates nor their content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution.

To the extent that any of this information constitutes advice, it is general advice and has been prepared by Morningstar Australasia Pty Ltd ABN: 95 090 665 544, AFSL: 240892 and/or Morningstar Research Limited (subsidiaries of Morningstar, Inc.) without reference to your objectives, financial situation or needs. You should consider the advice in light of these matters and, if applicable, the relevant Product Disclosure Statement (in respect of Australian products) or Investment Statement (in respect of New Zealand products) before making any decision to invest. Neither Morningstar, nor Morningstar’s subsidiaries, nor Morningstar’s employees can provide you with personalised financial advice. To obtain advice tailored to your particular circumstances, please contact a professional financial adviser.

Please refer to our Financial Services Guide (FSG) for more information www.morningstar.com.au/fsg.asp

033

DATA

WHAT’S DIFFERENT FOR ‘HIGH-REPLACEMENT’ ADVISERS?

I

n its report on replacement business, the FMA looked at the 1100 insurance advisers with more than 100 active policies on their books.

About 200 had a high estimated rate of replacement business. It found some differences between the way those “high-replacement” advisers were operating, compared with those who were just “high-volume”.

AVERAGE COMMISSION PER POLICY

$410 PER

YEAR

HIGH-VOLUME ADVISERS

$610 PER

YEAR

HIGH-REPLACEMENT ADVISERS MANY INSURERS OFFER OVERSEAS TRIPS AS AN INCENTIVE TO ADVISERS. 034

WWW.GOODRETURNS.CO.NZ

HIGH-VOLUME ADVISERS:

HIGHREPLACEMENT ADVISERS:

{33%}

{57%}

TOOK ONE OR MORE TRIP.

TOOK ONE OR MORE TRIP.

{13%}

{30%}

TOOK THREE OR MORE TRIPS.

TOOK THREE OR MORE TRIPS.

{5%}

{13%}

TOOK FIVE OR MORE TRIPS.

TOOK FIVE OR MORE TRIPS.

NUMBER OF PROVIDERS WITH WHOM ADVISERS HAVE AT LEAST 90% OF THEIR LIFE POLICIES

HIGH-VOLUME ADVISERS: 64% TWO OR MORE. 37% THREE OR MORE.

HIGH-REPLACEMENT ADVISERS: 81% TWO OR MORE. 51% THREE OR MORE.

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