Riskinfo conducted an International Adviser Round Table discussion at the MDRT Annual Meeting in Vancouver in June. We spoke with advisers and industry stakeholders from Australia, New Zealand, South Africa, United States, Canada and the United Kingdom.
These six nations make up most of the English-speaking world and all six are presently grappling, at different stages, with the issue of regulatory reform and the evolving nature of the role of the risk-focused financial adviser.
The discussion addressed the issues that have led to this world-wide series of reforms which are impacting the way advisers provide their services, and our experienced adviser panel also exchanged their views on the merits of the reforms themselves and how they would shape the future for the consumer, their individual advice businesses and the wider financial advice sector.
Panellists (L to R)
- Peter Sobels – Publisher, riskinfo
- Richenda Crawford – MDRT Regional Chair – Communication Division, Canadian adviser
- Jeff Page – New Zealand MDRT adviser and dealer group Director
- Michelle Hoskin – Standards International, United Kingdom, 2016 MDRT focus session presenter
- Jamie McIntyre – Australian adviser
- Dr Pravin Thakur – MDRT South Africa Chair
- Adam McCann – MDRT Australia Chair, Co-host
- Philip Harriman – 2007 MDRT President, US adviser
- Kevin Canning – Zurich Financial Services Australia National Strategic Account Manager – Sponsor/supporter
Three important threads of conversation occupied most of the time for our diverse adviser panel:
- The extent to which advisers around the world should consider ‘future proofing’ their business against future regulatory changes
- Finding a viable long-term advice solution for the ‘mums and dads’ market segment
- Addressing what is a global underinsurance dilemma and the potential impact of regulatory reform on this issue
Table of contents (Click these links to move directly to those topics)
- Commoditisation of life insurance, demonstrating value
- Diversification for risk-only advice businesses?
- Costing advice and comparing experience
- Relative value attaching to experience
- The quest for professionalism
- New Zealand status
- Unwinding the past
- Life insurer’s view
- Learning from the Australian experience
- Client best interests & client fiduciary interests
- Global growth of compliance
- Final comments and future optimism
Consumerism, Regulation, Evolution and Optimism
Commoditisation of life insurance, demonstrating value – Back to top
Australia’s MDRT Chair, Adam McCann, told his peers he has seen an enormous transitioning of the financial services sector since he first started in the industry in the mid-1980s. Mindful of what he sees as a continuing trend in the ‘commoditisation’ of life insurance products, Adam spoke of the critical importance for an adviser to be able to clearly articulate, in future, how they add value to their clients:
“I’m agnostic about the way that advisers are remunerated. I think the critical factor is the individual adviser’s value proposition. At the outset, it’s critical to be able to articulate the value that you will be providing to a client.
Adam says the importance of articulating value applies to both the ‘high end’ and the ‘mums and dads’ client segments, which is where the issue of growing commoditisation emerges: “My concern with commoditisation is where you look at technology advancements. Life insurance will be a lot more streamlined in future…At the top end of advice, where there’s a fee, there’s appropriate engagement over time and there’s an opportunity to provide advice. But my big concern, and I don’t have the answer, is that where there is potentially less adviser engagement through commoditisation and robo advice, people will go for what they believe they want, when sometimes that isn’t what they need.” His argument is that if advisers are restricted from providing advice to mums and dads because of remuneration issues, this community segment will not be advised and served as it should be.
Adam is an advocate for both fees and commission as remuneration options for life insurance advice if there is to be a better spread of life insurance advice throughout the community: “If you’re looking to deliver more advice and better coverage to the community, having both remuneration options would give us the best outcomes,” he said. With the growing clamour of calls for reduced life insurance commission or for its total banning in the quest to remove conflicted advice, Adam commented, “I completely endorse the move towards professionalism. But do we want to do that at the expense of having even more people underinsured? The regulator’s challenge is how to deliver improved professional standards while also providing a pathway for access to advice by all members of the community.”
Diversification for risk-only advice businesses? – Back to top
Giving his pragmatic take on the issue of recent and impending regulatory reform, Victorian adviser, Jamie McIntyre, said: “When it comes to regulation, we don’t control what happens, but we can control what we do in our businesses.”
in talking with insurance-only advisers, I’ve found that they actually don’t value themselves properly
Emphasising his point, Jamie added, “…as a member of a profession, we have to take the steps that we can control. So on the question of remuneration for risk advice, we’ve built our business so that we’re not just delivering risk insurance advice. I’ve built my skills in our business where we charge for a strategic financial plan that we deliver. Risk insurance is an outcome of that strategic plan; investment strategies are an outcome beyond that and so is the retirement savings advice strategy. These outcomes are at the very end of the process,” said Jamie. “They’re not at the forefront of our thoughts.”
Echoing Adam’s point about the critical importance of demonstrating/articulating value, Jamie noted that “In my experience in talking with insurance-only advisers, I’ve found that they actually don’t value themselves properly. They are just an extension of the insurer. That’s simply how they’ve been trained and how they’ve been resourced and trained.”
Jamie told the panel that, together with Adam’s business, “…we’ve both gone through a process where we’ve reached a point at which we understand our value. You know what your value is to a client and you deliver that value to them because you’ve valued yourself in a different way, and what your business does and what you do.” He agreed that risk only advisers may need to reconsider how they position their own value proposition – how they add value themselves – so they can grow through, and not be controlled by, regulation.
Jamie emphasised that it has taken him five years to reach the point where he can charge a fee for those packaged services. “You get your knock-backs but you’ve got to progress – to move forwards.”
Tying this conversation back to regulatory reform, Jamie said: “…you’ve got to stay in front of the game.” He agreed it would be much more difficult to operate his current business structure if it was a more insurance-focused practice. “But my philosophy, and I’ve talked with my staff about this, is that, if you’re not evolving, you’re slowly dissolving.”
Referring back to Australia’s stalled Life Insurance Framework reforms, Jamie said any advice businesses just waiting around for the box on LIF to be ticked are just wasting time. “You’ve got to be thinking in advance of the delay in the formalising of the regulations.”
Costing advice and comparing experience – Back to top
Dr Pravin Thakur, South Africa’s MDRT country Chair, told his peers that six years ago he voluntarily undertook an exercise to cost everything he did in his business practice. He said he wasn’t compelled by regulatory imperatives to undertake this exercise, but saw it as a necessary step in making the transition to professionalism, in which he said there is a cost to every service.
Dr Thakur established there was a tremendous amount of cross subsidisation in his business: “The top end of clients was cross subsiding the lower sector end,” he said, which motivated him to change the way his business was structured. He said this made better ‘business sense’.
Relative value attaching to experience – Back to top
Pravin challenged the panel to consider what he referred to as a current conundrum for advisers in a professional environment. His point related to the newest, least experienced adviser having the capacity to earn exactly the same remuneration for securing a new life insurance policy, if paid via commission, as the most senior, most qualified and most experienced of his or her colleagues.
we found advisers were, in fact, over-valuing themselves for the services they delivered.
Pravin told his peers that he believed a financial adviser is more often inclined to consider him/herself as a professional first, rather than as a business person. However, he supported an earlier observation made by Jamie that it’s important for advisers to see themselves as business people.
When commission is the basis of remuneration, Pravin noted, “When we considered the current models we found advisers were, in fact, over-valuing themselves for the services they delivered.”
He continued, “There’s a sector that is highly qualified, but undervalued and underpaid, whereas the ‘novice’ adviser is often overpaid for the actual value they deliver.”
Challenged on the contention that the experienced and most qualified advisers were in a better position to charge more for their services, Pravin also agreed that the amount charged should always reflect the value, quality and professionalism of the advice provided.
The quest for professionalism – Back to top
Pravin noted the journey to professionalism for financial advisers in South Africa has started, being triggered by the Finanacial Advisers and Intermediary Services Act (2002), but that progress has been pedestrian. However, he remained optimistic that the baby steps having been taken, eventually financial planning services will be a recognised professional service offering like any other profession in the eyes of the community and country at large.
New Zealand status – Back to top
Highly successful New Zealand business owner, Jeff Page, told the panel his country’s regulatory reform journey was in its infancy: “We’re in an environment in New Zealand where regulation is really only just starting, and this appears to be a reason why the determination of the cost of delivering financial advice in New Zealand is less clear than, say, in Australia or South Africa.”
Jeff confirmed: “We’re in an environment today where an adviser in the risk insurance industry in New Zealand can earn up to 230% in commission.”
Taking up the point made by Pravin about the disparity that can exist between the relative value that new entrants to the sector deliver and their earning potential, Jeff put it like this: “You can be a plumber one day and come out and become a professional adviser the next and earn 230%.
“But there are a lot of issues that need to be addressed,” continued Jeff. If you sit down with an insurance adviser [in NZ] and start talking about fee for service you’re going to get a lot of blank faces.”
Jeff sees an inconsistency in the way financial advisers in New Zealand view themselves: “…what I have found to be totally unique to the New Zealand market place is the different way advisers position their services: ‘I’m a risk adviser’; ‘I’m a wealth management adviser’; ‘I’m a financial planner’; ‘I’m a mortgage broker.’ That is not the future of the industry. To my way of thinking, the future of the industry is simply ‘I’m an adviser – I’m a qualified, practicing adviser.’”
In outlining some of the challenges facing the New Zealand market, Jeff reinforced the message that underinsurance is a global issue: “We have a huge underinsurance problem in New Zealand – from some statistics I’ve seen, one of the worst in the world. Other issues include addressing churn, impending regulation [and] commission levels. In New Zealand we have a lot of sales people. Sales people don’t charge fees. They take commissions.”
Self-regulation – Back to top
He continued: “…the way the industry is moving, I have a huge belief that if you want to predict the future you have to design it.” Jeff is a strong advocate for self-regulation: I’m of the view that it’s got to be up to us to design what we possibly can for the future and then work with the regulator.” But he also sees more regulation unfolding for the New Zealand market, which has just commenced.
Jeff believes the New Zealand market will learn from the Australian and other regulatory experiences in charting its own path. “For us, the future is all about moving from sales people selling their individual product to becoming advisers – holistic financial advisers. And those that are doing that right now in New Zealand today are already charging a fee for service.”
Following Jeff’s observations, the panel generally agreed it used to be easy to transition from ‘plumber to adviser’ This scenario is now rightly, according to the panel, becoming a thing of the past. In situations where this quick transition is still possible, Jeff maintained that “…after a one week sales training course, you become a salesman; not an adviser.”
Unwinding the past – Back to top
UK best practice specialist, Michelle Hoskin, told the panel one of the biggest factors impeding the UK life insurance and financial services sector from moving forward into a bright future is its past.
That’s why I think things will never be fixed – because we can’t start again
Referring to the ability for financial advisers to reach more consumers and be properly remunerated for the value they provide, Michelle pessimistically declared: “I don’t think we’re ever going to fix this at all. Ever.” She continued: “There are too many agendas at play at all levels in our industry (globally): regulators, advisers, consumers and companies.”
Michelle shared with the panel that in a recent media interview during which she was asked how she would change the regulatory environment and framework in the UK “…I said we should bash everyone’s heads together and start again. Because the problem is that we’ve got regulators concerned about the ‘dodgy’ end of the market, (like the lower end sales guys), leading to a significant conflict with this massive batch of advisers who want to be professional business owners in the UK.”
Providing her honest view of commission as a remuneration option in financial services, Michelle said “If we were to start from scratch, commission doesn’t ever work, really, because it’s not transparent. Even the word ‘commission’ can be mis-leading, as what we’re talking about is back-door payments from the insurance company.
“So if we were to start the whole industry again, we wouldn’t have commission because it’s just not right,” said Michelle, in a comment that will cause many to reflect. “And ‘salesmen’ would have to negotiate a fee,” she added. “That’s why I think things will never be fixed – because we can’t start again.
“When the UK first initiated and implemented RDR (its Retail Distribution Review), there was a feeling that this represented light at the end of the tunnel, and then they took the whole flippin’ thing down [ie rolled back the intended reforms]. All we can do is keep educating. Keep educating the consumer, because it’s within our power to do that.
“In the end, for any fantastic advice or service, we can only charge what people are prepared to pay.”
Life insurer’s view – Back to top
Offering his own take on the machinations of regulatory reforms in Australia was National Strategic Account Manager – Life Risk for Zurich Financial Services Australia, Kevin Canning. According to Kevin, for all the discussion, debate and sometimes controversy surrounding the current round of regulatory reform in Australia (the new Life Insurance Framework in particular), there were only two life companies who eventually delivered submissions to the first Senate Enquiry, one of which was Zurich. “One of the issues we discussed in our submissions was that much of the dialogue had been centred around remuneration, and the underlying issue – the actual quality of advice – had almost been forgotten.
Kevin continued: “We are on the record as supporting choice for advisers and consumers, and we know from research that many consumers would rather the cost of their advice be funded by commission rather than an out of pocket fee”. From an adviser perspective we believe an adviser should be fairly remunerated for the true cost of providing advice, at the time they provide it”. Kevin believes some risk-focused advisers may struggle to sustain a viable business under the proposed LIF remuneration model unless they reshape their businesses “They’ll either be forced out of the business or to look at other ways of adding value – and I think they can do that in a number of different ways. For example, I believe technology will have a big role to play in the future value proposition delivered by advisers as well as other efficiencies that will assist advisers in running their businesses as well as improving the customer experience. Quicker, faster, some ‘robo’ services, customer care, advocacy and online access to information services,” was Kevin’s assessment.
Referring specifically to risk-focused advisers, Kevin warned: “Everything is trending toward accessing information online and from an adviser’s point of view I think that they are going to have to re-think what they do and how they add value – very carefully.”
Given the shape of regulatory reform in Australia, Kevin thinks the need to lower the cost of advice may see some smaller Australian life insurance practices joining together to achieve economies of scale. “And I don’t think many in the adviser community have realised this is going to happen. But it will, and so it’s critical that they are prepared,” he said.
Learning from the Australian experience – Back to top
Experienced Vancouver adviser and MDRT member and Regional Chair – Communication Division, Richenda Crawford, told the panel the Canadian financial services industry has learned much from the regulatory debates, outcomes and experiences in jurisdictions such as Australia and the United Kingdom. She noted there are several regulatory bodies in Canada, including Advocis, which is the country’s oldest voluntary professional membership association for advisers, which regulates the life insurance advice market, while CFP (Certified Financial Planner) qualified advisers operate under rules imposed by their own body, where they have strict adherence to professional development criteria. The MFDA (The Mutual Fund Dealers Association of Canada) oversees the mutual fund industry and the hottest topic in Canada is the changing regulations pertaining to fee transparency.
Richenda said the financial services industry in Canada is changing rapidly, within an environment with aging advisers and no-one to recruit and train new entrants into the adviser market.
Education and training is crucial for Richenda and her Canadian peers. She said when she entered the industry almost 24 years ago there were several companies and agencies teaching and training new advisers. “Now there are two left,” she said, which includes the insurer, SunLife, within which she operates as a career agent; the other being Great West/London Life.
one of the problems is that life company and agency managers are paid (in part) on the number of advisers they can recruit, rather than on the level or quality of their expertise
She said there is intense pro-active effort by the institutions in their endeavours to recruit more young people into the business. “Typically for young people coming into the business today, if they don’t have a financial background or a degree in commerce, it can take them around six to eight months to become licensed,” she said. But alluding to the very high cost of living in major Canadian cities such as Toronto and Vancouver, and to the difficulties associated with getting started in the financial advice business, Richenda told the panel that while some companies may offer some small incentives to new advisers that they can eventually pay back, “…if you do not have a market or team with an experienced adviser it may be tough to succeed.”
Richenda told her peers she believes new millennial entrants to the market often think they know it all: “New advisers are tech savvy and can do sales modelling and illustrations. However they presume to know everything about life and they don’t what to hear or learn anything, or work with other more experienced advisers. They don’t want to work weekends. They don’t want to pound the pavement. They want everything now, similar to the generations receiving the wealth transfer.”
Richenda explained her less than resounding endorsement of the present-day financial services environment in Canada “It’s more difficult to become an adviser today – you need some knowledge or you won’t pass the tests. But one of the problems is that life company and agency managers are paid (in part) on the number of advisers they can recruit, rather than on the level or quality of their expertise.
Like most other countries, Richenda said a big area of change within the Canadian advice market is in technology advancements: “Where the market is changing is the ‘robo businesses’. Every company is going to be bringing some level of robo advice or services into their model, which satisfies the mid-market and millennial client.”
Yet she still holds a generally positive outlook, due in part to new regulations: “…in January 2017 all mutual fund fees will be disclosed. Brokers have disclosed fees for years but many will go out of business. In Canada, they’re now saying if you don’t hold a professional designation, you can no longer hold a license to be an adviser. That’s a good thing. I think Canada is well positioned in part because of the organised lobbying by advisers to the regulators and Minister of Finance/Canadian government, including professional by invitation only bodies such as CALU (Conference for Advanced Underwriting).”
Client best interests & client fiduciary interests – Back to top
Highly-regarded US adviser and 2007 MDRT President, Phillip Harriman, sees both Australia and the UK having gone through relatively recent regulatory regime change. In the US, the pricing of a range of insurance products is regulated by each individual state. “So, I don’t have the ability to ‘cut a deal’ as it were, for life insurance pricing.”
rather than address some inappropriate behaviours, the Department has issued one thousand pages of regulatory edict
Phillip explained to the panel that the financial planning services sector is the space into which the US Department of Labor has inserted itself: “The US Labor Department has adopted the regulatory position that because they oversee how retirement plans are run and they further perceive some abuses of products that they perceive to be inappropriate, particularly around variable annuity products. So, rather than address some inappropriate behaviours, the Department has issued one thousand pages of regulatory edict that applies to retirement plans sponsored by employers, and they’ve also reached over to individual retirement accounts,” said Phillip.
Under these new regulations, one of the significant issues facing US-based financial advisers, according to Phillip, is their future requirement to demonstrate fiduciary best interest advice.
“If I was giving you financial advice regarding your retirement plan I was duty bound to give you advice that was suitable for your circumstances. What’s going to change in April 2017 is that I will now be held to a fiduciary standard, which means my advice is in your best interests.” However, Phillip told the panel there was a legal grey area in terms of the interpretation of what is in the client’s best interests and the extent to which this includes responsibility for the client’s financial best interests.
Phillip continued. “The rear-view mirror may be applied whereby the client may say that the advice he or she was provided three years ago was ultimately not in their best interests because their circumstances had changed.”
According to Phillip, one of the practical impacts of this edict document is that advisers will need to make even more detailed notes than they are already required to maintain, to demonstrate that their advice was in the client’s best interests. This is a significant regulatory change for the US adviser community, which is still to be ‘played out’, and where it seems there may be unintended consequences associated with the implementation of the proposed changes in 2017.
Global growth of compliance – Back to top
Richenda observed that the size of the compliance departments overseeing career agents in Canada has quadrupled during her time: “Senior colleagues of 30-years standing in the industry have compliance officers in their businesses every six months searching for the smallest compliance breaches,” she said.
Final comments and future optimism – Back to top
At the end of an earnest discussion, our panelists were given the opportunity to add their final observations on any of the issues covered during the Round Table discussion. What emerges from these comments – what stands out – is a strong optimism universally shared, that there will be significant opportunities to build outstanding advice businesses, serving the best interests of the consumer, once the dust kicked up by this global round of regulatory reform has finally settled:
Dr Pravin Thakur – South Africa
There’s the client, the adviser, the State-created regulatory environment and there’s the shareholder. Who is driving regulatory reforms? I will use history to find the answer. South Africa took a political cue for political change from the post Gorbachov era. What was to follow was economic liberation followed by consumer liberation. Consumers now have more freedom to claim more benefits than they used to be able to access.”
Pravin’s assessment is that the drive for regulatory change is being given momentum by the rise in consumerism across the world, including in South Africa, rather than by institutional shareholders or politicians: “ Consumerism driving regulatory change is a factor which must not be overlooked.”
Richenda Crawford – Canada
“Underinsurance – I don’t think anything’s going to solve that issue. I still think it’s fair to say that if you’re a young person and you’re motivated and you get your education, this can still be an absolutely fabulous career… But you have to be prepared to work. You have to be prepared to get your education and qualifications and professional training. So it’s still exciting times for young entrants into the industry.”
Jeff Page – New Zealand
Jeff believes there exist ‘phenomenal opportunities going forward. “And I disagree with an earlier comment about waiting for things to happen to us. I just think that we’ve got a great opportunity to design the future [in our industry]. If we sit back and wait for it to happen, it will. But if we start planning and reinventing the industry, then that’s what will happen. I’m very bullish and optimistic about the future,” said Jeff.
But on underinsurance, Jeff agreed with a sentiment shared by most of the panel: ”I don’t think we’ll ever solve the underinsurance issue at all. I think the banks are making it worse because they’re peddling a commodity product and people aren’t getting the levels of insurance they need to get.”
Michelle Hoskin – United Kingdom
As an industry, we have to decide whether we are doing good [for our clients] or doing well [as a business]. Michelle agrees that individual businesses have the power within their own hands to succeed: “But what I’ve seen in the UK is that the hardest decision advisers have had to make as business owners has been ‘… are we selling our services for enough money as we do good deeds and help people? Or are we actually turning ourselves into commercial businesses where we’re not cross-subsidising services, but are actually making a profit on every single customer because we’re a business?
My approach is that you pitch yourself in a market place and run educational workshops for those who can’t afford it
When asked, Michelle said it is certainly possible to make a profit on every client and she is working with a lot of advice firms to transition them to that model because she says “… it’s unfair for the rich guy to subsidise the poor guy.” She continued, “My approach is that you pitch yourself in a market place and run educational workshops for those who can’t afford it. That is your good deed, but it’s funded from the profits you make; not because one client is paying for another client to be serviced.”
In the 21st Century it’s not just about insuring my life. It’s also about my wellness, my health, my children, my money, my family relationships. And that’s why I see advisers moving into this more holistic advice service model – not to make money, but because today, that’s what consumers need. You sell life insurance to me, that’s only one bit of a massive and complicated life. As advice businesses, we have to realise, that yes, insurance is a massive part of it, but it’s only one part.
Jamie McIntyre – Australia
“We all share challenges in our businesses and regulation is always going to be there. We can help drive regulation by changing our behaviours individually and collectively, and organisations like MDRT encourage collective behaviours in a positive form.
“Underinsurance is an interesting challenge. The solution to underinsurance? Firstly, not everyone wants to buy it. A big part of the solution is that we can all do our own little bit and continue to educate and encourage people and hopefully not have to get into a 30-page document to do it, because we’re not a charity, either. So our responsibility is to educate and nurture and encourage more people to have more awareness about the need to purchase insurance. That’s an entire other conversation.
Kevin Canning – Australia
The underinsurance issue is never going to be completely solved, but I am very optimistic about the future. With so much new talent entering this industry, the current regulatory debate will be seen as a bump in the road that everyone had to negotiate. And once we get through this current round of regulation there is a very bright, positive future for Australia’s life insurance sector – with consumer solutions being delivered by very good advisers who give very good advice and look after their clients.
Those advisers who are just hanging on, just waiting to tick a box, will not remain in the industry for long. The Australian advice sector doesn’t have that many problems. People do reinvent themselves. Advisers and advice businesses can and do reinvent themselves and I’ve seen some great examples of this in Australia …
Adam McCann – Australia
“Since the 1990s there has been ongoing change. I’m very enthusiastic. I think there’s boundless opportunity out there. If you’ve got a fee for service model, you can’t be regulated out of charging fees. If you can demonstrate value and you clearly articulate that, then I think there are some great opportunities.
“There are two parallel conversations: Professionalism and Underinsurance. But I don’t think professionalism solves underinsurance. I celebrate education, improved standards, transparency, professionalism and regulation, which is something we all need to aspire to. But none of this deals with the underinsurance issue. And that is the challenge we all face.
Phillip Harriman – United States
Phillip agrees there is to be permanent change coming to the US advice sector. “Some of us have been seeing this for a while,” he said, “…as an avalanche of government intrusion. If you’re a relatively new adviser, then you don’t have any of that perspective – that’s just the way it is. So we have to make sure we have the right lens on our camera.
“In our firm, we’ve decided to embrace these Department of Labor regulations. They’re not going to go away, right? So, let’s understand them and work with them and be a market leader working within and using them.
“In the short term, what I think is going to happen in my country is that the very people that the government thinks they are protecting – the ‘little person’, so to speak – they’re the people that I’m no longer going to be able to serve because I can’t afford the liability. So you’re going to motivate me to become what you don’t want me to be, which is just being an adviser to all the rich people.”
This leads us to the robo adviser, which is where they’re going to shovel all these people off to say, well, you don’t need to see an adviser – you don’t need to pay someone. You can do it through all these algorithms. I don’t think this is a bad thing if you’re getting no advice. Some advice is better than no advice, for something that is ethically delivered. But I do believe that, at the end of the day, even Millennials will wake up one day to say “I think I want to have a person [adviser] to look in the eye, and to talk to.