moneyblog

Earlybird specials now available for the Shaping Futures Conference

Register for the Shaping Futures Conference here. Earlybird tickets now available.

The problem with forced rankings

Here is Seth Godin's take on forced rankings, and he's not a fan. But so many humans are, because we so want to be number one, we don't like the idea of 'these are effectively the same - the differences are so small it doesn't make a difference' so we force rankings, in a way which Seth Godin describes brilliantly. Of course, we are familiar with forced rankings in the world of product research. Companies so desperately want to be able to say 'we're number one' that they even sometimes convert our carefully constructed comparisons into a a kind of winners podium: 1st, 2nd, 3rd.

But this isn't how advice works. Because advice is personalised, so is the research.

It's frustrating when you're looking to be crowned 'first' that you might be 'first' in only a set of circumstances, and second in another. For the client, however, even a 'set' of circumstances doesn't matter - only their circumstances matter. Also, they know that 'first' often comes with a cost attached to it, and first at any cost is easy, whereas best value for one individual, isn't.  Best value for one individual demands trade-offs and choices that are hard - real-world hard. Winning that argument is a complicated and more interesting competition than the one-dimensional ranking approach.

nib health journalism scholarship winners announced

Barbara Fountain won the nib senior health jounalism scholarship at the recent Voyager Media Awards and picked up the $6,000 grant towards travel, research and interviews.

'Judges Donna Chisholm and Lorelei Mason said Fountain’s proposal to investigate secrecy at district health boards was a standout. They were impressed not only with her strength of writing but her proposal to investigate DHB accountability – “an area where sunlight is sorely needed,” they said. “She has the experience in health and depth of knowledge to pull it off.”'

Click here to read more.

The cost of care: 'All I want is for him to have the quality of life he deserves'

I don't know about you, but $500 a week appears to be very little to live on. Perhaps the state cannot afford any more, but it underlines the need for additional private insurance if you want to live free of financial worries during a severe illness.

Grant was diagnosed with a crippling motor neurone disease in 2012 and his wife Glenda is his full time carer at home. Between them they receive less than $500 per week from WINZ.

'Glenda wants to highlight how little people who can't work due to disability receive from the Government — even if, like Grant, they have paid taxes all their life.

Health providers have also been reluctant to fund home improvements because of Grant's terminal diagnosis, Glenda Lovatt said.'

Click here to read more.

Pace of change, versus direction of change

The direction of change usually gets debated, but in fact, it isn't direct that's the issue - its pace. Most of the changes currently occurring have been predicted for some time. Consider a list:

• Increased disclosure requirements - commission in dollar terms
• Disclosure of soft commissions
• FMA investigations into insurance replacement business
• Licensing
• Increased competence requirements
• New draft Code to apply to RFAs

In fact, when the current Financial Advisers Act was but a Bill, many people thought that these would apply to RFAs, and were surprised when they found that they did not. Immediately post-GFC the FMA found itself with quite a lot of more urgent work to do, and has only really returned to these questions recently. Meanwhile some of us have been saying for years that the AFA Code should be considered the guide for RFAs - and quite a few RFAs have followed it, too.

he point of this post isn't to debate those issues in particular. It is to illustrate that there is debate about direction, and debate about pace. Some people felt that the prediction about direction of change back then was wrong. In fact, the direction of change was correct, and in line with a whole host of wider forces: consumerism, technological change, and regulatory trends around the world. What was wrong was the pace of change.

Pace matters for short-term decisions, but direction is the key for strategic ones.

Say you are an adviser with a short time horizon for planning - perhaps because you are contemplating retirement - and you are considering the competence requirements. When, exactly, the requirements apply may be critical to the decision to undertake them, or retire. Not so for the adviser with a longer term time horizon - for them professional development must be part of the strategy, with time and funding included in their thinking.

Similar differences in approach could be applied to issues like the range of advice services offered, whether to start charging fees, what process work to do, whether to invest more in systems, and so on.

 

 

 

 

Funeral insurance: "expensive"

Consumer NZ says that funeral cover could be the most expensive way to send-off loved ones. Consumer NZ reviewed 10 policies offering $10,000 funeral cover for a 64-year-old and this is what they found. They found it was expensive, and I agree. Having said that, it may be cheaper than the other ways.

Assuming all goes well, you should not be relying on insurance to meet final expenses when you are over 65. But that is assuming all goes well. The typical funeral costs between $10,000 and $15,000 - varying somewhat on what services are included and the part of the country the funeral is to be conducted in. What we would all prefer happens is that people live a long life, and with good fortune and effective planning, they have been able to get rid of their insurance a long time before final expenses have to be paid.

One way to look at insurance is that it meets a gap between your current financial resources and your remaining life time financial obligations. There are two ways you can reduce your need for cover. The first, to increase your current financial resources: by earning more, saving more, and investing well. The second, reducing your remaining financial obligations: pay off debt, help your kids to get financially independent, and so on. With continued employment, home ownership, and  modestly good advice, these have been achieved by many.

But some just aren't that fortunate. Some have struggled and for whatever reason are in a rented home living on NZ super and they have little else besides. In that case they may feel that in order to avoid being a burden, they should cover their final expenses. You may still be able to avoid buying funeral cover if you can work out with friends or family a savings fund. Saving the same premium you would spend on funeral insurance would do the job - after a few years - so provided you have someone to take up the slack in the meantime, that approach could work.

 

Incentive trips and disclosure

Incentive trips are topical, as is the review of disclosure regulations. I cover a little of both, finding that even accountants are being offered incentive travel these days - check it out in may latest story at Goodreturns. Link.

FMA Report on Soft Commissions Released - updated

The FMA report on soft commissions has been released, and you can find the press release and links to where you can download the full report here.

Some initial reflections on the report.

• It is a good review of the range of soft commissions in the market - in scope and detail - although even the well-informed may be surprised at some details. I was unaware of an incentive trip that cost a whopping $95,000 per adviser, coming to a total of $1.9million for that incentive alone.
• The release is timely, underlining the areas covered in MBIE's consultation on disclosure
• It is not entirely fair to contrast the expense of soft commissions with new business revenue alone - as most soft commission schemes have a business quality or persistence component, they rely on both existing business being sustained (dis-incentivising replacement business)  as well as new business being produced (possibly incentivising replacement business). For contrast, the $34 million in two years was 9% of about $377million in new business revenue, but as a percentage of all revenue, it might have been only about 1%, or even less.
• It reminds me of some of the work done on sales incentives by the FCA in the UK - their view was that sales incentives could be offered, but that it should be demonstrated that they were not going to undermine client outcomes. Some methods for thinking about that were discussed, it is worth considering such rules and guidelines.
• The review looked strongly at how the incentives could affect client outcomes negatively, but did not touch on how they affect client outcomes positively or support a functioning market. Which the FMA may presume is a job for someone else. A well-designed incentive programme can do those things by providing an incentive to reach new people, to undertake more activity than would otherwise have happened, and to introduce new skills and capabilities to the market.
• I note that the FMA found that advisers did not appear to be selling particularly high volumes of product that did not rate well, and that the FMA also underlined that this did not mean that the adviser was not subject to a conflict of interest. This is true, because the conflict is not just between different product alternatives, but between taking an action which could generate a commission (either to insure or replace) or not taking an action, which would result in no commission.
• Thinking about the future reports coming: I am slightly concerned at the separation of the market into regulatory segments (RFA and AFA) as distinct from the QFE area. Consumers don't operate with such distinctions in view, they compare brand, service, products, and premiums across the whole market, and insights might be missed by considering these as discreet areas.
• It is nice to see that based on research advisers are not necessarily recommending poorer product because of conflicted incentives. However it appeared that the research reviews seemed to rate very few products as poor (only 17%) - but this is partly a results caused by the split by regulatory type, as presumably it ignores simpler, direct sales, products.
• The comment that these incentives did not appear to affect sales was somewhat at odds with the comment that one insurer lost a third of its new business when they ceased to offer the incentives. It looks like that question is still subject to conflicting answers.

Pet Insurance - do you need it?

"Need" is a relative term. This is the kind of conversation that, had round the dinner table, one of my kids would definitely pipe up "first world problems, Dad". I suspect that pet insurance is another great example of the value of an emergency fund. To judge by the way that Diana Clement writes about it, I think she feels the same way. Having said that, if you were temporarily in possession of a loved animal and curiously had no cash cushion, it might be worth buying while you got the rest of your finances sorted out. The great thing about an emergency fund is that it forces you to look at purchases as your own risk manager, and at times, as your own claims manager. After a while you gather the experience necessary to look beyond the initial cost to buy a thing / pet / car etc... and you consider the total cost of ownership, which is a really valuable shift in perspective for people that want to enjoy better financial lives.

FMA Offers Public Data Visualisation

The FMA offered us a public data-visualisation alongside their review of Authorised Financial Advisers (AFAs). This is a cool milestone - we love a good data visualisation or dashboard at Chatswood. Here's the FMAs: I wanted to embed it, but the fixed width settings of both this site, and the tableau workbook, prevented that. so just check out the link.

You cannot really hide the fact that the AFA segment has some way to go to address its lack of diversity. But wealth, being slow to come by, tends to reflect how society was decades ago, rather than where it is today.

From an insurance perspective there are significant numbers of AFAs that advise only on wealth. Also, while many AFAs do provide insurance advice, the reality of an investment-based practice (which defines most AFAs) is that many clients are older, and they are not acquiring new insurance, so advice is relatively limited. I wonder if the FMA should add to their question on whether advice is provided on replacement 'To how many clients do you provide advice on termination of insurance?' - I suspect that advice on termination is a much neglected part of the whole process.

 

FMA on KiwiSaver Insights

The FMA has been working with the Government-owned KiwiSaver provider, KiwiWealth, in a project to make better use of behavioural insights to assist New Zealander's planning for retirement. Although this blog usually confines itself to matters related to insurance, it is an interesting, and positive move. It is evidence of the intention of the regulator to have a broader role in promoting positive developments in conduct, rather than merely policing breaches of conduct obligations. It is also well worth pondering the behavioural insights that can be applicable in the insurance sector. One which comes to mind is the UK regulator's (FCA) findings around annual reviews - a subject which could do with an upgrade in the insurance world.

Investment News NZ on AMP

Investment News NZ has a good article covering the AMP portfolio review. Link. The results were to be announced at last Thursday's AGM, but the announcement was delayed. The Investment News article is a good round up of the issues, including how the New Zealand business differs from the Australian one.

Please help: example, analogy, and presentation techniques wanted

Those of you that actually do sell and advise on insurance coverage, I'm here asking for help. A while ago I used to possess a great book of brief presentations for communicating the value of insurance, and covering some of the concepts that can be tricky to convey to consumers. I lost the book. I probably lent it to someone and haven't had it returned (if that's you, now would be the time, full amnesty). I have some others, but that was my favourite. I've searched for its equivalent online and cannot find it... so I would be grateful for some help. You can help in a couple of ways. Suggest equivalent books or guides, or tell me examples of stories or presentation approaches that you find good and I will be very grateful. Drop me details by email if you are happy to help. Thanks in advance - Russell H

Terminal bowel cancer patient shed bitter tears over colonoscopy

Andrew McMillan died due to terminal bowel cancer last year, he regretted not using his private health insurance to screen himself.

When he noticed blood in his stools in December 2014 he made an appointment with his GP and was referred for a colonoscopy. 

A large tumour was removed from his bowel but the cancer had spread to 17 of his 26 lymph glands. 

Click here to read more.

Juno Investing on Naomi Ballantyne

Here is an interview of Naomi Ballantyne by Juno Investing giving advice to fellow and future business leaders.

Congratulations to Katrina Shanks

 

Congratulations to Katrina Shanks on her appointment to the role of CEO of Financial Advice New Zealand. 

My admiration to both Fred Dodds and Rod Severn for their work, which will not quite be over, I’m sure. Rod’s operational capability helped the PAA to manage through a busy and challenging period. Fred always made engagement with members and the public look easy, yet we all know how demanding it is. 

Health insurance growth continues, claims paid hit $1.2 billion

Another data-rich press release from HFANZ: May 4, 2018

Health insurance growth continues, claims paid hit $1.2 billion

New Zealand’s health insurance industry recorded its twelfth consecutive quarter of growth in March 2018, with lives covered reaching 1.385 million and claims paid topping $1.2 billion, the Health Funds Association of New Zealand (HFANZ) said today.

Announcing its latest statistics, HFANZ chief executive Roger Styles said there was an increase of 2400 lives covered in the March 2018 quarter, and an increase of 20,100, or 1.5 percent, for the 12 months to March 31, 2018.

“This is the twelfth straight quarter of growth in lives covered, with 2017 showing the strongest annual growth in lives covered since 2001. Much of this growth appears to have come from an increase in the numbers of people with employer-subsidised health insurance as part of an increased focus on wellness in the workplace,” he said.

Health insurance paid out $281 million in claims for the March 2018 quarter, up 8.6 percent on the previous March, and $1.207 billion for the March 2018 year, up 5.4 percent – or $62 million – on the 12 months to March 31, 2017.

Mr Styles pointed out that in 2008 the annual claims total was $631 million, so that amount had doubled over the decade.

“People now have access to both a greater volume and a wider range of services and treatments through health insurance,” he said.

“Given media coverage is dominated by various demands on the public health sector budget, it’s easy to overlook the significant and growing contribution to healthcare funding which health insurance provides in New Zealand.”

Premium income for the March 2018 quarter totaled $373 million, up $4 million on the December 2017 quarter. Annual premium income for the year to the end of March was $1.454 billion, up 5.5 percent or $76 million, on the March 2017 year.

ENDS (Full release and three-page statistical summary can be found by clicking this link)

Auckland DHB surgeons demand change as big gaps in cancer care found

Surgeons have demanded an urgent "sea change" at one of the country's largest health boards and accused management of recklessness.

The extraordinary step came shortly after a major review found cancer services had been affected by workplace and inter-DHB politics stretching back years.

That contributed to "significant gaps" in head and neck cancer services in Auckland and Northland, with staff giving anecdotal examples of cancer progressing during delays.

Click here to read more.

Reality TV star John 'Cocksy' Cocks' brave battle with terminal cancer

John 'Cocksy' Cocks the popular reality TV builder was given two years to live after being diagnosed with kidney cancer. Two years are now up and he is continuing his fight.

'He is paying more than $100,000 a year for treatment but wants Pharmac, the government agency that subsidises drugs, to review its funding model.'

"Drugs work differently for everyone. My whole thing is: fund the patient not the drug."

Click here to read more.

Finance regulator says insurers are next for tough talk

Rob Everett, CEO of FMA says he plans to meet with insurers over their conduct following recent meetings with the country's major banks. 

Click here to read more.