The UK Chancellor has taken two major steps towards introducing more competitiveness to the market for providing retirement income.
One of those steps has received a lot of publicity already - there is no longer a requirement that a pension pot must be invested in an annuity. That looks strange to those of us brought up on the idea that tax breaks means that the taxpayer has a right to insist that your capital is used to purchase an annuity. One of the problems the Chancellor was trying to solve is a concern about a lack of competition in the annuity sector. Opening up the range of available products is considered important to re-energising the retirement income market in the UK.
That leads us on to the other major change introduced: the other bright idea the Chancellor had was to offer free financial advice to every retiree, to help them make the right choice about the use of retirement funds. The image above shows how the advice industry feels about this. The financial advice industry thinks that the starter fund of GBP 20 million is nothing like enough to ensure every retiree has access to free advice (at current market rates the cost would be about GBP 350 million a year. You can read more about that debate at this link - do read it, it's the kind of debate we could well be having here in New Zealand soon.
Of course, maybe the Chancellor doesn't really mind all that much about whether the pension pots are wisely invested, some critics have suggested - maybe he secretly would like a portion of the money to boost consumption in the UK to help lift the economy further.
The Commission for Financial Literacy and Retirement Income asks us to "Hold the date" for Money Week 2014. This is an excerpt from their newsletter:
This year’s Money Week will be held from 13-19 October. Please put the dates in your diaries, and let others know. Check out moneyweek.org.nz for inspiration around events and what happened last year. We’ll be announcing this year’s theme and messaging later in May. If you have any queries in the meantime, please email the Money Week team at email@example.com
I recently facilitated a workshop with a group of advisers who were wondering why there aren't any professional associations promoting the value of getting financial advice. Well, Money Week is all about promoting the value of advice - and yet last year there were few financial advisers prepared to get on board an run an event during money week. That's an opportunity. Will you run an event?
If you would like some help to think about how you can run an event which will help clients and help generate business get in touch with us to talk it over.
The buzz word for this trend is 'gamification.' There is a certain type of client out there - aged 35 to 45, raised on strategy games and gaming consoles, that responds well to the accumulation of incentives, trophies, achievements, and completed challenges, just like they would in a game.
This post covers some of the basics of gamification, but his ideas are really just the beginning. Trying to think of the completion of the advice process as a kind of challenge reminded me of the approach taken by OmniMax who produce planning tools (you can check them out at this link). The point is to create and sustain client engagement in the process using proxies for achievement of key stages. There is something in that.
At www.quotemonster.co.nz more work has been done to renovate the home page. Now you can see the most recent news stories right on the front page to put the news where you are going to see it. The news or blog is a little known feature - but quotemonster usually has information updates three or four times a week - it's the place where non-urgent updates of all kinds are announced, along with summaries of recent changes, discussions of item re-ratings, and insurer news.
Here is a sample of the new front page:
The login and registration items have also been improved, plus we have changed the introduction to make it clear we are exclusively for financial advisers and highlight our key numbers: more than 2000 users - and last month they did around 28,000 quotes. That's an incredible figure, and its rising.
Lastly, we have got a new advertising box on the front page. This is our premium advertising position because it will be seen by most advisers. We do get some feedback from advisers about advertising. Some people do not like it - but quoting is a free service, and to keep providing that for free, advertising revenue is important. Some other advisers have told us that they are worried about clicking on advertising because they do not want to 'lose' where they are on Quotemonster - don't worry - advertisements always open in a new window if you click on them.
This survey from Roy Morgan Research has some important numbers for anyone interesting in the wider insurance sector, and some nuggets specifically applicable to the life and health insurance area as well. A couple of keys:
The number of New Zealanders with no cover whatsoever has risen to 13.5%
The proportion with life or other personal risk cover is down from 42.8% in 2005 to 39.5% in 2014
Some of the conclusions look like they could do with a little context however: while $1136 was the average spent on health insurance in 2005, and that has risen to $1726 at the beginning of this year, inflation would have taken $1136 to $1398 on its own, so the average health premium is growing at something approaching double the rate, but not all the rise can be laid at the door of medical professionals and insurers.
Good financial advisers are much more than just product-floggers. They usually have some wider views on the conduct of financial affairs, and some even have a well thought-out philosphy of money. Mr Money Mustache is a dedicated proponent of the idea of creating abundance through spending less. Chris Daems has views on the regulation of gambling.His story is available here.
While I am committed to freedom in most things Chris makes a valuable point. I have another friend who describes most gambling as a regressive tax on the poor - often used to subsidise the cultural activities patronised by people who are much wealthier - they are referring to Lotto, of course, and I think they are going too far: you can choose not to play, of course.
Subscribers to Quality Product Research at www.quotemonster.co.nz can now access research on Medical Assurance Society (MAS) and CIGNA products in addition to the extensive existing research range already available: all the major life insurers and bank insurers.
You need to be a monthly subscriber to research or purchase a one-off report in order to access the research.
You need to tick the companies you wish to include in the research report and hit the blue 'save' link at the bottom of the menu - see the example in the screenshot below.
More products and companies are being added over the next few weeks: so keep an eye out on this blog, and on the message area at www.quotemonster.co.nz to find out more.
There is a Thai Life insurance advertisement that is much admired throughout south Asia and is now being shared extensively online. This is a classic life insurance advertisement stressing the value of the decisions we make about life in an altruistic context. This is because, like each of the small services the hero of this advertisement performs for his fellows, life insurance is something you take out to help other people.It is a gift. It's a lovely message, and one which needs to be told, and re-told, because altruism doesn't always come naturally. link.
The news that KiwiSaver balances can be distributed to creditors may come as a surprise to some financial advisers who may have been advising clients differently. In fact the ruling is complex, and leaves some issues unanswered. So much so that Chapman Tripp thinks a regulatory fix may be required to clarify how KiwiSaver balances should be handled during bankruptcy. Link.
Financial advisers identify strongly with clients that own and operate small businesses - they also have ongoing income streams and therefore know that a business can generate income without any personal exertion on the part of the insured, and critically they are looking for a clear statement that this will not be offset against income when a claim is made.
That is where the problems begin.
Some go further, and are actively seeking greater replacement levels - even higher than 100%. Such situations aren't really our concern - the concept of obtaining betterment in a claim situation is fundamentally not what insurance is about - either for the client or the insurer.
For example, we don't think that policies that might, technically, allow someone to earn their whole income during, say, the 10 hours a week in which they are permitted to work while still qualifying as totally disabled, reflect the reality of actual claims. We do reward the definition, which along with being 'unable to undertake key income-producing activities' provides good protection for the consumer. But we do not award them big credits in the offset category because the supposed 'no offset' scenario is rare.
10 hours is much more likely to produce perhaps 25% of income, sometimes as much as 50%, and in most claim situations this will not persist long, before the client ends up in the partial disability category where the offset is more likely to operate.
Every insurer in our survey (apart from pure mortgage insurance contracts) retains the right to offset income from personal exertion. We are comfortable with that, and score it appropriately. Differences emerge in other aspects of the definition.
Most insurers rightly retain the ability to spot any 'reorganisation' of income to qualify for a claim amount when, in fact, the client continues to earn, and counteract this.
On the other hand we are concerned by efforts to classify an ongoing income from a business (a genuine return on investment for the insured, not a reward for personal exertion) as income from work. We therefore award points to insurers that clearly define investment income as not counting towards any offset provisions.
We have been made aware by some advisers of an effort by at least one insurer in one particular claim to classify investment income as income from personal exertion, by claiming that it is, in fact, a form of deferred payment for personal exertion done earlier. It is somehow become personal exertion because of the insured continued 'association' of the insured with the business. Perhaps this is a way of saying that they think the insured is really, in fact, lying, and is working after all. Obviously for the good of all bogus claims must be weeded out, but the mechanism should not catch genuine claimants who are enjoying a dividend from long years of hard work.
That is why we are keen to hear from advisers with documented experience of the actual operation of some offset clauses in recent claims as we continue to build up our views on the importance of different offset features.
Goodreturns has picked up the new AMP online offer and has some coverage here: link.
The positioning of the new offer is interesting. I was about to do some comparisons myself and then I spotted the detailed and well-informed comment by Mark Ogden on the item, and gave him a call, and it is with his permission I am using his numbers:
Premiums for 45 male non-smoker
$17.33/month Pinnacle Life (underwritten)
$22.44/month AMP Quick Start Life
$26.80/month Dorchester Quick Cover
$30.73/month BNZ EasyCover
So AMP's offer is priced between Pinnacle - a fully underwritten product, and the more expensive guaranteed acceptance products, which do cover pre-existing conditions. Now consider the list above with underwritten adviser offers in their right place:
$17.33/month Pinnacle Life (underwritten)
$19.34/month Fidelity Life (underwritten)
$20.43/month AIA (underwritten)
$20.85/month AMP RPP (underwritten)
$21.02/month Sovereign (underwritten)
$21.09/month Asteron (underwritten)
$21.49/month AMP Lifetrack (underwritten)
$21.78/month OnePath (underwritten)
$22.44/month AMP Quick Start Life
$23.28/month Partners Life (underwritten)
$26.80/month Dorchester Quick Cover
$30.73/month BNZ EasyCover
The question some advisers are asking, as Mark did, is where the new product fits in. I think it fits for a category of convenience buyer - Mr Ogden has a somewhat more brutal name for the group - but some people are time poor and happy to accept the added cost and poorer cover that results from that situation.
Are there enough people in that category to make this product worthwhile? There may be, there are certainly a lot of people uninsured, and some different approaches to reaching them would be welcome. It would put more on the pathway to having good insurance cover.
But there is something else this list underlines. Advice isn't expensive, in fact, it's the reverse. Only the Pinnacle Life product is both direct and cheaper than most of the advised products. As soon as you have complex underwriting, legal structures, or cover amounts to work out the literal cost of advice is very low, and compared to many of the simple direct offers made online, it is in fact saving the consumer money.
Of course, AMP knows that too - which is why they have two advised offers on that list which both represent good value. But they are offering a customer access strategy - making the product available in whatever way the market wants to buy it.
Some consumers are getting grumpy about 'cookie cutter' financial advice with a personalised advice fee - and others are the reverse: they have ended up with a proper full-service financial adviser and cannot understand why you ask so many questions when all they want is the 'quick and dirty' answer.
I don't think there is anything inherently wrong with either type of advice - and our laws and regulations allow for many kinds of advice to exist: transaction only services, class advice, limited personalised advice, and full personalised advice.
But there is something else going on here: a failure to clearly communicate with the potential client and provide the right client with the right advice service.
Some clients are exasperated when they work with a financial planner who appears to take all the information necessary to provide a full advice service... and then comes back with recommendations that ignores most of the data from the needs analysis and uses 'rules of thumb' instead. That leaves this kind of impression with clients - this is a real quote:
"So basically he didn't do anything that a free online "retirement planner" program can't do"
This is another example of ensuring that every part of your service is consistent with the service promise. If you collect the data, then you need to use it. If you promise a full service you need to look at each step and say to yourself "is this at the level of a full-service delivery?"
A good place to design your value proposition is with the help of people like Tony Vidler, and his resources here.
Insurers are interested in family history, because for a number of trauma / critical illness conditions the presence in previous generations can provide a strong indication of likely problems for the insured. Jason Shafrin writes, quoting a paper by Thompson:
"Children with a parent who has a specific chronic health condition are at least 100% more likely to have the same condition themselves"
How can a condition be passed from one generation to another without a genetic component?
"To assess the role of genetic mechanisms in generating these strong correlations, I estimate models using a sample of approximately 2,400 adoptees, and find that genetic transmission accounts for only 20%-30% of the baseline associations."
Jason tells us that lifestyle factors - in other words learned behaviour - can have a stronger impact that your genes. You can read his article here.
Customers can buy up to a $100,000 of life cover online with the new product after answering three questions about age, gender and whether or not they have smoked in the past 12 months.
AMP Chief Customer Officer Jeff Ruscoe says it is a guaranteed acceptance product with some exclusions. Part of the rationale behind the product is to learn more about online sales of life insurance and also to introduce people to buying life insurance.
Ruscoe says "Quick Start Life is entry level life insurance and is designed to get people thinking about the reality and importance of how life insurance can help in the event of a tragedy."
I just found this new website. It is mainly about general insurance, but it that is an adjacent sector to the life and personal insurance area, and is of great interest because of the way a lot of consumer perceptions of insurance are currently being shaped by the experience of insurance through the Christchurch Earthquakes and subsequent re-build. On that subject there is an interview with Tim Grafton, ICNZ CEO, at this link.
Susan Edmunds at Goodreturns wrote on The Commission's goals in the short, medium and long-tern for New Zealanders to be encouraged to talk more about money and increase their knowledge about saving, spending and investing.
One of the goals from the discussion document are that everyone has a current financial plan, everyone is saving and investing - and in a broader range of financial assets.
Its goal is for 50% more people to be using qualified financial advisers in 2025. It says only about 15% use an adviser at present.