PAA defends advisers against MJW Report Recommendations

by Maya Breen23 Nov 2015
The Professional Advisers Association CEO Rod Severn has defended advisers against a number of recommendations within the newly released MJW Report, funded by the Financial Services Council (FSC) to help create and inform discussion around the Ministry of Business Innovation and Employment (MBIE) review of the Financial Advisers Act 2008. 

Although the PAA agrees with the Report’s recommendations on some points including simplifying disclosures and having a clear distinction between insurer representatives and independent advisers, it disagrees with its suggestions on the role of QFEs; requiring disclosure of profit margins by individual sale; and their recommended remuneration model which the association says would threaten the viability of the advice industry. 

“The remuneration model recommended by the MJW Report is unsustainable, and as such is not in the best interest of consumers,” Severn said in a statement. 

“Reducing remuneration by up to 75 per cent – which according to our research would result in an estimated 40 per cent of impacted advisers closing their doors – is obviously not in the best interest of consumers.”

The PAA statement said the Report has focused on adviser remuneration as the key lever to address issues such as replacement business and conflict of interest.

“The Report did not address or qualify these issues across all channels in the industry, but rather focused on the advisers. This resulted in an unbalanced assessment and associated set of recommendations. And importantly, it presented an inaccurate picture of the value advisers offer the New Zealand public.” 

The Minister of Commerce and Consumer Affairs Paul Goldsmith said in a recent press statement that it is unlikely that the Review of the FAA will result in changes to adviser remuneration.

“The reason that would be is because commission has just taken over the conversation here and is focusing in the wrong area,” Severn told NZ Adviser. “It’s around remuneration - it is not around commissions and there is quite a difference between the two.”
 
He says taking out 75% of commission doesn’t allow the adviser to have a sustainable business moving forward, leaving little left to cover costs such as rents, rates and wages.

“It’s being completely blown out of proportion and out of focus and it should be around behaviour and around the sustainability of the advice industry,” Severn says. 

“I defy anybody to have 75% of their income ripped out from under them and then be told to carry on as normal as if nothing’s changed.”

Severn told NZ Adviser that what advisers want to see at the end of the FAA review are a better defined disclosure statement and a level playing field – where one set of rules apply to all advisers.

“Recommendations on change to adviser remuneration needs to be designed by those who truly understand the industry – those who are consulting with the regulator on a regular basis; those who understand the complexities of the advice process and consumer needs,” the association’s statement said.

The PAA continues to work closely with the regulator and has met with MBIE and the FMA many times this year.

Moving forward, Severn says as an association they want to have more impact around the Code Committee and are looking at a potentially new remuneration model of which more details will be revealed in early 2016. 

COMMENTS

  • by 24/11/2015 12:01:27 p.m.

    Having read the report and seen the TV interview I was appalled at the total lack of understanding of the insurance distribution system by the authors of the MJW report. It starts with the statement that the NZ public is underinsured. I agree. It Puts forth recommendations that focuses on commissions to advisors which in its wisdom is said to be far to high. That position is far to simplistic and the unintended consequences would decimate the independent distribution capacity resulting in decreased ownership of insurance products which is the opposite of the desired result.
    Having been in the industry for 47 years at all levels of insurance distribution and in several countries my observation is that the industry has become very complex and the average Kiwi is overwhelmed to the point of inaction or defaulting to inadequate solutions.
    If you combine life insurance, trauma, medical, income protection, business covers, mortgage cover, etc. etc. with KiwiSaver, home mortgage, fire and general cover, ACC, the complexity can be daunting. Then there is the claims issues and the need for a client advocate as well.
    Who is there to actually deliver proper advice, not the banks, not the supermarkets, not the internet. Its the advisor supported by a team able to oversee that the correct product is used in the correct amounts for the appropriate reasons. The seemingly large commission provided by the insurance companies is used to provide office facilities, support staff, fees, transportation needs etc. The amount of work needed to provide good advice is mostly under rated. The result is that the net income to advisor is no where near the gross commission paid by the insurance companies. Sure there are some advisors earning high incomes but most are not. They deserve more considering what they would have had to forgo in the early years when they mastered the art of meeting various people with complex problems, unravel them and guiding client to activate solutions. Insurance as important as it is, is a grudge purchase needing the advice of a caring advisor.
    Who is there that can do the job?

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