Having reviewed the FMA report into replacement business only in the adviser channel, Partners Life is very pleased to note the very small number of advisers who have been identified as potential issues in respect of their practices around replacement business.

This is certainly in keeping with our experience of adviser behaviour i.e. that the vast majority take their moral obligations to their clients very seriously irrespective of any regulatory obligations.

We are interested to note that in the small group singled out for closer scrutiny, RFAs were not disproportionately represented compared with AFAs suggesting it is individual morals, rather than any regulatory standard or level of qualification, which drives poor customer behaviours.

As virtually all RFAs and AFAs receive commissions and can qualify for incentives for the sale of risk protection products following their advice process, and only a small number have been identified as having poor practices in respect of replacement business, it is also clear to Partners Life that commissions and incentives are not the cause of poor practices, rather individual morals are.

As the FMA have up to this point only focussed on advisers who are remunerated by commissions, it will be essential to investigate the advice practices of distribution channels which are not remunerated by commissions e.g. QFE and bank employees, over the same period of time before it will be possible to determine if there is any comparative differences in the quantum and nature of poor advice practices across differing remuneration structures.

By drawing a conclusion that it is commissions and incentives rather than individual morals that drives poor behaviours, while still only part of the way through their research, and given such a small number of advisers having been identified as behaving poorly, the FMA risks generating consumer distrust of the adviser distribution channel and may consequently drive those consumers to other distribution channels which have not yet been investigated in the same way, or alternatively to simply not engage in any advice process at all regarding their risk protection needs – something that would be totally counterproductive to the best interests of consumers.

Our expectations is that this next piece of research will confirm poor advice practices driven by poor individual morals will be consistent across all channels, irrespective of remuneration structures. In other words there will be individual people with poor morals and therefore, poor advice practices, across all channels.

Partners Life is in total agreement with the FMA regarding the damage that poor replacement advice can cause to consumers and we also agree that the industry alongside the regulator must find the best methods to eliminate the opportunity for poor advice practices and behaviours to impact negatively on consumers.

Our view has always been to firstly regulate a minimum process and a code of conduct that must be followed by any distribution channel irrespective of remuneration structure, when giving advice regarding existing policies and then to police or audit compliance with these requirements.

The industry must also take a stronger stance on holding their individual distribution personnel, whether advisers or employees, to character and behavioural standards which reflect our commitment to putting the client’s interests first. In practical terms this means being prepared to decline or terminate an agency, or an employment agreement, if evidence of poor morals is identified, and then to address and put right any negative impacts on the applicable clients.

While it is pleasing to see that only a small number of advisers have been identified as having poor replacement advice practices, Partners Life agrees with the FMA that our goal should be zero, and we intend to continue to work closely with MBIE and the FMA to find the best solution(s) to reach this goal across all distribution channels.