FMA director of market engagement, John Botica, told Good Returns that although NZI is refusing to provide PI insurance to small FAPs comes as a surprise, he does not believe it is the end of the line for these advisers.

“To be honest it was a surprise. As part of our consultation period around PI insurance we spoke to a lot of the brokers and they did tell us at that point that they would continue providing cover for advisers. To then turn around and come to market with this is a change that I didn’t expect.”

Botica told Good Returns that although the announcement was surprising he does not see it as heralding the doom of the single adviser FAP.

“Well run businesses that understand the psyche of their clients should not have any great levels of fear from these changes. There are no hurdles here that can’t be overcome.”

Botica says that those advisers who see the move from NZI as a blow to their confidence need to learn to “back themselves”.

“They need to back themselves that they have good businesses, good processes, great clients that can see the benefits of financial advice. The fact that one underwriter has reassessed risk within the market shouldn’t impact the way that FAPs consider themselves.”

Although there has been a lot of fear in the industry around operating without PI, Botica says that under the previous regulations PI claims have not been a huge issue.

“In the past 10 years there have not been a significant number of PI claims. From what I can find out from most of those cases, advisers were actually able to pay out those claims themselves. So you didn’t really get many situations in which an advice business was not able to stand behind itself.”

Botica thinks that under the new regime we may see PI cover shrink further in importance.

“I feel very confident that the new regime has quite a few things built in to protect consumers. Reliance on PI cover in itself is minor in comparison to the other protections and benefits there are across financial advice.”

On whether this is an instance of an insurer having undue influence over the shape of the market, Botica says, “I don’t see this as being a dramatic change in the shape of the market. I don’t see an exodus of movement of advisers from this.”

But as some advisers are concerned that a lack of PI cover will have an impact on the distribution agreements with their product providers, Botica says that they need to “look at the commerciality of that relationship”.

“There are a very large percentage of product sales that occur through advice. I would be very surprised if this caused those product providers making such material changes in the way that they distributed their products, the way that they engage with their customers. All of this needs to be thought through more calmly, it will sort itself out.”

Botica credits the situation sorting itself out to New Zealand’s natural proclivities towards small business meaning that there will always be a seat at the table for smaller FAPs.

“New Zealand is a country with a lot of small businesses. This is a key part of the psyche of how Kiwis do things. Advice isn’t any different to that and it will continue to be a part of this network of small businesses across the country.”

Regarding moving forward in these uncertain times, Botica believes that the advisers behind these smaller FAPs are smart enough to think their way through it.

“I encourage advisers to think quite widely. Think about who you are, how your businesses connect with your clients.

“When it comes down to it PI cover is only one factor of your business. They should be talking to their product providers that they engage with about what this means.

“Take the bull by the horns.”

Any small FAP not already planning to tangle with a bull in the new regime has certainly been made a matador by this move from NZI.