Planners are focusing more on life insurance and expect this to continue over the short term

Recep Peker

The proportion of planners advising on risk has remained steady at 90% over the last 12 months, and those who do are sourcing a greater proportion of their practice revenue from providing risk advice (29%, up from 27% in 2013). Looking forward, planners expect this trend to continue with risk advice accounting for 31% of their practice revenue by 2017.

“Risk continues to be a key component of many planners’ businesses,” said Investment Trends Senior Analyst Recep Peker.  “Providers can help facilitate planners’ intention to grow their risk business by addressing some of planners’ key challenges, chiefly high premiums, administration issues and inefficient processes.”

Planners are expanding the range of insurers they use, but switching remains high

After four years of planners consolidating the number of insurers they use, planners have started to expand the number of insurers they use. The typical planner now uses 3.7 insurers each, up from 3.4 in 2013.

However, levels of insurer switching remains high with 40% of planners saying they stopped using at least one insurer in the last 12 months, up from 35% last year.

“Insurer relationships are in a state of flux,” said Peker. “Planners are aggressively expanding the number of insurers they use, while cutting those who aren’t exceptional. There are great opportunities and risks for insurers to either benefit or lose out from this switching.”

Despite insurer relationships changing rapidly over the last 12 months, it is still crucial to be a planner’s most-used insurance provider. Planners currently write 59% of premiums through their most-used insurance provider.

BT Life, OnePath and AIA Australia posted strong gains in terms of primary market share. The top five insurance providers by number of primary planner relationships are now:

1. OnePath
2. AMP
3. AIA Australia
4. BT Life
5. TAL

“Whilst planners are using a wider range of insurers, the market is also becoming more concentrated,” said Peker. “The top five insurance providers now account for 66% of primary planner relationships, up from 62% last year.”

Zurich and AIA Australia has the highest satisfaction amongst its users

“Satisfaction is crucial in the insurance space, as business is not very sticky and planners can easily stop writing new business with an insurance provider,” said Peker. “That’s why there is a very strong relationship between satisfaction and switching behaviour.”

Planners’ overall satisfaction with their most-used insurance provider remained steady at a high level. The top three insurance providers by overall planner satisfaction in 2014 are:

1. Zurich
2. AIA Australia
3. Asteron Life

Underwriting is a key area in which insurers can differentiate their offerings

Following the tightening of underwriting standards over the last year, we’re seeing the average number of days planners say it takes providers to process underwriting submissions increase from last year’s levels. This has resulted in planners’ satisfaction with underwriting falling slightly at an industry level over the last 12 months.

“The underwriting process is the strongest driver of overall satisfaction with insurers,” said Peker. “So, any falls in satisfaction with the underwriting process is noteworthy.”

“Underwriting is very important for both acquisition and retention, and will be a key battleground for insurance providers over the next year,” said Peker.

45% of planners said insurance providers should focus on improving underwriting speeds to help them with their advice on risk.

Users of XPLAN’s risk modules have the highest levels of overall satisfaction

89% of planners who advise on risk use risk software. XPLAN continues to dominate the risk software space with over half (53%) of planners using XPLAN’s risk modules as their most-used risk software. This is followed by Rubik/COIN (18%) and Midwinter (8%).

At an industry level, planners’ satisfaction with their most-used risk software remained steady at the eleven-year average.

Among risk software providers, XPLAN achieved the highest average overall satisfaction rating from its users and ranked highest across all nine of the other service elements measured.

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Natasha Fenech

AMP and the International Centre for Financial Services (ICFS) at the University of Adelaide have agreed to form a Centre of Excellence in self-managed super funds (SMSFs), the first of its kind in Australia. The centre is expected to be operational by the end of 2014.

Using AMP’s expansive SMSF database and the expertise of academics from one of Australia’s largest and most respected universities, the centre aims to provide greater insights into the motivations and behaviours of SMSF trustees.

AMP SMSF Managing Director Natasha Fenech said the time is right for greater analysis into this fast-growing sector.
“We are delighted to be working with the University of Adelaide on this exciting new initiative and believe the skills and expertise we both bring to the table will enable us to provide the industry with thought-provoking and unique SMSF research on a regular basis.

“The fragmented nature of the SMSF sector has made it difficult in the past for meaningful qualitative research to be undertaken but given the number of SMSFs we now administer, we are in a good place to provide the raw data needed to identify trends, motivations and behaviours in this area,” Ms Fenech said.

As part of the agreement the centre will produce regular investment reports using the data provided by AMP to the ICFS, offering insights into trends and emerging issues around asset allocation in the SMSF segment.

The centre will also produce an annual research paper, which will look at the key issues affecting advisers, trustees and administrators. In addition to research, the centre will provide SMSF education to professionals and SMSF trustees. This will further strengthen the ICFS’s reputation as a leading provider of SMSF education and builds on the ICFS’s longstanding relationship with AMP-owned Cavendish.

“We are excited to be partnering with AMP to embark on this research and education initiative and look forward to contributing to the ongoing thought leadership around the SMSF sector,” said Professor Ralf-Yves Zurbrugg, Acting Director of the University of Adelaide’s ICFS.

AMP is a leader in SMSF administration, offering a broad range of compliance and technical services for SMSFs as well as diverse investment opportunities through AMP Capital. Through SMSF Advice, AMP also provides licensing options for accountants.

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Stuart Abley

AMP’s SMSF Advice has debunked the commonly held view that for a typical accounting practice, the cost of establishing and maintaining a limited Australian Financial Services Licence (AFSL) is less expensive than becoming an authorised representative of another AFSL holder. 

Accountants can expect to pay from $20,000 to $34,000 for self licensing, compared to $15,000 to $20,000 for becoming an authorised representative, according to AMP SMSF Advice research conducted as accountants consider their licensing options.

Most accountants view the $1,485 ASIC application fee as their only up-front licensing cost, but in reality, licensing set up can cost accountants about $11,500, more than eight times what most accountants expect.

Many accountants are unaware they should begin business preparations at least a year in advance if they’re planning on acting under a limited licence when the accountant’s exemption is removed.

These are some of the insights AMP’s SMSF Advice has unearthed after speaking with more than 500 accountants over the past year.

SMSF Advice has unlocked six key insights into what accountants are thinking – and not thinking about – when it comes to licensing. SMSF Advice’s special report, To licence or not: The real cost of your decisions, explores the big questions facing Australian accounting professionals.

From 1 July 2016 the exemption which allows accountants to set up an SMSF without the need for a licence will be removed and accountants who want to continue doing this will need to be licensed.

Accountants have a number of licensing options, including obtaining and maintaining their own licence or becoming an authorised representative of another AFSL holder.

AMP’s Head of SMSF Advice Stuart Abley said it’s crucial for accountants to have an accurate understanding of the licensing options available and the implications of each.

“After speaking with over 500 accountants about licensing we know that the big areas of confusion for accountants are around cost and timing,” Mr Abley said.

“The question of licensing for accountants is about how, and not when – the time to act is now.

“Getting ready for licensing is a lot more involved than most accountants anticipate with preparations estimated to take well over a year, including training to meet RG146 competency requirements, collection of documentation, creating compliance procedures, understanding FOFA advice obligations and the opportunity to develop a new pricing structure.

“The choice between becoming self-licensed or an authorised representative of a licensee is an important decision and while most accountants are concerned with the cost implications of change, some are limiting their focus to costs only.

“This is a terrific opportunity for accountants to transform their business by embracing advice and benefiting from the value it can add to their practice with increased revenue and profitability and, most importantly, the opportunity to offer clients a valued service.

“The Australian SMSF asset pool is worth $530 billion and accountants who want to continue to service their clients with SMSF advice, or build strength in this growing sector, have some big decisions to make about the best way forward for their business,” Mr Abley said.

SMSF Advice spoke with over 500 accountants across Australia over the past year and landed on six key insights about accountants and their licensing journey:

• Not all licensing costs are being considered. In the first year, total up-front and ongoing management costs of holding a licence could be as high as $20,000 to $34,000, compared to costs of around $15,000 to $20,000 for becoming an authorised representative of another AFSL holder.

• Accountants need to look beyond financial costs and consider the non-financial, ongoing costs, including maintenance of the licence.  This maintenance work is often carried out by the practice partner, the highest fee earning staff member.  Accountants also need to consider their ability to absorb the risk into their business model associated with becoming self-licensed.

• The type and scope of SMSF advice accountants can give under the licensing options vary. In choosing which licensing option to take, accountants need to be very clear on the type and scope of SMSF and other financial advice they want to provide to ensure they meet all legal and compliance obligations.

• Accountants are unsure about how to incorporate ‘advice’ into their business structure. More than half of accountants are not charging appropriately for the strategic advice they give to clients, pricing it at the same level as a client’s general tax advice, rather than at a more strategic advice level.

• Many accountants are concerned they may be providing advice beyond the SMSF accounting exemption.

• If accountants want to obtain a limited licence and begin offering advice by July 2016, they need to be taking active steps during 2014. Most accountants are unaware that if they are planning to act under a limited licence, they should begin preparing their business at least a year in advance, including undertaking the RG146 training, time for collecting and collating licensing documents and business preparation.

My Abley said the most important question accountants should be asking themselves is, “How do I transform my accounting business now so it remains relevant in the future”, and licensing is an important first step in this opportunity to focus on future growth.

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Patricia Montague

AMP has made a number of enhancements to AMP Flexible Super, its leading superannuation and retirement product, making it a more competitive and attractive product for customers saving for their retirement.

A new retail insurance offer within AMP Flexible Super, Super Protection, will offer customers more competitive insurance premiums. Super Protection includes cover for Death, Total and Permanent Disability (TPD) and income protection.

AMP Director of Superannuation Patricia Montague said it was important to make insurance accessible for as many people as possible.

“Helping more Australians secure their financial future is at the heart of AMP’s values.  The launch of Super Protection means customers can access insurance at a lower cost.

“We know that for most Australians, their families are their most important asset. It is important for AMP to provide customers with a competitive way to access insurance to provide them with the protection they need,” Ms Montague said.

Super Protection replaces Flexible Protection, AMP Flexible Super’s existing insurance offer.  Flexible Protection will remain open to existing customers.

In addition to the insurance changes, AMP Flexible Super has refreshed its investment menu, including the addition of two new actively managed market linked options, Super Easy Active Balanced and the AMP Capital Dynamic Markets Fund.

Super Easy Active Balanced is a traditional diversified fund that uses both dynamic asset allocation and strategic management to deliver lower cost active management.

The AMP Capital Dynamic Markets Fund uses dynamic asset allocation, providing a flexible investment approach that aims to balance growth and defensive assets in response to changing markets.

AMP Flexible Super will also introduce a 3 month Term Deposit, giving customers’ greater flexibility to pick and choose cash options to suit their needs.

The new investment options add to AMP Flexible Super’s diverse investment menu to meet the needs of customers with different account balances, risk profiles and liquidity requirements.

Super Protection will be compliant with the incoming Superannuation Industry Supervision (SIS) reforms which take effect 1 July 2014.

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DST Bluedoor, a leading global provider of IT solutions for the wealth management industry, yesterday announced that its technology is behind AMP’s successful migration of its retail wealth management platforms onto its flagship North platform, enabling the company to more efficiently manage $24 billion plus in assets and significantly cut costs.

In 2010, AMP merged its business with AXA Asia Pacific Holdings. The transaction was a joint proposal with AXA Group under which AMP bought AXA’s Australia and New Zealand business. The AMP Board subsequently confirmed a strategic initiative to modernise the retail platform business and move iAccess, Generations and Summit products to the North platform, powered by Bluedoor, which has now been completed.

With the migration to DST’s Bluedoor system complete, AMP’s retail platform business will now have a single web portal solution through its North platform with total assets under management (AUM) of $24.1 billion, according to AMP’s 2013 Full Year Investor Report released this week.

The migration has been one of the biggest consolidations in the platform industry, with the transfer of 131,000 customers and more than $14 billion in funds under advice (FUA) to the North platform technology.

Martin Spedding, Executive Director of DST Bluedoor, said the successful migration of iAccess to Bluedoor in November, followed by Generations and Summit early this year, would improve AMP’s operational efficiency substantially. The decision to choose Bluedoor followed strong financial advisor plaudits for the North platform, launched in 2007, as well as the significant cost savings achieved.

“Advisors are now able to access all retail platform products from a single platform, making their lives substantially easier, and AMP has been able to significantly cut its software and administrative processing costs and streamline its operations,” Mr Spedding said.

“The wrap platform’s attractive features, as well as real-time, straight-through processing, have helped to spur on incredible growth for the North platform,” Mr Spedding said.

AMP uses all aspects of the Bluedoor solution, including administration registry, workflow, imaging, web portal, correspondence and reporting.  Bluedoor is a web solution that features fully integrated components, including adviser, employer and investor web portals, direct equity trading, model portfolios and term deposit straight-through processing.

AMP said this week the North platform has struck $10 billion in FUA, a fivefold increase since it launched as a full wrap platform with $2 billion in FUA in 2011. North posted net cash flows of $4.1 billion in the 2012-13 financial year, up by $1.9 billion from 2011-12, representing growth of 89%.

Generations and iAccess are low-cost investment solutions for investors with relatively simple investment needs, while the Summit product range provides a sophisticated suite of investment options—including managed funds and direct shares—within a single investment vehicle.

Mr Spedding said DST Bluedoor’s aim is to deliver innovative software solutions for the Australian and global financial services industry.

“Our solution is world-leading, which is why AMP has adopted Bluedoor as its core platform. We expect strong growth of our business in 2014 in Australia and abroad, as the wealth management industry recognises the value of our Bluedoor product and the huge efficiencies it can introduce,” he said.

Reflecting strong growth, DST Bluedoor’s employee numbers have more than tripled from 65 in 2010 to 230 in February 2014. Earlier this year, DST was selected by investor services provider International Financial Data Services (IFDS) to provide the underlying technology for its growing UK platform administration business.

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AMP Director of Superannuation Patricia Montague said North’s strong growth was driven by investment in the platform features increasing its appeal to customers.

“North’s impressive growth over the last three years has been driven by the wrap platform’s real time, straight through processing and broad range of quality investments which has made it highly appealing to customers and financial advisers.

“North appeals to a wide range of customers, from those with relatively simple superannuation and insurance needs through to those with more complex investments.

“North supports customers from the early stages of life as they buy a home, raise a family and build their wealth – all the way through to retirement when they need both regular income and ongoing capital growth to ensure their nest egg lasts through their retirement,” Ms Montague said.

AMP has also just completed the migration of Summit, Generations and iAccess, which had previously used older platform technology, onto North Online, allowing those customers to benefit from North’s leading technology, increasing the speed of transactions and providing more up to date information to advisers and customers.

The migration has been one of the biggest consolidations in the platform industry with the transfer of 131,000 customers and more than $14 billion in FUA onto the North platform technology.

North was launched in 2007 as a capital guarantee solution providing customers’ security to stay invested in the market during volatile times.  It developed into a full wrap platform in April 2011 with leading technology, intuitive features and a wide range of investment options.

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Peter Burgess

The SMSF industry’s support for a Government measure to introduce more flexible penalties for trustees who breach the rules demonstrates the maturity, integrity and professionalism of the sector, says AMP SMSF, Head of Policy & Technical, Peter Burgess.

Addressing the 10^th SMSF Professionals’ Association of Australia national conference in Brisbane today, Burgess says: “Under the current rules, where the Australian Taxation Office (ATO) imposes penalties on trustees, it can have severe implications for the fund.

“In these circumstances it is understandable why the ATO only imposes penalties in the most severe circumstances.

“The proposed new penalties, introduced into Parliament last year but now being re-introduced, will enable the ATO to impose penalties more appropriate to the seriousness of the offence.”

But Burgess adds there is more work that could be done as one of the “most severe and inflexible” SMSF penalties still remains – the penalties that apply if an SMSF fail the residency rules.

“The loss of compliance status in these circumstances is significant particularly when you consider the active member test is a difficult test to understand and apply and many breaches are inadvertent.

“Hopefully during the financial sector review this year the SMSF industry will have the opportunity to push for a more flexible penalty regime in this area.”

He says although the level of professionalism in the industry is on the rise, in some micro areas there is still room for improvement.

“As a result of the ATO’S final ruling on when a pension begins and ceases, a more disciplined approach to pensions, particularly in relation to when a pension starts and when a partial commutation request is received, is needed.

“In the past, in some instances, the industry may have been a bit blasé about pension start dates and clients making partial communication elections. However, going forward, and particularly in light of the pension ruling, we can expect the ATO to be taking a closely look at these issues,” Burgess says.

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Philip LaGreca

International equities have become more attractive to self-managed super fund (SMSF) trustees as historically low interest rates decrease the appeal of cash, according to the latest Multiport SMSF Investment Patterns Survey.

SMSF exposure to international equities increased by 1.6 per cent in the December quarter, driven by new funds flowing into the sector as well as the sector’s overall performance and decrease in the Australian dollar.

Cash has continued to decline to 19.1 per cent of total holdings, down from 24.5 only one year ago.

AMP SMSF Administration Head of Technical Services Philip LaGreca said low interest rates meant SMSF trustees were looking for new investment opportunities to provide good returns.

“The decrease in the cash sector during the quarter is the result of funds being moved into other sectors, specifically International Shares, which rose significantly in the quarter to 10.8 per cent,” Mr LaGreca said.

“Investment in Exchange Traded Funds in particular have grown exponentially in the international equities sector, and has more than doubled in 12 months to 1.6 per cent of total holdings,” Mr LaGreca said.

Asset allocation to Australian equities increased by just 0.1 per cent for the quarter, with the sector showing a decrease in the use of managed funds for the quarter, down 0.6 per cent.

Property holdings remained static over the quarter at 17.6 per cent, with direct property representing 14.1 per cent of the total sector allocation.

Out of the total number of direct properties held by the funds in the survey, commercial property represented 25 per cent of all property holdings and residential property accounted for 75 per cent of property holdings.

Average SMSF contributions for the December quarter increased from $9,417 for the September quarter to $10,829.

The Multiport SMSF Investment Patterns Survey covers just over 2000 funds, a sample of the SMSFs Multiport administers and the investments they held at 31 December 2013. Funds are administered on a daily basis which ensures data is based on actual investments and is completely up to date. The assets of the funds surveyed represent approximately $2 billion.

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• 

  Life insurance focus eased but still important.

  Adviser focus on life insurance has fallen back from its peak in 2012, but remains a key area.

• Insurance business is even more concentrated, and AMP now tops primary relationships.
• Good BDM support is key for retention and acquisition.

Adviser focus on life insurance has fallen back from its peak in 2012, but remains a key area of their businesses

Following the recovery in investor sentiment and increasing flows to growth assets, adviser focus on life insurance has come back slightly from its peak in 2012, according to a new report released last week from leading wealth researcher Investment Trends.

The July 2013 Investment Trends Planner Risk Report is an in-depth study of Australian financial planners and their usage of insurance. The study is based on a survey of 1,159 financial planners concluded in July 2013.

The amount of client time spent on talking about insurance needs by planners fell slightly to 18%, after reaching the highest level recorded in the seven years of this study last year (20% of client time).

“The volatility in the markets that lasted most of 2011 and 2012 had driven planners to focus on increasing the role of insurance advice within their businesses, but the return in confidence earlier this year has meant planners were able to write a lot more non-risk business this year,” said Investment Trends Senior Analyst Recep Peker. “An outcome of this is that they are again spending the normal amount of time talking to clients about their insurance needs.”

“Despite this, those who write risk estimate they have written 5% more in annualised risk premiums in the last year than we recorded in the previous study, and remain optimistic predicting future growth (as they have for several years).”

The Future of Financial Advice (FoFA) reforms may also be a catalyst for planners to write more risk business, with 23% of planners saying they plan to provide more life insurance advice as a result of FoFA.

Insurance business has become even more concentrated, and AMP tops primary relationships

Insurer relationships are changing rapidly, with 29% of planners saying they reduced usage of an insurer in the last 12 months and 35% saying they stopped using an insurer (8% did both).

Those who have been leaving their insurer don’t necessarily start using another insurance provider, which is evidenced in the average number of insurers used by planners declining from 3.8 each to 3.4 each.

“This has resulted in the greater concentration of risk businesses written,” said Peker. “Planners write 64% of premiums through their most-used insurance provider, up from 61% in 2012 and 54% just five years ago.”

“It has become even more crucial to be a planner’s most-used insurance provider.”

AMP and AIA posted strong gains in primary market shares. The top five insurance providers by number of primary planner relationships are now:

1. AMP
2. OnePath/ANZ
3. AIA Australia
4. TAL
5. BT Life

Platforms are becoming more important in the insurance market

The proportion of these risk premiums written on platforms is on the up, with planners writing 39% of new risk business via a master trust or wrap platform. This is up from 34% of premiums just last year, and up from almost zero ten years ago.

“The reason this is so significant is because the concentration of risk business is even greater among advisers using platforms, partly due to the limited range of insurers available on most platforms,” said Peker. “This means insurers without a platform will need a more compelling proposition to compete.”

Having multiple insurance providers available on platforms could help drive more insurance business to platforms.

“The main factor inhibiting more risk businesses on platforms is the limited range of insurers on offer, and indeed planners continue to ask for choice of insurer on platforms, most often because they believe this allows them to provide the best deal for the client.”

Good BDM support is key to retention and acquisition

“Satisfaction is crucial in the insurance space, as business is not very sticky and planners can easily stop writing new business on an insurance provider,” said Peker. “That’s why there is a very strong relationship between satisfaction and switching behaviour.”

“Relative to their market share, insurers with lower overall satisfaction ratings from their users experience a higher proportion of planners leaving or switching to other insurers.”

Planners’ satisfaction with their insurers remained high, but fell slightly from the levels achieved in 2012. The top three insurance providers by overall planner satisfaction in 2013 were:

1. TAL
2. Zurich
3. Macquarie Life

Satisfaction with insurers increased the most with business development support, but part of this increase is driven by switching to insurers with better support.

“Good BDM support is a hygiene factor, crucial for both retention and acquisition,” said Peker. “Poor support is a key factor that has caused planners to stop using an insurance provider, and good BDM support is the top selection driver for becoming a planner’s most-used insurer.”

“Although providers now score well for business development support at an industry level, they cannot let service levels falter.”

“Beyond this, planners are demanding further enhancements to underwriting and technology, and these areas will continue to be key battlegrounds for insurance providers over the next year,” said Peker.

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Wealth Plus Solutions and three other practices join Genesys Wealth Advisers.

AMP yesterday announced that Wealth Plus Solutions and three other financial planning practices have joined Genesys Wealth Advisers.

Wealth Plus Solutions has 11 advisers across its two offices in Perth and Adelaide.

Genesys Wealth Advisers Managing Director Paul Robertson said the Wealth Plus Solutions team is a good professional and cultural fit with Genesys, sharing a passion for quality financial advice and helping more Australians secure their financial futures.

“We look forward to partnering with this dynamic practice to help them achieve their plans for growth,” Mr Robertson said

“Genesys is committed to helping practices achieve their growth ambitions, and providing the resources and support required to help them build their business.”

Wealth Plus Solutions Principal Robert Crane said Genesys offered them a compelling support program to help them grow their business.

“Finding a licensee that could support our growth needs was of upmost importance and with financial advice at its heart we know the interests of our advisers and clients are well-represented with Genesys,” Mr Crane said.

Mr Crane added: “Genesys offers a strong value proposition and our advisers and clients will benefit from being supported by a group with the size, scale and resources of AMP.”

Genesys’ strong growth and succession offering also appealed to Melbourne-based practices Rancie McLean, Frontier Financial Group and Palmer Financial, who have also recently joined Genesys Wealth Advisers.

Mr Robertson said Genesys’ focus is on helping advisers grow their revenue and profit, both organically and through managed growth such as sourcing client bases and tapping into in-house support programs.

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