In April, the Office of the Commissioner of Insurance extended its control over the advice market with the publication of guidance note (GN) 16.
The note, which covers underwriting long-term insurance and outlines the requirements for fair treatment customers, came in the wake of GN15 that was published in January last year and sought to drive poor practice and bad brokers from the market.
Between them, GN15 and GN16 outline requirements for product development and marketing, client information standards, pre- and post-sales processes and managing expectations.
Fee-based advisers in Hong Kong have welcomed the guidance that has eliminated indemnity commission on both investment-linked assurance schemes (ILAS) and long-term insurance products.
“Both GN15 and GN16 have driven further transparency in the market which is massively welcomed,” says David Benskin, director of fee-based financial planning firm Strabens Hall.
“GN15 had a greater impact on the market than GN16, having essentially dealt with the poor sales practices around regular savings plans, which fortunately removed a lot of the weak brokers from the market.
“When GN16 came through many of the brokers that would have been impacted by this change were no longer trading as a direct result of GN15,” Benskin says.
More pragmatic approach
While GN16 has been phased-in, with existing business not impacted until January 2017, GN15 gave IFAs a very short period of time to adjust and it had a significant impact on the market.
Mark Christal, chief executive of Old Mutual Wealth Hong Kong, said: “With GN16, which affects a larger proportion of the overall market, they are taking a more pragmatic, more principle-based approach in terms of the application.”
Largely unaffected by GN15 and GN16, Globaleye Hong Kong chief executive, Edward Harris, said: “With the tougher sales flow process, added compliance, and commission disclosure, some firms and advisers have not been able to adapt.
“Add to this the general slowdown in the Hong Kong economy and it is no surprise that it has been a tough period for many local and expat focused firms.”
Hong Kong-based industry consultant Andy Robinson added that the loss of indemnity commission was making it difficult for IFAs specialising in class-A protection products.
“It could be argued that this will deprive the Hong Kong public of this type of protection as IFAs move to other lines of business,” he said, citing the growing advice gap in the UK following the Retail Distribution Review (RDR).
While GN16 is not faced with the same prescriptive fulfilment process that covers GN15, involving many signatures, forms and procedures to be followed, Robinson believes that Hong Kong’s Office of the Commissioner of Insurance (OCI) may be considering looking into it again, taking into account industry views.
