Irish Broker readers will know you best as CEO with Friends First and now CEO of Aviva Life & Pensions – you might tell us about your career to date?
I think at this stage it is probably fair to call me a “lifer”. I started in the industry 40 years ago and have always worked in life assurance companies. I joined Irish Life straight from secondary school back in 1980 as an actuarial trainee. In 1986 I completed my actuarial exams and the following year I moved to Shield Life, now Zurich. Some three years later I joined the Irish branch of Friends Provident. The branch became a local subsidiary, changed its name to Friends First, passed into the ownership of the Dutch Achmea Group and finally was acquired in 2018 by Aviva. I became the CEO of Friends First in 2012, having been the CFO for 16 years and the Appointed Actuary before that.
Many things have changed over my 40 years in the business, some for the better like technology and professional standards, some for the worse, like the end of defined benefit pensions and with-profits. But the core purpose of our industry, protecting the financial future of our policyholders and their families, has remained intact and relevant throughout and with it the need for a strong Financial Broker channel.
Aviva Ireland have seen a lot of changes over the last couple of years – can you give us an overview of these?
In the early part of the last decade Aviva decided to implement portfolio transfers of their Life & Pensions and GI businesses in Ireland back into their Aviva UK equivalents, essentially moving to a Branch status here in Ireland. The Aviva Ireland GI portfolio transfer had an effective date of 30 November 2012 and the Aviva Ireland Life portfolio transfer had an effective date of 31 December 2014. So far so good but then the UK voted to leave the EU which put at risk the ability of Aviva UK to look after its Life and GI policyholders in the Irish branches. In 2017, Aviva Group decided to set up new Aviva Ireland Life and GI subsidiaries in Ireland and implement reverse portfolio transfers before the original Brexit date of 29th March 2019. The Aviva Group then acquired Friends First which provided the company with a regulated legal entity in Ireland on the life side. The reverse portfolio transfers took place successfully in the early part of 2019. We now have two regulated legal entities in Ireland, Aviva Life & Pensions Ireland which includes our Life & Pensions business in Ireland and Aviva Insurance Ireland, our Irish GI business.
I expect that you have been busy integrating Friends First into Aviva – what progress has been made to date and when do you expect it to complete, including product integration?
The acquisition of Friends First completed at the end of May 2018, just over a year and a half ago. Since then we have completed the legal merger of the portfolios. We have relocated staff between our two Dublin locations (One Park Place and Cherrywood) to ensure that all those doing equivalent work for policyholders and Financial Brokers are in the same place – over 100 people moving in both directions. We have established a new Board and senior management team. In particular, we have established a single Broker Relationship team under the leadership of Denis Kelleher, combining the best account managers from both teams alongside some new external hires. We were delighted to see that the quality of this team was acknowledged in the recent results achieved by Aviva Life & Pensions Ireland in the 2019 Broker Service Excellence Survey, where we won five awards, including Overall Financial Broker Excellence.
On the product side we have integrated our protection suite in 2019, including a new improved onboarding journey whilst retaining our market leading Best Doctors feature. In 2020 we will complete a similar exercise with our unit-linked products, where our focus will be on delivering a compelling coherent investment proposition using the best of the existing fund choices we offer, supplemented by new funds, including offerings from our sister company, Aviva Investors.
A key part of our integration is to migrate to a single IT environment and we are half way through this, aiming to complete the process before the end of 2020. As well as delivering cost efficiencies, this IT integration will essentially end the “internal phase” of the acquisition and allow us to switch our attention to the “external phase” where we can focus on optimising propositions and Broker/Customer interactions with us.
What impact has the acquisition of Friends First had on Aviva’s Life & Pensions business?
As well as providing a welcome boost in terms of size and scale, the Friends First product specialisms filled some key gaps within the existing Aviva Ireland product range. This was particularly the case for Group Risk and Income Protection. I am a big proponent of Income Protection, second only in importance after life cover in my view! I’m really excited about the combination of the Friends First heritage in relation to this product here in Ireland, especially in relation to claims handling, alongside features of the Aviva Group’s market leading Income Protection product in the UK, especially their early intervention initiatives. Another positive impact has been the different fund options which was brought to the combination, for example Magnet & Compass, (award winning) Irish Property, Concept K and SDIO. As already mentioned, Financial Brokers will be able to access these funds and the existing Aviva funds through the one product range later this year.
You reference protection products there, what’s your view of the market here in Ireland?
The retail protection market here in Ireland is certainly very unusual with the prevalence of price matching and even price discounting. I certainly find it difficult to rationalise for our UK parent who don’t see this happen in any of the other markets in which they participate! In Aviva Life in Ireland we participate in the practice of price matching. However, it makes it almost impossible to put sensible book rates together when it is likely that most of our sales will be completed using our competitors’ prices. I would certainly prefer to see the industry here revert back to a more normal approach where all the companies put forward their best rates and Financial Brokers advise their clients based on these (lower) book rates alongside other product and company features.
What do you see as the key challenges and opportunities facing the Life & Pensions industry?
Starting with the opportunities, I think the demographics are very positive for our industry over the next 10-20 years. Assuming no economic crisis takes place, there will inevitably be a huge increase in the demand for pre-retirement accumulation and post-retirement decumulation products. These products typically require advice, usually face to face and from an expert, and that’s where Financial Brokers come in. I may be proven wrong on this, but I don’t see digital disruptors getting involved here.
I’m not sure that retail protection will be a major growth area in the future given the demographics (apart perhaps from Income Protection) and current players are more at risk to the threat of digital disruptors here.
In terms of challenges the inherent demand for retirement products could be negatively impacted by any sub-optimal implementation of new pensions legislation (e.g. local translation of IORPS or auto-enrolment) or changes in the tax regime as it applies to pensions. Another challenge is the shrinking of the Broker population itself – at a time when the demand for financial advice is likely to increase. We need to encourage more young people to enter the Broking profession and acquire the excellent qualifications now available.
Another challenge to my mind is the need to encourage greater risk-taking by those investing over a longer time-frame. We currently see that most of the investment within pension accumulation products is directed into ESMA 3 and 4 rated funds despite there being a longer investment time horizon for these investors. I believe we should be encouraging a greater level of risk-taking in our client’s investment choices as this has historically delivered higher returns for long-term investors.
Progress has been very slow in relation to the introduction of auto-enrolment and it appears very unlikely that it will be rolled out in 2022 as promised – what is your view on this?
I agree that it’s unlikely that auto-enrolment will be rolled out in 2022 given the progress we have seen to date. Any further delay in addressing the pensions funding gap will be disappointing as the demographics here are a bit like climate change, we need to act now.
Having said that, I would not be a fan of the current auto-enrolment proposals. The proposed charge cap at 0.5% of the assets is actually lower than the charge cap for the equivalent “stakeholder pensions” in the UK, a country with an adult population over 15 times that of Ireland. It seems to me that this will only work for the “providers” if the maintenance of member records in the Irish model is the responsibility of the proposed Central Processing Agency and not the “providers”. It is also difficult to see how professional advice could be covered by this low level of charges.
I also think the proposed contribution rates start off too low and then take too long to reach the long-term rate. Increasing pension “coverage” through auto-enrolment is great but these auto-enrolled pension pots may not address the “adequacy” issue, particularly if the old-age pension comes under pressure in the future. Also, there will inevitably be several general elections during the contribution rate build-up period and it is not hard to see future increases in the contribution rate becoming an election issue. I also think we need to be careful that we don’t see cannibalisation of existing higher funded pension arrangements as a result of auto-enrolment.
You suggest that the need for retirement advice will increase going forward – what role do you see for Financial Brokers in this process?
Given the options available to maturing pension accumulation policyholders and the myriad of post-retirement products in the market, it seems clear to me that professional advice is crucial. Advice from a product provider is inevitably limited with a danger that important opportunities are lost to the policyholder. We are already seeing regulators in other markets expressing concern about the nature of the “at retirement” advice process.
In some ways the phrase “at retirement” is probably not appropriate as the advice process, if done properly, needs to start well before actual retirement. It needs to take on board a holistic view of the customer including health prospects, guarantees within existing products, attitude to investment risk, other assets (like property) and other liabilities (like mortgage) etc. Without this deep understanding of both the customer and the large variety of products offered by the market there will be an increased risk of poor decisions being made. This whole area is tailor-made for Financial Brokers and will, I believe, be a major growth area for those Brokers with the relevant expertise.
What impact will CP116 have on your business and on Financial Brokers?
Firstly, CP116 will have some impact on how Financial Brokers and providers engage with each other to provide greater transparency to Broker customers. However, it won’t have any fundamental changes in products or services provided to Brokers. This is because the Central Bank of Ireland has retained commission as a remuneration option rather than follow the UK or Dutch approach of banning commission on some or all products. The experience in these two countries post the commission bans were introduced, has not always been positive for consumers. We have made excellent progress to ensure that we will be fully compliant with CP116 post the 30 March. Post implementation date, it is our intention to increase our funding allocation to the important provision of training and CPD events for Brokers.
The whole subject of ESG (Environmental, Social & Governance) is getting more airtime in relation to investment decisions. Do you think this is an important consideration for investors today?
Studies show that ESG and CSR are becoming important differentiators and I am sure that Financial Brokers will see ESG questions increasingly feature in discussions with clients in the next few years. We have a long history of recognising ESG at Aviva. With a specific team looking after our CSR agenda we look to embed ESG considerations into all areas of our business. This is demonstrated by one of our core values, to create legacy. Aviva Group have been carbon neutral since 2006 and it’s carbon off-setting projects have helped over a million people in the developing world, earning the UN foundation leadership award in 2018.
In addition, Aviva Investors were one of the first large asset managers to make the integration of ESG factors part of their investment processes.
The Aviva Broker Community fund was a great success last year, do you intend to run this again?
Yes, we are looking forward to opening this to both our Financial and Insurance Brokers again in February and will hold it open for submissions for six weeks. We encourage our Brokers to nominate a charity or local organisation offering them the potential to win prizes from a pot of €100,000. This is a great opportunity for Brokers to help make a difference in their local community and to recognise the great work of your local charities and organisations.
Any last thoughts?
I remain very positive about our industry and the role of Financial Brokers in its future. The need for professional financial advice, especially around retirement planning, is only going to increase in the years ahead. We need to encourage more young people to look at Financial Broker as a career choice. Hopefully the recent decision on CP116 will bring a period of stability in terms of the remuneration debate. Fears that technology would negatively impact the world of the Financial Broker are most likely overblown. Indeed I believe that technology is more likely to enhance the role of the Financial Broker by improving efficiency and enhancing the quality of the advice process.
Following on from the global financial crisis many Financial Brokers started on a journey towards a more resilient financial model, looking to achieve a better balance of their earnings between initial commission and ongoing commission / fees. I would strongly encourage those Brokers on this journey to keep going and not to take the foot off the pedal here. Aviva will continue to play its part here in terms of the variety of commission models that we offer.
From the perspective of Aviva Life & Pensions Ireland we remain totally committed to the Financial Broker channel and intend to continue to support their growth through training, improved technology, support for succession planning and better propositions, supported by the most Broker focused team.