Commissions must go: Inquiry told

Commissions must go to improve the quality of advice given to investors, as they encourage advisers to hard-sell products relative to their own remuneration, Parliament's Commerce Committee heard in a submission.

Friday, December 18th 2009, 7:49AM 4 Comments

In an oral submission, executive director of Stewart Financial Group Nick Stewart told the committee that commissions create incentives for advisers to sign up as many clients as they can without providing them with full financial services, and were detrimental to the industry.

"We advocate that commissions should be banned - there will be a lot of attrition in the adviser market and a number of people will not see value" in financial services, he told the parliamentarians. The downside of this is that advice would be limited to those people who can afford to pay fees, he said.

Stewart was one of five oral submissions today, which included Ross Butler of the Code Committee, the Institute of Directors, sharebroker Chris Lee and accountant Murray Lazelle.

Butler said he was restricted in what he could say as the code committee is in the process of receiving submissions on issues such as commissions, and will be in a better place to provide information to the MPs when the draft code is ready in February.

Lee critcised the lack of regulation around finance companies, saying poor policing had led to many of the problems, while Lazelle raised the issue of misleading advertisements that did not quite breach fair trading legislation.

The Institute of Directors said much of the problems probably stemmed from poor governance, and chief executive Nicki Crauford supported the prospect of life bans for directors of companies that tapped public money if they were found guilty of fraud, though she had some misgivings about whether a similar ban could be imposed for repeated incompetence.

The committee set up the inquiry to cover off aspects missed by the bevy of agency and government reviews into financial services, and will focus on ensuring investors are well-informed and understand the implications of proposed moratoria.

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Comments from our readers

On 18 December 2009 at 3:19 pm Phil Menzies said:

Can't agree with Nick. Commissions are so miniscule on investments I just don;t accept they have any influence on what products Advisers 'push'.You don't develop a long term trusting business relationship with any client unless you are up front with what Fund Manager commissions could legitimately be charged and what you, as an Adviser, actually charge.
I agree with the comments on Finance Companies. A degree of greed all round, including the investor. I understand many didn't actually invest through an Advisor so who's fault is that?

On 18 December 2009 at 9:07 pm LPL said:

There has been a lot of focus about what advisers get paid and how. I don't think from a consumer perspective this is necessarily the issue. Rather the consumer should be able to choose to have an adviser involved and know in a transparent form what they pay for having an adviser involved.
My question - why have we not heard more about transparent reporting on managed funds generally. Why do statements not clearly show (1) how much a consumer has put in (2) how much the fund manager has taken out to cover their costs (3) amount paid to an adviser.
Fund Managers continue to charge the sam percentage on the funds under management regardless of the size of those funds under management. Isn't that worth questioning? This is a far bigger cost to consumers.
As noted following the recent consumer survey your average balanced fund did not return anything to an investor over a 10 year period. Yet those same dollars in the bank could have turned $1 into something like $1.60. Some of the lack of return where the costs/fees inside those funds.
If commissions are going to be transparent (or on a fee only basis) so should fund management fees/charges. When is the government going to call for such changes so investors/consumers can really establish what value is being added and where?

On 19 December 2009 at 2:42 pm Independent Observer said:

The comments in this article attributing poor advice to commissions is further evidence that we are an industry of lemmings. Unfortunately history has demonstrated that very few in the NZ financial services industry are blessed with sufficient-enough common sense to understand the real issue at heart.
Best wishes for the 'many' who are allowing the 'few' to dictate terms.

On 21 December 2009 at 11:56 am Voice of Reason said:

So I am a ratbag for taking an immoral 1% trail commission on a wrap account, and using it to cover all types of service to clients?
My clients should be glad I am not a fee based adviser- for an example of charging like a wounded bull, have a look at the disclosure statement on www.hassan.co.nz/