Commissions help raise standard of advice
It is wrong to criticise the fact that fund managers and life companies pay commissions to advisers who sell their products.
Thursday, November 11th 2004, 10:20PM
While it would be great for the savings industry if advisers were paid on a fee-for-service basis, that is unlikely to happen quickly because of consumer attitudes.
Penn says there is the need to improve the quality of advice, however that costs money.
Many financial planning firms are small, entrepreneurial businesses without huge resources and consequently may not be able to fund some of the things required to improve their operations.
Penn says that fund managers and insurers such as AXA are committed to raising the standard of advice and providing advisers with services such as education, technology and platforms.
He says the cost of these services is built into the products, as opposed to being something planners charge for.
He says it is OK if the costs are built into products as long as that is disclosed to clients. At the end of the day improving the standard of advice is what matters.
Penn is also supportive of regulation saying it is not necessarily a bad thing.
While the Australian regime gets bad press because it is prescriptive and onerous, he says that is not necessarily the fault of the government.
Rather it has got that way because of how the bureaucrats and industry have interpreted the laws.
He is a supporter of licensing and regulation as elements that help the advisory industry become more professional.
He says that there is a high degree of responsibility on the financial services industry to get things right as they are dealing with other people’s money.
The necessary level of quality won’t be reached in an unregulated environment.
His preference is for licensing and a self-regulatory regime which accredits qualified people who are “fit and proper” to give advice.
“All very good advisers out there in New Zealand will welcome it,” he says.
He says there is a cost to improving the standard of advice and the “price is worth paying.”
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