Adviser commission ban recommended by Commerce Committee
The Government should investigate banning financial adviser commission payments and should consult with Australian authorities on the model being proposed across the Tasman.
Wednesday, October 12th 2011, 5:00AM 
8 Comments
by Benn Bathgate
That is among the recommendations included in the Commerce Committee inquiry report into finance company failures.
"We recommend to the Government that it investigate the possibility of banning conflicted remuneration structures in the provision of financial advice, including consultation with the Australian authorities on the model proposed in that country," the report says.
The possibility of a commission ban was welcomed by financial adviser and author Martin Hawes, who believes the idea is beginning to gain momentum.
"Once you get one or two or three countries doing this, then I think it will sweep around the place pretty fast," he said.
"It's a conflicted business model, and I don't think financial advisory will become a proper profession, well regarded by the public, until there is a different remuneration model."
Institute of Financial Advisers (IFA) president Nigel Tate says transparency is the main issue.
"The official position of the Institute at the moment is we don't mind what the structure the clients opt for - whether it's commission or fee - as long as there's clear and concise and clearly understood disclosure, so that there's an informed decision made by the client," he said.
The report concedes new adviser regulations to disclose their remuneration and relationships are welcome, and that there are arguments to suggest investors are often reluctant to pay fees, however, "we retain strong reservations about advisers' receiving any form of remuneration from those whose products they recommend."
The report also recommends the Government undertake financial literacy efforts to make the public aware of the distinction between "independent" advisers and those who receive remuneration from providers of investment products, "to encourage the public to opt for independent advice."
"It could prove unnecessary to ban commissions if their use diminished as the public learned the value of paying for independent advice," the report said.
While generally positive about new regulations, the report also says it remains to be seen whether they will result in "better trained and more professional financial advisers, who succeed in regaining the public's confidence."
"We expect the FMA to help this happen by monitoring the industry assiduously."
Benn Bathgate is a business reporter for ASSET and Good Returns, email story ideas to benn@goodreturns.co.nz
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Comments from our readers
The Legal (conveyancing), Real Estate, Debt Management Office or Clergy are not considered "unprofessional" whilst taking commissions.
NZ is unlikely to catch Australia by repeating every mistake they make.
It does seem the gov't has far too many Commissions - mosty of which could be banned to benefit.
The real problem is as Andy alluded to, the disparity in commissions.
Until all providers pay the same, there will always be a perceived/real conflict of interest if the recommended solution remunerates the adviser more. I know we are talking primarily investments here. There can be a even greater conflict of interest where an RFA doesn't have to disclose insurance commission and there could be $1000's of dollars difference in commission on a case, shares in the company and world travel plus more, by putting it with an aligned carrier.
If disclosing commission the genuinely best option for the client is the one that will earn the advisor much more commission, what will the client think, yeah right. It could even influence them the wrong way.
Until there is an even playing field for commission or just fees only, there will always be the conflict issue.
The problem with fees is also about affordability for the client. Having no commission based advice could put the public more at risk if they don't seek/can't afford advice.
Personally, I do not take up-front commission, preferring trail as a much better option for both me and my clients. Quality is always better than quantity. That aside - how do you propose remunerating advisers who provide insurance, risk protection, and financial advice to people who clearly will not pay for it. We can give much better (and independent - there, i said it!) options to clients with value added. You must agree - a vast majority of kiwi's will just not pay for advice directly - we have been taught not to. How do we educate and advise the masses and still get paid?
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The solution is improved transperancy - not banning commission payments.