Drop commissions to eliminate conflict: NZ Wealth
Investment advice will never be a profession until advisers prove they are on their clients’ sides by ditching commissions, says Ben Brinkerhoff, of NZ Wealth.
Monday, September 2nd 2013, 5:19PM 
7 Comments
by Susan Edmunds
The adviser group requires that its 30 AFAs around the country operate in a fee-only capacity.
They deal with fund managers Dimensional, Smartshares, Harbour, AMP and iShares.
Brinkerhoff said not accepting commissions or other incentives was a key part of NZ Wealth’s values. The wider industry should follow suit, to offer clients better outcomes, he said.
“People may or may not express that conflict of interest and some can handle it but it still exists.”
Advisers who were paid a fee by a client would represent the client’s interests to the industry, rather than representing the industry to the client.
More than half the country’s AFAs are tied up with banks or other controlled distribution networks, Brinkerhoff said. Those who were independent needed to be truly independent by removing the commission tie.
There have been suggestions that New Zealanders are not financially savvy enough to pay for advice but Brinkerhoff said that was not a good argument because it indicated that people did not understand how their advisers were paid.
“It’s the adviser’s job to explain their value proposition so the person can make an informed choice… doctors, lawyers and accountants are all on the same side of the table as their clients. Everyone has a fiduciary obligation to serve their clients’ best interests. We will never be a profession until we can say the same.”
The Government should legislate against commission, Brinkerhoff said.
“We’d be happy to find another point of difference.”
NZ Wealth’s advisers charge a range of fees, from 50 basis points to more than 1%. “Not all are doing the same service.”
The portfolio cost for 50% equities and 50% fixed interest was 32 basis points, he said. “This is the future, either embrace it or get left behind. It’s happening in the US, UK and Australia. New Zealand desperately needs to have this transparency.”
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Comments from our readers
Your industry is judged by the worst operators and the worst practices. Not the best, not even the average. The worst.
As long as anyone is getting commissions from financial products, the public is justified in assuming that everyone does. Until the practice is explicitly banned, you aren't going to change their minds.
So, while commission vs fees may be a distraction in the case of individual advisers dealing with individual clients, the issue is central to the financial advice industry in their dealings with the market.
Disclosure is actually about a lesser duty that, as a fiduciary you’re not entitled to get any compensation or otherwise profit (at all) from the relationship unless it’s been specifically agreed by the principal. And yes, without that specific agreement you are expected to do it for free.
Kimble and others - guess what generally the average Kiwi does not want to write a cheque for fees they are happy to pay within the product - ASK THEM!!!!
Secondly I guarantee some of the fees being charged or that would be charged would be far higher than what the product providers pay - Investment business is not a goldmine of huge commissions -
Not sure how getting paid $2 - $3 for each $1,000 in KiwiSaver could possibly cloud and advisers judgement - Fees or Commission the decision should be between the Adviser and Client not the media beat up - we will still all have our preferred products/platforms, preferred companies/providers so what will actually change - except clients will say a big no thank you to regular reviews because each time they will have to write a cheque - lets get on with helping clients to have the most they can at retirement and waste time in this sort of publication in making sure Ross is outed for being an Accountant who dabbled in Investments instead of an AFA and therefore tarring us with the same brush
As for the declaration that fees will be higher than commissions, that's something you have to back up with reasoning. It doesn't stand on its own.
At best you can say that clients should be indifferent between fees or commissions if they are the same amount. There is little reason asides from a tiny amount of clerical ease that would have them prefering commissions over direct payment.
I was going to make a similar observation to that made by Frustrated. What would Ben think would be a suitable fee to charge a client for giving them advice - which could run into hours - on KiwiSaver?
I really think we need to start differentiating between advice on investing lump-sum amounts and drip-fed retirement savings. It is obvious we (the whole profession/industry) run into difficulties when using the very generalised term of "investment advice" or, worse still, "financial advice".
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