Commissions report gets no traction with MBIE

[UPDATED] The contentious Melville Jessup Weaver report into insurance adviser remuneration structures might have been an expensive waste of money.

Wednesday, November 25th 2015, 1:51PM

by Susan Edmunds

The report, commissioned by the Financial Services Council and released on Monday, was intended to form part of the discussion of the review of the Financial Advisers Act, which is under way.

It was highly critical of upfront commission rates, which it said were driving poor consumer outcomes and adding unnecessary cost to the insurance industry.

But it was released just days before the options paper for the review, which all but ruled out any such changes to commission structures.

The paper says certain conflicts of interest, such as commission payments, may be leading to poor outcomes for customers because the current regime does not require all advisers to manage or disclose their conflicts.

The paper says one option to tackle the problem is to ban or restrict conflicted remuneration, including commission and volume-based incentives from product providers.

But this is not a preferred option. Such a move could limit access to advice to those who are not willing to, or cannot afford to, pay upfront for advice, the report said.

"Relative to a broad ethical obligation, it can be difficult to design a ban or restriction without the possibility of advisers finding a loophole in the requirements."

A Ministry of Business, Innovation and Employment spokesperson said: “Banning or restricting commissions is not MBIE’s current preferred option. However, we are seeking feedback on the effectiveness and impacts of this versus other options to manage conflicts of interest. Other options include an ethical obligation to put the consumer’s interest first, together with clearer and more consistent disclosure of conflicted remuneration.”

Instead, in all of the three options of packages of suggested changes, which range from minor changes to large-scale alterations to the law, the options paper says all advisers should provide simple and common disclosure to clients.

That would mean clients being made aware that their adviser was receiving commission for the sale.

FSC boss Peter Neilson said the indication that changing commission was not a preferred option was not a surprise. But he said there were other questions that related to the issue of conflicts of interest that needed to be resolved.

MBIE said: "The findings and recommendations in the MJW report will be considered along with all other feedback that we have received. It is important to get feedback from as many stakeholders as possible."

Tags: Financial Advisers Act