Better disclosure needed - but how?
[UPDATED] Financial service providers agree standardised disclosure documents would help the advice industry– but what they should say and what they might look like is still a matter for debate. (Now with link to Share Submission)
Wednesday, April 27th 2016, 6:00AM 
4 Comments
by Susan Edmunds
IFA chief executive, Fred Dodds
The Ministry of Business, Innovation and Employment has released the submissions it received in response to the options paper for the review of the Financial Advisers Act.
In it, MBIE said it knew there were concerns AFAs having to meet strict disclosure requirements, while RFAs did not, could be misleading for consumers, and that what was being disclosed was not meaningful.
It proposed a number of options, including that all advisers could be required to disclose the same information in the same format, the disclosure requirements could be reviewed to make them more meaningful, or consumers could be referred to the Financial Service Providers Register or another website for more information about their advisers.
The submitters were supportive of changes to the disclosure rules. Many said longer disclosure documents were not being read and were irritating for clients who did not understand the need for them.
But they disagreed on what should replace them.
The Financial Advisers Association (FAA) said it strongly supported the adoption of a common disclosure document. “However, the current AFA disclosure requirements are too onerous and the current RFA disclosure requirements have almost no value. We would support the introduction of a single page disclosure covering scope, risks, remuneration and conflicts of interest. This should be supported by an explanatory sheet which outlines to clients what they need to consider when engaging an adviser.”
The Institute of Financial Advisers (IFA) said all advisers should have the same, standardised, more meaningful disclosure. “This would be easier for consumers to compare – not only fees and commissions but also the services offered. Sales people should also have to have a disclosure document that outlines how they work and who they are working for along with how they and or their employer gets paid.”
But while AMP argued all remuneration should be disclosed – including any soft commissions an adviser received – others said it was a trickier area to navigate.
Adviser group Share said while its advisers were happy to disclose their remuneration, it was not clear why they should if the cost was built into the product.
“If the consumer is happy to pay the price for the product, as they are for a can of baked beans, then why does the adviser (or the shopkeepers) remuneration come into it? If I am paying for some plumbing services, I am interested in the cost of the job, not how much the individual plumber gets paid. Similarly, if I need a lawyer to do conveyancing, they will break down the incidentals (photocopying, disbursements etc) but not the salaries of all of the people who had a hand in providing the service. If there was remuneration disclosure, would this mean that the Bank teller has to disclose their salary?” (Read Share's submission here)
The IFA said the easiest way would be for an adviser to tell clients about all the benefits they and their employer received from a deal. “This would gain equilibrium between both employed advisers/salespeople such as bank staff and self-employed advisers, tied or independent.”
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Comments from our readers
Commissions are just one of the elements of the cost of distribution. If one part has to be disclosed, then why not all parts - and for consistency disclosure should be the same for all advisers and/or salespeople. Clients have the right to the same level of disclosure regardless of the channel they use to purchase their product.
If you want the full context of my comments on behalf of SHARE, rather that just what has been reported, then I suggest you read the full FAA Review submission.
EDITOR'S NOTE Submission is here http://www.mortgagerates.co.nz/files/Share.PDF.pdf
Hi Scott - I don't think that most of the comparisons that you are providing are valid. The concern is where remuneration creates a conflict of interest for the adviser. A salesperson in Harvey Norman does not need to disclose their commission to the customer, as they are not obliged to act in the best interests of the customer, so there is no conflict of interest.
If a trusted adviser such as a financial adviser or lawyer is receiving remuneration that creates a conflict of interest, they should at minimum disclose that to the customer. That at least makes it somewhat transparent that the adviser would gain a pecuniary advantage from advising a particular course of action. I would argue that disclosure is actually insufficient in a number of instances.
This is not an argument for disclosing all remuneration, as not all remuneration creates a conflict of interest. In your conveyancing example, the staff salaries do not create a conflict of interest.
Alternatively, you could argue that bank tellers and some insurance advisers are not "trusted advisers" in the way that lawyers are, and that it is clear that they are acting on behalf of the product producer. If they are given a label that makes the nature of this relationship clear, such as financial salesperson, then that largely addresses the issue in my view.
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