Disclose cost of advice, not commission: Financial Advice NZ
Advisers should be required to declare the cost the adviser distribution channel adds to what clients pay for financial products, not the commission the advisers themselves receive, Financial Advice NZ says.
Thursday, May 31st 2018, 6:00AM 
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by Susan Edmunds
The Ministry of Business, Innovation and Employment (MBIE) sought submissions on a discussion document as part of its work to develop disclosure regulations to fit alongside new financial advice laws.
MBIE said the existing rules had a lack of transparency, including on what advisers were paid.
Information about the commission an adviser received should be made publicly available, it said.
But Sue Brown, chair of Financial Advice NZ, said it was not so straightforward.
Advisers should be able to instead show the margin that adviser distribution added to the cost of a product, she said.
"The main aim of these commission disclosures is to highlight actual and perceived conflicts of interest. However, clients often get confused that they are paying these commissions and additionally confused as to whether they are paying extra premiums for their insurance," Financial Advice NZ wrote in its submission.
"An insurance premium quoted without commission doesn’t reduce it by the upfront commission. Instead it reduces by about 12%-15%. This is what it costs the consumer to obtain advice."
Brown said disclosing commission could end up replacing more useful conversations between the client and adviser,
“We do not believe that with the right compliance measures, processes and disclosure in place commissions lead to poor client outcomes. We want to see a much more meaningful disclosure of the cost of advice to ensure consumers are fully and accurately informed, and that advisers can have an accurate ‘value conversation’ with their clients,” she said.
Financial Advice NZ said the same rules should apply to everyone giving advice, with bank staff also required to show the margin was added through acquisition or distribution costs.
Brown said that would create a level playing field and allow clients to make meaningful comparisons.
Disclosure and management of conflicts of interest should be regulated in a principles-based way, she said.
“The intent of disclosure is to ensure consumers have all information required to make an informed decision - which includes either accepting or rejecting potential conflicts of interest.
"To achieve this, we must arrive at a framework that ensures that advisers, through providing ‘sufficient specific facts’, can accurately represent potential conflicts and importantly, how these are managed as relevant to their individual advice business. A principles-based approach will achieve this, whereas a prescriptive approach risks adding complexity for both the consumer and adviser.”
Financial Advice NZ also called for additional disclosure requirements for advisers when they were offering replacement advice, including a product comparison outlining the material differences in the products, the risks of changing, and the reasons for the recommendation to replace.
The association also rejected the suggestion that commission should be disclosed in dollar terms. It said this would add significant confusion.
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oh wait, it doesn't matter, they can only sell one provider anyway!!! So we are very uhappy about clients being restricted to one provider for some advisers but not at all for others!!!!!
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"An insurance premium quoted without commission doesn’t reduce it by the upfront commission. Instead it reduces by about 12%-15%. This is what it costs the consumer to obtain advice."
Surely even this is misleading - if the client goes straight to the insurance company, don't they in fact pay the same premium, and the insurance company wont reduce it by the 12-15% stated that the adviser has the discretion to do?