Client best interests: Part Two

This discussion covers two different models for financial adviser businesses in New Zealand.  The first is where advisers are “tied” and only sell in-house product.  Let’s call this model “restricted advice”. The second is where the adviser is free to select any product in the market.  Let’s call this “independent advice”.

The distinction is an important one because as the FMA notes in a document on its website “vertically integrated distribution models, where a market participant is the provider, manager and distributor of a product, can exacerbate conflicts of interest and result in poor investor outcomes.”  Elsewhere the FMA says “advisers in vertically integrated structures play a key role” to “test the investment information” for in-house product and question whether the products “are suitable for the customer”. 

Advisers play a key role promoting customer (consumer) interests.

What are consumers’ expectations?

What do consumers expect when they go to a vertically integrated bank ¹ for financial advice?  If they are looking for a mortgage then they don’t expect their bank to show them mortgage products from other banks.  If they want to make a term deposit they don’t expect their bank to show them the term deposit rates of other banks.