Commission ban back on Govt agenda
The government is considering banning commissions for financial advisers, a move the Institute of Financial Advisers has warned could have unintended consequences for consumers.
Tuesday, April 3rd 2012, 6:00AM 10 Comments
by Niko Kloeten
The Commerce Select Committee has recommended the government investigate the possibility of banning “conflicted remuneration structures in the provision of financial advice” and consult with Australian authorities on the model proposed in that country.
The government said it “recognises the potential negative impacts of commission based remuneration on the incentives.”
It also noted that in the UK the Financial Services Authority had recently banned advisers from receiving commission on investment products.
"Officials will be monitoring the effect of the Australian and United Kingdom bans while liaising with relevant industry bodies and consumer organisations to better understand the role of advice in different sectors, the nature and extent of problems and the likely impacts of any ban.”
IFA president Nigel Tate said the government was “very likely” to follow Australia’s lead on banning commissions for certain types of financial products.
“The IFA’s position on commissions is that we don’t mind how advisers are remunerated by clients – it’s about disclosure and understanding by clients. It’s up to clients how they pay for the advice.”
Tate said a number of countries around the world had banned commissions on investment products, and he said many New Zealand advisers are already paid fees for investment advice and are therefore well prepared should this country introduce a similar ban.
However, he said that in the risk space, a ban on commissions would be a “retrograde step” given that New Zealand already has an underinsurance problem.
“I don’t see another model that would produce the same volume of sales to people that need it if they were to take away brokerage,” he said. “I’m a great believer that you can skin cats from both ends.
“At the end of the day it doesn’t matter whether the adviser is paid by commission or fees – the adviser is paid by the client.”
Advisers don’t have to worry just yet – a decision on any possible ban is unlikely to be made until 2016, when the government reviews the Financial Advisers Act.
Niko Kloeten can be contacted at firstname.lastname@example.org
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