Don't ban commissions: IFA
The Institute of Financial Advisers has hit out at that Code Committee’s discussion paper on Ethical Behaviour and Client Care saying parts of it are unhelpful and banning commissions won't work.
Tuesday, December 22nd 2009, 6:47AM 
5 Comments
It says the paper lacks a principles-based code of ethics; it considers the interpretation of independence is "unhelpful" and the proposed standards "intrude into determining the business model of advisers".
It is little surprise the institute is pushing for a "complete principle-based code of ethics and practice standards" as that sits with its market positioning.
"What is included in the proposed standards is only a partial code of ethics, with a focus on what might be thought of as "areas of concern", rather than covering the broad principles."
"An expanded set of principles that is better aligned with international standards would enable a less prescriptive approach in the proposed standards."
"The draft Code appears to have been drawn up to apply to investment advisers and financial planners who also provide investment advice. Since anyone providing a ‘financial planner service' is required to become AFA, many risk insurance advisers will be AFA and covered by the Code.
"Many of the provisions don't work for insurance advisers. We suspect they won't work for advisers."
The institute also has "considerable difficulty" with the section on independence. It says the proposal is "unhelpful and based upon a restrictive interpretation, especially in relation to approved product lists and platforms."
" We recommend an alternative approach that places greater emphasis on disclosure of potential conflicts of interest, including remuneration."
It says that the proposed standards go "beyond what would be expected in a code of behaviour and intrude into determining the business model of advisers."
Examples include the proposed standards about suitability and the suggestion that commission should be banned.
"We consider that banning commission may well be beyond the scope of what is listed in the Financial Advisers Act as the requirements for the Code."
It says it would be undesirable for such a major change to be introduced without legislation.
"If commission were to be banned, there would be considerable practical issues relating to commission for insurance advisers. Most risk insurance is distributed through authorised agents who receive commission.
"Commission is paid by the product company and the client makes no payment other than the policy premiums. A ban on commission for risk insurance would require the client to make a direct payment to the adviser. This is likely to result in a significant reduction in the volume of insurance purchased, adding to the well documented "under-insurance" in New Zealand. The result would be greater call upon social welfare benefits from families who might otherwise have taken out insurance".
| « News Round Up | Sovereign takes regulation bull by the horns » |
Special Offers
Comments from our readers
Merry Christmas indeed.
The client is paying regardless of how you dress it up and if you cant justify the value of the product offer then surely you have no business effectively hiding the true cost.
I think clients should be free to choose to pay by commission but to suggest it is in their (and the countrys!) best interests to keep them in the dark about $costs least they dont see the "real value" is as good a reason as any to ban commissions.
Insurance is sold and not bought more often than not. The skill of selling is what is paid for by the insurer not the completion of impeccable applications. That is a plus, and that is what clients most try to evade so I also bring another skill and that is the winkling out of the truth.
Banning commission selling will lead to gross non or under-insurance as sure as night follows day.
Why have the authorities become so self righteous trying to ban commissions on insurance product? Surely disclosure is sufficient and clients have a choice who they deal with or how they pay for the service.
The real issue here in NZ is the total failure of the regulatory authorities to provide any measure of supervision and compliance for investors against shonky investment products and the issuers. I include the Securities Commission,Commerce Commission,Trustee Companies,Auditors and Company Directors. Only a handfull of Directors will stand in the dock to defend their actions as full scale action would embarass the authorities as to their lack of diligence and failure to protect the investing public as they are paid to do.
The formentioned authorities are running for cover and excusing themselves and are happy for the press and selfserving commentators to blame the advisory business for the loss of peoples savings. Advisory business's have generally relied on the robustness of the system to suss out the shonky products but have been badly let down. Where is the call for a full scale enquiry into the whole fiasco? Or would this embarras the authorities too much!!
If the advisory industry is being held to account then it's only fair and reasonable that the authorities are as well.
Commenting is closed
|
|
Printable version |
|
Email to a friend |
Reality is NZ's inept Securities Commission has presided over the issuance of $7 billion of dodgy investment product.
No Advisor sold products not sanctioned by NZ authorities, nor any without operative prospectuses.
The commission which should be banned to assist investors, is the NZ Securities Commission. A complete change of guard is needed.
Merry Christmas