Commissions are viable and fair: PAA
The Professional Advisers Association (PAA) says everyone is focusing on the idea that if you get paid a commission, perhaps the advice is not right, however it believes that the method of remuneration, be it fee and/or commission, are both viable and fair.
Thursday, April 29th 2010, 5:02AM 
8 Comments
by Jenha White
Earlier in the week Australia announced it will ban the use of commissions on investment products and soon after the Investment Savings and Insurance Association (ISI) announced plans to implement a voluntary policy to discontinue the payment of commissions on investment products, including KiwiSaver.
PAA chairman Peter Leitch says there are cases where commissions have affected advice.
"But let's be clear, this has also occurred where people have paid a fee and where any commission may have been rebated.
"Advisers are seemingly the only ones in the gun sights at the moment. This is wrong."
He says the changes to the industry that are being affected with the regulation will surely provide the structure to ensure that some of the negative events that have occurred in the past, will be harder to re-occur in the future.
Leitch believes the ISI's announcement to phase out commissions casts some doubt for advisers.
"Financial advisers are spending thousands of dollars getting prepared to become authorised financial advisers (AFAs) and they need support and encouragement for what they provide, rather than the sense that if you get paid a commission for advice, it's not right.
"We need to make sure those advisers committed to the new regime are not seen as second class citizens if they are paid on a commission basis. There is potential for a lack of confidence from the public in advisers."
He believes the professional bodies, the ISI members and other agencies all have to tackle the regulatory changes together and he wants to make sure they are enhancing confidence in financial advisers rather than continually finding angles to undermine the advice that's out there at the moment.
Leitch says "let's reflect on how many people retire today with financial security due to the advice that they have received from their adviser.
"Let's also reflect on the fact that due to advice, many people's lives which have been affected by death, disability or illness, have financial security due to having appropriate levels of risk protection in place.
"Let's reflect on people who owe hundreds of thousands of dollars and who are in a mortgage structure that is suited specifically to their circumstances.
"We all need to be standing up and supporting the role of advice and the adviser - New Zealand is a better place because we have financial advisers."
Jenha is a TPL staff reporter. jenha@tarawera.co.nz
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Comments from our readers
Beside fee sounds more professional than commission, commission sounds like the conventional sales person payment method!
Come on guys stop kiddn yourselfs!
I can rightfully speak on behalf of the members of our association (LBA) in assuring DGN that our members are not primarily driven by commissions. If they were, they would be placing all their business with the two companies in the marketplace paying the highest commission.This is not the case.
The New Zealand public would be better served if DGN came out from his hiding place and gave some examples of instances where 'Peter's friends'were driven by commissions to the extent that a client suffered from bad advice. It would also allow those of us who have given of their time to make submissions and attend Code Committee public meetings to recognise him and thank him for his great contribution to the end result.
Sadly, I fear that DGN is more than happy to slag others from a distance than make any educated comments that will help us all move forward into a professional era.
On the other hand it seems that the commission based clients have actually got a product based on their advice and that many of them have been very thankful that their commission based advisor and seen them through and helped them out till the end rather than giving up on them right before the implementation.
Most interesting, well written Ron, Barry and Peter, it is about time the truth got out there, keep up the good work, maybe we should pay you commission then the work will actually get done.
Second, as constructive as the debate is, there's 300 yrs of law that needs to be overturned if we're going to allow commission from 3rd parties, and stay as client advisers. Either charge clients a fee and be their advisor, or put on a salesman hat and receive sales commission from the issuer. Either way, be up front and don't try and work both sides of the fence (or wear two hats at the same time). There is a clear conflict of interest in doing so, and, contrary to some commentators, its not necessarily one that can be discharged simply by disclosure. If one isn't motivated by the desire to be transparent, get motivated by the personal liability that attaches to those that breach their fiduciary obligations. Amongst other things, advisors could well be liable for the full extent of any loss in value of the investment, even if the loss isn't attributed to their action!
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