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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

On 29 April 2010 at 7:58 am Barry Read said:
Well said Peter! Lets get the FAA in and working before deciding if we need to pull other levers to increase consumer confidence. And it is surprising to see the ISI proposing this and the regulators satying no. I would of thought it would have been the other way round...
On 29 April 2010 at 3:00 pm DGN said:
Advisers need to know that time for commissions is gone. No more bullshiting the public on how professional you are when you not. Peter and his friends are driven by commissions, volume commissions and overseas conferences all paid for by the poor client . Grow up lads.
On 29 April 2010 at 8:08 pm J Mam said:
Lets face it, it’s more likely for an advisor/broker to deliver $$$ driven advice based on the commission they may receive vs fee structure which enables clients to understand exactly what and why they are being charge amount usually relating to level of skills, experience and complexity of the clients service needs and therefore when agreed on fee, allows advisor to carry out the sales process without thinking about rushing to make more commission somewhere else!

Beside fee sounds more professional than commission, commission sounds like the conventional sales person payment method!

Come on guys stop kiddn yourselfs!
On 29 April 2010 at 9:06 pm Ron Flood said:
Well isn't it great to hide behind an anonymous name when you denagrate members of the life insurance industry. I say the life insurance industry as for some time now, investment sales have not counted towards volume commissions or overseas trips offered by a number of providers so DGN must be referring to life brokers.

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 29 April 2010 at 9:48 pm Darrin Franks said:
The balance of history will prove all views valid. Commission is not the issue; the difference between the stated (or not stated) value proposition and the customers actual experience is. As a consumer of financial service products I find this is the case whether I have been charged a fee or I have indirectly paid via a commission. Neither model bothers me...only my value experience.
On 30 April 2010 at 10:01 am Jonathan said:
Well said Ron, Interestingly I saw some figures from UK and USA recently that support what you say Ron. It seems that the fee based lobby group have a problem, the stats show that whilst they charge fees their clients aren't actually getting the right products to back up the advice and that many fee based clients are now either under insured or have invested in products that have or are become a liability. There seems to accountability on fee based advisors to make sure the right products have been taken up by the client. The client is left to negotiate the mine field of products along with their own barriers of apathy and procrastination.

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.
On 1 May 2010 at 9:25 pm Mike Maloney said:
It's interesting (to me at least) that the different factions within the 'financial services' industry are quibbling about how other participants in the same industry get paid for what they do. Where is the consumer commentary on what they are paying for? So far the comments sound like private practice lawyers and legal aid lawyers agruing about their respective charging structures. Darrin Franks is right when he says the judge in this issue is what the consumer experiences, and then what they are prepared to pay for that experience. How about we ask the consumer instead of having financial plannners/ mortgage brokers/ insurance agents advocating their views on how the other particpants get paid?
On 5 May 2010 at 11:36 am bw said:
We mustn't confuse the quality of financial advice with the manner in which it is paid. The two are quite different, and the quality of advice is immaterial to the fee v. commission argument. Neither is it relevant as to whether an advisor is actually influenced by their commission payment. It is a matter of perception. Under the law relating to fiduciaries, being "seen to be clean" is more than just a marketing exercise, it's a legal obligation.


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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