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ISI members: the devil is in the detail

Fund managers believe that the ISI’s voluntary policy to discontinue the payment of commissions on investment products needs detailed planning, consultation and transition arrangements to work.

Friday, April 30th 2010, 7:35AM

by Jenha White

Good Returns spoke with a number of ISI members, including ING, AXA, Sovereign and Funds Administration New Zealand (FANZ), yesterday about the ISI's plan to phase out commissions.

ING head of funds management Paul Butler says while the company has no specific issue with the payment of commission as long as investors are fully aware of the terms, the fee-for-service model provides a clean distinction between the role and costs of a product provider and those of an adviser.

"It makes both parties accountable for the specific contribution they make to an investor's financial outcome."

Butler says ING is of the view that fee-for-service is the most likely long-term payment structure for professional advisers and therefore it supports, in principle, a voluntary fee-for-service model in the medium term.

However, Butler also acknowledges that significant details need to be determined on how such a change would work.

"Many advisers' businesses are still structured largely around commission payment. Without adequate planning, consultation and transition arrangements this change could force some advisers from the industry, or result in others being unable to service clients who can't afford the fee - further reducing access to advice.

"In a time when KiwiSaver has heightened the need to access good advice, such a move may be counter-productive to the healthy growth of our industry."

He also says there are significant practical product design, system and communication issues for product providers to resolve. 

"For example, we may be required to run commission and non-commission paying versions of our investment products to cater for different advisers.  These issues will take time and money to adequately address and will require extensive consultation with adviser channels."

Sovereign's general manager of marketing and product David Drillien says it stands alongside its peers in support of the ISI and AXA's acting chief executive Chris Day says AXA is broadly supportive of the general direction the ISI is going in.

"It is possible that these changes together with wider changes to the industry may be the basis for a more interactive relationship with clients having more reason to talk to their advisers."

He also believes a ban on commissions would create greater transparency of what customers are paying for, as building blocks towards wider trust and confidence which are the aims of the financial advisers reform.

"It's a big challenge though and the devil will be in the detail. The challenge is to work through the implications for all participants and businesses," he says.

FANZ is a fee only business and totally supports the ISI's policy.

FANZ executive director Graham Duston says fee-based models have better outcomes and none of its investments have gone into receiverships or moratoriums.

"If you're ambivalent about commissions then you look at the world differently and a whole range of issues disappear."

He admits it will be difficult for business models based around commissions to make a change to a fee-for-service model.

"It wasn't much fun for the horse when the car turned up.

"I think there might be short-term pain for business but if you make the move, in 10 year's time you'll wonder what all the angst was about."

 

 

Jenha is a TPL staff reporter. jenha@tarawera.co.nz

« Power: NZ will not ban commissionsKiwiSaver mismatch a 'huge challenge' for advisers »

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