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Old trail income under review

Registered financial advisers receiving trail commission on category one products they are no longer allowed to offer advice on will come under scrutiny in this year’s Financial Advisers Act review, the Ministry of Business, Innovation and Employment says.

Monday, May 11th 2015, 6:00AM

by Susan Edmunds

The question of whether it is appropriate for RFAs to continue to receive income for products when they could not offer those clients advice under regulation was first raised in 2008.

MBIE said it would be part of its wider assessment of advisers’ remuneration. The FAA review began this year.

A spokeswoman said whether commission should be restricted or banned would be canvassed in the issues paper that is to be released as part of the review.

Adviser and former PAA president Peter Leitch said there were a number of angles that would need to be considered if the trail commissions were tackled.

One argument, put forward by former commissioner for advisers David Mayhew, was that the adviser had entered into a contract with the product provider, who agreed to pay the adviser for a set number of years, without an obligation for that adviser to continue to be able to provide a service to the client.

“That was his position then,” Leitch said. “What you might say now is that over time practice is influencing people.”

He said more people might now question whether it was reasonable to receive revenue if an adviser could not give advice if a client rang to talk about a product.

“But are people being disadvantaged? I wouldn’t have thought so. A number of RFAs have an association with an AFA.  If a client rings to talk to them about their super and that’s a category one product they can refer them to someone they know to give them personalised advice. Advisers are good at working out what will be good for their clients. Clients are better off having a personal relationship with an adviser who can direct them when they have questions about a product they are no longer able to give advice on rather than being an orphan product-holder where they're one of thousands."

Any action could have unintended consequences, he said.

The MBIE spokeswoman said the FAA review issues paper was due within weeks.

Tags: financial advisers investment registered financial advisers

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