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Commission ban 'errant nonsense'

New Zealand advisers are backing a prediction that there will be a global ban on commission within five years – but one fund manager has described it as "nonsense”.

Monday, September 26th 2016, 6:00AM 3 Comments

by Susan Edmunds

JPM Asset Management head of UK funds Jasper Berens said regulation was moving at such a pace worldwide that a blanket ban seemed inevitable.

“Regulators around the world are talking to each other and as they talk to each other more, this kind of stuff is becoming more important,” he said.

New Zealand adviser Simon Hassan said he agreed commission on investment would soon be a thing of the past. “Certainly for non-aligned advisers,” he said. “It seems a key way to eliminate a significant source of conflicts of interest.”

Fred Dodds, chief executive of the Institute of Financial advisers, said there was very little commission left on new investment products in New Zealand. KiwiSaver would offer small upfront commission and trail of about 0.25% he said and the entry fees in retail products was well displayed.

“The main income in New Zealand investment is AUM fees or financial planning monitoring fees - again, all transparent.”

But he said life insurance commissions were something different and not banned anywhere yet.

IFA president Michael Dowling said the introduction of the Financial Markets Conduct Act was intended to flush out all hidden fees, not just commissions.

“It will be interesting to see who chooses to close their fund to new business, restructure their fees or move funds to new products. Only by comparing them before and after December 1 will you be able to see the effect of the change. I believe we are on the leading edge of the evolution that is referred to.”

But Norman Stacey, of Diversified, said the idea was “errant nonsense”.

“Provided they are disclosed, commissions are a wholesome commercial and perfectly legitimate method of payment for services. Government bonds are sold at discount. Realtors, auctioneers, share-brokers, travel agents, clerk-of-works and salespersons are paid by commission.  Dammit, the church used to command tithes. Are we further going to re-name the US Securities and Exchange Commission? Why on earth should financial advisers be any less a legitimate business?”

He said fund managers were remunerated by commission; "they are paid a percentage of FUM as fees – and the fishier ones even a percentage of equity gains in excess of cash rates. Surely that rort is more worthy of regulator’s attention than financial advisers striving to do the best for clients affordably.”

Tags: Commission fees investment

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Comments from our readers

On 26 September 2016 at 10:30 am said:
When I am charged entry fees or commissions by an Adviser at least I know the amount and can feel the hand of the adviser in my pocket.

When my KiwiSaver manager takes 18 plus percent of my yearly total income in expenses they don’t tell me about it on my annual KiwiSaver statement. I have to find out about it by reading their annual financial statements. I doubt many KiwiSavers know how deep their Fund Managers hands are digging into their pockets.

Unfortunately Advisers are the low hanging fruit the Regulators like picking. Eventually the Regulators will realise to get the best fruit they need to venture further up the tree.
On 27 September 2016 at 8:00 pm henry Filth said:
I'm inclined to agree with you some of the way mike, but I do tend to wonder about the fees or commissions that I'm not seeing.

If I pay someone for advice, and someone else is also paying them, I do have to wonder about the advice I'm paying for. . .
On 28 September 2016 at 10:26 am R1 said:
"Provided they are disclosed, commissions are a wholesome commercial and perfectly legitimate method of payment for services. Government bonds are sold at discount. Realtors, auctioneers, share-brokers, travel agents, clerk-of-works and salespersons are paid by commission. Dammit, the church used to command tithes."

Let's be straight about commissions from product providers; they are a clear conflict of interest, not a perceived conflict of interest, and consequently they erode trust in some investors eyes (particularly those who understand how they add to the costs and long term returns). All of the groups named in the quote lack trust with a large chunk of the population and are not considered professionals in their fields. While advisors continue to receive commissions they will be considered in the same way (not professionals and of dubious trustworthiness) by a large chunk of the population.

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