Conduct, not law, best way to deal with commission: FMA
Financial Markets Authority head of regulation Liam Mason says the regulator would like to improve conduct in the life insurance sector to tackle poor customer outcomes, rather than regulating to remove commission.
Wednesday, August 8th 2018, 10:20AM 
6 Comments
by Susan Edmunds
As part of consultation of the Financial Services Legislation Amendment Bill, the Ministry of Business, Innovation and Employment made it clear it does not back a ban on commission.
It was raised as part of the earlier FAA review process, and touched on by submitters to the bill.
It told the select committee considering the bill that a ban would only reduce access to advice for individuals who could not, or did not want to, pay for it.
"This option was included in MBIE’s Regulatory Impact Statement on the Review of the FA Act but was not a preferred option as it would reduce access to financial advice for those who are unwilling or unable to pay for it. Rather than banning or restriction commissions, the bill aims to address the impact of these incentives through universal duties of conduct and client care, and improved disclosure requirements.”
But that seemed a softer line than was taken by the FMA when it discussed the issue earlier in the year.
When it released its report on advisers' use of soft commissions, Mason said it was not the amount of the incentives that concerned him but what was incentivised by their structure.
He said the incentives were setting advisers up to fail on that count.
And he said, once all advisers were required by law to give priority to client interests, many of the schemes in existence would become “pretty untenable”.
Earlier, as part of work on replacement business by advisers, he had said high upfront commissions also needed change.
'One of the things we’d like to see is the providers themselves taking a lot at the model and whether there’s a way to reward good advice and not necessarily a model that’s quite so much about rewarding changing policies.”
Mason said the government had now made it clear via the FSLAB process that its preference was not to regulate for commissions at this point, but to try and address it through conduct.
"That remains our preference, that remains what we would like to do first.”
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Comments from our readers
Liam clearly has no idea what the problem is or if there is one at all ! and he could not regulate private sector remuneration / distribution models anyway at least not without spreading the net to all commission based operations in any sales sector in NZ.
The F&G sector is 90% churn and recently IAG took 70 of it's top Brokers to Fiji !!I guess that would be their last trip Liam ?
picked. F and G is limited to level commission rather than high upfront.
I agree the focus should be on conduct or providers and distributors and action taken when potential or actual client harm is evident. The commercial terms should be left to the market to determine and consumers to choose how they access insurance advice or products.
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