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Commissions, scope of advice, convictions among disclosure requirements

A cabinet paper released today outlines what the Government wants included in disclosure requirements for financial advisers.

Tuesday, March 12th 2019, 2:10PM 8 Comments

Kris Faafoi

The paper, addressed to the Cabinet Economic Development Committee from Commerce Minister Kris Faafoi and agreed by the Government, notes that disclosure should be useful to clients and flexible enough to work in a range of advice scenarios.

It says advisers should disclose the licence they operate under, the conduct and client care duties they are subject to, the types of advice they can provide, any commissions, incentives or conflicts of interest that could be perceived to impact the advice, any fees or costs associated with the advice, recent enforcement action against the adviser, and the complaints handling process.

"Rather than including all of this information in a single template given up-front to the client, which is the current approach and is ineffective, I propose that different pieces of information be given as it becomes relevant to the client at certain points in the advice process. 

"Recognising the range of different types of financial advice that will be covered by the regime, I also propose that the regulations provide some flexibility in terms of precisely how this disclosure is provided. This will ensure that clients are able to receive effective disclosure, regardless of how they choose to access financial advice."

The paper also said that while the Government has signalled it will remove incentives in insurance that drive poor behaviour, more disclosure of commission was needed.

"I believe it is still important that consumers get information about the commissions or other incentives that have the potential to influence the advice as it will help consumers decide whether to seek or follow advice from a particular person.

"I propose that anyone who gives regulated financial advice to retail clients disclose the incentives they may receive as a result of their relationship with the consumer. This disclosure will be limited to commissions and incentives that a client might perceive as having potential to materially influence the financial advice they receive. This will ensure that the information disclosed to consumers is not overly complex."

Faafoi said it would give consumers more confidence in financial advice.

The new disclosure requirements will be set in regulations under the Financial Services Legislation Amendment Bill, which is currently before Parliament.

“The types of information that financial advisers will be required to disclose include details about the services offered, any commissions received or other potential conflicts of interest, and any enforcement or disciplinary action taken against them," Faafoi said.

“These requirements will significantly improve the level of transparency in the financial advice sector."

The regulations will be consulted on around May, at the same time as other measures to improve the conduct of financial institutions including work to reduce harm from certain types of incentives. The Cabinet paper on disclosure requirements is available here.

A Supplementary Order Paper to FSLAB was also tabled on Tuesday, to allow technical changes to the bill including restrictions to be imposed to limit instances of individual financial advisers working for multiple financial advice firms.

“I have heard concerns that these sorts of arrangements can cause consumer harm and confusion because consumers are not sure who the adviser is working for. This can make it difficult to know who is liable if something went wrong and make it harder for a consumer to get redress," Faafoi said.

The SOP allows licence conditions or regulations to specify circumstances in which an individual financial adviser cannot give advice on behalf of multiple providers.

Tags: Disclosure regulation

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Comments from our readers

On 12 March 2019 at 5:31 pm Murray Weatherston said:
4 starters for 10.

1. Papers silent on the issue of how commissions need to be disclosed % vs $ value of commissions
2. Papers silent about whether when a VIO adviser recommends her own VIO's policy/product, she has to disclose VIO's margins right through the value chain.
3.Where disciplinary tribunal doesn't publish an offenders name, offender doesn't seem to have to disclose.
4. all advisers will have to have a website if par (22) is enforced as written.
On 12 March 2019 at 8:09 pm guscott said:
Sorry but who is advising these people? or have i missed something here. As and AFA providing mainly insurance advice for the last several years my secondary disclosure document provides all commission details as well as details on any potential conflicts of interest or soft dollar incentives of which incidentally there are none for the last two. This has been a requirement under the legislation. So just bring RFAs into the same regulation and NO don't have multiple disclosure documents just simplify into one if you really want people to have the information in easy to understand format and timely manner. OMG are we just going round in circles here. And by the way commission in dollar terms is not practical as often you don't know the amount until after the business is completed. Also after several years of disclosure not one single client has ever queried it.
On 13 March 2019 at 1:48 pm Frustrated Adviser said:
Seriously we appear to be no further ahead - most of this is already being done by AFA's in our Primary and Secondary Disclosure statement - I give both out at the first appointment each and every time -that way I know the client has received both they have time to read and query me on any point before the 2nd appointment.
Surely if it is more confusing to be in different documents given out at different times.
The Disclosures work and also protect us Advisers should a dispute arise.
I am so frustrated that for the 10th year I think my working year is being disrupted by this continual chatter of change for change sake.
Discpline those that are not taking the clients interest first not the rest of us - we are all being tarred with the same brush and we are not all guilty.
Whether we disclose commission in $ or % at the beginning or the end it is a pointless exercise clients expect us to get paid and generally they do not want to write the cheque.
Boy Enough is Enough is a fantastic byline by the Group in Aussie!
On 14 March 2019 at 1:41 pm Aurora said:
I'm curious how you can hand out both disclosures at the first appointment. The secondary disclosure is mainly about illustrating which products were considered, which companies, limitations, conflicts, commissions etc once you've considered the information gathered in the first appointment and put into a recommendation. How is it possible to provide a secondary disclosure on the first appointment? Not having a go just interested how other AFA's are working. Also multiple disclosures at different junctures in my opinion are going to overwhelm the client more than what we currently do. The minister seems to think people make their decisions based on what is in a disclosure document, this couldn't be further from the truth. Personally if I'm buying a product and I like the person I'm really not going to bother with reading all of his or her compliance documents because I know there are other laws to protect me from a dodgy operator.
On 14 March 2019 at 4:33 pm Frustrated Adviser said:
Hi Aurora,
Quite easy my Secondary is the standard format but I list all the companies I work with and the maximum % commission I get paid so it is all upfront.
Once the client decides who they wish to place business with they then get a one page Secondary Remuneration Disclosure that fits there personal circumstances.
This way the client is fully informed of the different commissions payable to me, I prefer to be upfront so they understand there are differences.
I agree with you I prefer to give all disclosure upfront and quite frankly think disclosure of certain issues at the right time whenever that is will lead to further confusion and possibly get forgotten by an Adviser.
I think we all agree that clients don't read these documents that we are legally obliged to provide however I do highlight the important areas that I think they should read such as commission.

On 14 March 2019 at 6:15 pm Murray Weatherston said:
You can do both at once if your disclosure covers every product that you might consider from every company.....Before you laugh, I was at one meeting with MBIE officials on disclosure when a large broking firm admitted to us that their primary disclosure was 27 pages!Who was the 2nd client who read the lot before signing I wonder; most would be "sign here here here and hera and press hard because 3rd copy is yours".
On 15 March 2019 at 11:01 am Frustrated Adviser said:
Hi Murray,
Not sure why it would be 27 pages for anyone but not my problem.
My secondary statement is 6 pages with the companies I work with for Risk, Inv and F&G listed showing the initial, ren, bonus com that section only takes approx 1 page (15 companies in total) It is not onerous and I take the clients through it
I feel my process is robust, clear and concise and upfront and I have a clear pattern as present both at all first meetings no need to remember who has or hasn't been given it as they all have.
I guess my comments would be whether it is 1 or 27 pages they are boring documents that are hardly read and as clients say to me is more about covering my butt than protecting them and I somewhat agree but but but (no pun intended) we have to do it. I prefer this upfront approach and somewhat concerned about the suggestion that we only have to tell clients about certain things at certain times OMGoodness how many bits of paper will that bit and how on earth would you be able to prove you did provide it to a client.
On 15 March 2019 at 11:15 am Barry Read said:
Is it just me or do the proposed new disclosures almost exactly match those in the investment adviser disclosure act in 1996? (Sub Investment Adviser and Investment Advice for Financial Advisers and Financial Advice) Might be able to dust off the old templates and give them an update!

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