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Financial advice commissions not under threat: Faafoi

Commerce Minister Kris Faafoi has acknowledged concern at how the Conduct of Financial Institutions Bill (CoFI) will interact with the new financial advice regime – but says he thinks the advice regime is the most appropriate way to regulate financial advice and advisers.

Wednesday, May 20th 2020, 6:23AM 9 Comments

CoFI is working its way through Parliament and there has been concern that it creates conduct requirements for financial advisers, on top of those introduced by FSLAA and the new code of conduct for financial advisers.

In a webinar with Financial Advice NZ, Faafoi acknowledged that concern and said he did not want the conduct regime to add another layer of complexity of regulation on top for advisers.

The bill in its current form also allows regulations to dictate remuneration structures, which some industry participants have expressed concern about.

Faafoi said Government recognised that commissions were a legitimate way of paying advisers for their “important work” because consumers were generally unwilling to pay for financial advice. He said the Government was aware that commission structures were the way the sector had operated for decades.

“It is not the Government’s intention to ban all commission.”

But he said the Government wanted to prohibit target-based incentives that created a strong conflict of interest.

Reserve Bank and Financial Markets Authority work had shown some structures in place that were not in the best interest of consumers and were detrimental to consumer faith in the industry long-term, he said.

Faafoi said he was committed to seeing the conduct bill progress but was conscious of the need to provide enough lead-in time.

Government needed to make minor changes to the regulation requirements under FSLAA, which will dictate things such as how advisers describe their remuneration to clients. Faafoi said amendments were needed to reflect the revised timing of the regime but the regulations should be finalised soon.

Faafoi thanked advisers for their work through Covid-19, supporting clients who were struggling financially. “I’m aware you have faced and will continue to face high levels of inquiry and concern from clients abut investments and financial wellbeing more generally.”

He said he was aware of the increased demands facing clients, and that advisers might be worried about the health of their own businesses. “I’m conscious of the increased demands you’re facing from clients and the impact this will be having on your welfare and that of your staff as well. I encourage you to look after yourselves and your people.”

Tags: CoFI Commission Financial Advice New Zealand FSLAA Kris Faafoi new regime regulation

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Comments from our readers

On 20 May 2020 at 8:42 pm guscott said:
"It is not the Government’s intention to ban all commission' - it is scary that the Government should even be dictating to the private sector how to remunerate employees and contractors. That aside if it is not their intention to ban commissions then Section 446 of the CoFI bill needs to be removed or at least re-written. As it currently stands it gives the power to regulators to ban commissions whenever they wish.
On 22 May 2020 at 7:36 am Tony Vidler said:
I totally agree with the previous comment. I would go further though; why does the Minister use the word "all"? That, together with MBIE's total reulctance to consider a re-draft of s446 thus far, suggest that there is absolutely an intent to dictate change in this area.

So, given it is an election year how about they spell out precisely what their intent is instead of obfuscating and throwing out soothing sound bites? This the government of transparency and kindness isn't it? Let's have some of that on this issue given its potential to lead to an entire industry re-design.
On 22 May 2020 at 9:39 am Murray Weatherston said:
Commissions
"“It is not the Government’s intention to ban all commission.”
But he said the Government wanted to prohibit target-based incentives that created a strong conflict of interest."

If that is the case, then it should be simple for the Select committee to amend the bits of CoFI that would give the power to ban all commissions under the very wide definition of incentives in the Bill.

Second without violating his statement, it would be possible for Minister to cap commissions that aren't target based commissions. We should be badgering him until he says he is not worried about the level of any legitimate non-target based commissions. Otherwise the Sword of Trowbridge will be ever present.
On 22 May 2020 at 4:36 pm Tony Vidler said:
well said Murray. I particularly like the concept of "we should be badgering him". We should indeed be badgering extensively.
On 25 May 2020 at 12:21 pm lewiboy said:
Aren't our professional associations meant to be advocating for us? we pay enough in fees. I personally feel some have not done nearly enough.
On 25 May 2020 at 7:52 pm Old MacDonald said:
In respect of the previous comment. FANZ have made a very detailed and well written submission on this very issue. If you are a member then you can access it on the website else look up the various submissions made.
I believe they have also been having discussions directly with the minister.
Are am unsure what other associations have done. However as Murray so correctly put it we all need to be badgering not just the Minister but also those on the Finance and Expenditure committee that will be reviewing it.
I suggest you tell as many people as possible to raise these concerns with committee members which are from both parties.
And indeed with the insurers to see how much support they are giving here and if not, why not!!
On 26 May 2020 at 9:48 am Tash said:
Commisssions make financial advice affordable to those who need it most and who are unable to hand over cash to pay for advice.
where is the caring from our Governemnet on this?
Surprised the mainstream media have not picked up on this angle - oh wait, perhaps it's becuase they are only interested in bashing financial institutions.
On 28 May 2020 at 10:09 am RWAW said:
I think Sue Chetwin's elevation to the board of the FMA tells us all we need to know about the real position of the powers that be regarding commissions.
On 29 May 2020 at 11:40 am Tony Vidler said:
lewiboy:

If you had paid for a bus fare and the bus got stuck in a pothole and everyone had to get out and help push the bus out to continue the journey, would you be staying perched in your seat saying "I paid for my ticket; you should all be pushing for me"?

The associations, dealer groups and corporate advice businesses are all pushing and badgering (as Murray so perfectly put it).

That doesn't mean you shouldn't put your shoulder to the wheel as an individual as well. Sitting back and expecting others to do all the heavy work is a cop out. If you do nothing personally, then expect nothing to change.

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Last updated: 21 September 2020 10:48am

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