Inside Money: Back-room plot to ban commissions mooted
9:30 AM Thursday Aug 16, 2012
Are politicians planning the end of investment commissions? Photo / Thinkstock
In 2009 I wrote a blog speculating that legislators were plotting the end of investment product commissions in NZ.
The eventual legislation and regulations governing authorised financial advisers (AFAs) stopped short of banning commissions, merely requiring effective disclosure and the forfeiture of any claim to independence if advisers accepted commissions.
At the time, I noted that the Australian Financial Planning Association (FPA) equivalent to the Institute of Financial Advisers in NZ had just introduced a policy requiring its members to phase out commissions in their businesses.
Even so, it wasn't an Australian government-enforced move and I concluded: Australia is a long way from banning commissions...
In this I was wrong (depending on what the meaning of a long way is, as my lawyer requires me to add). Soon after my blog (although unrelated to it) the Australian government began the process of banning commissions on investment products in a legislative journey that terminated this year with the introduction of the Future of Financial Advice (FOFA).
Under FOFA, commissions will be banned from all investment products effective July 1, 2013. Importantly, this is not a retrospective measure, meaning commissions will still be payable on pre-FOFA 'legacy' products a process that will take many years or even decades to unwind.
While FOFA comes into full force next year it is already contributing to a major restructure of Australia's financial advisory industry. The big financial institutions, essentially the four main banks plus AMP, have always controlled a large chunk of the Australian advisory industry but their grip appears to be tightening further as FOFA looms the big five are estimated to now control about 90 per cent of the country's financial advisers whereas the rule-of-thumb a few years ago was more like 75 per cent.
Will New Zealand come into line with the commission ban (which is also being implemented in the UK)? The issue isn't officially on the trans-Tasman 'Single Economic Market' agenda being pursued by the Ministry of Business, Innovation and Employment (formerly known as the Ministry of Economic Development).
A whisper reached me this week, however, that legislators are plotting the end of investment commissions with a draft law due out before the end of the year.
I have been wrong before (although, as my lawyer notes this is not to be construed as any admission of liability).
The fact that their own money actually pays the commission indirectly is not disclosed. Neither is it disclosed that there is often interest and costs added to the arrangement that the customer incurs for the commission arrangement - these products in this sense should be also labelled finance transactions where full disclosure of terms and costs/interest are disclosed.
These commission arrangements on financial products are nothing more and nothing less than financial arrangements disguised within financial products. The present disclosure duties come no where close enough to explaining the arrangements. Whats more, in the majority of cases the customer is locked in with penalty fees and termination costs if they exit after discovering the commission is funded by their own contributions before anything accumulates.
It would reduce massively the amount of risky investment advice that is given - for example that by one major bank that the kiwisaver should in part be a higher risk investment in order to earn more money - of course they would charge higher fees as well - irrespective of the final outcome!
The people who handle and essentially control money have had it very easy for decades - the handling of money is not where the massive wealth generation of the world exist - money is but a means to an end and the use of money for real productive wealth generation is where the wealth should be made
How many cars, trips abroad or dinners can you take?
Stock brokers don't mind taking your money as commission, for a 2 minute phone call, however always shrug from responsibility if anything goes wrong with the investment, by telling you the fine print says to get advice.
That was what presumably we paid 2% commission for & those people should be hung out to dry.
When other sales people fully explain what ever it is they are selling & a person is well informed, then that person has taken responsibility for that information. The client can choose to buy or not to buy.
I do not see why that work should not be rewarded by money, otherwise that person is working for nothing.
There are liars, cheats & thieves in a lot of salary based professions.
The thought of an ankle bracelets for 6 months didn't deter them.