Inside Money: The anti-commission league of nations
9:30 AM Thursday Nov 22, 2012
Anti-commission moves across the Tasman may well catch on in New Zealand. Photo / NZH
Across the Tasman there has been a long-running battle between accountants and financial planners to occupy the moral high ground.
And even as Australia's financial planning industry faces massive reform under the Future of Financial Advice (FOFA) legislation due to take full force next July, the accountants have tried to stay one step ahead.
The Accounting Professional and Ethics Standards Board (APESB), which sets behaviour benchmarks for the multiple Australian accounting industry bodies, last week confirmed it would move ahead with its proposed APES 230 standard that takes the commission-banning FOFA fervour to another level.
The accountants' standard aims to expunge commissions from life insurance and loans as well as investment products (which will face a commission ban after FOFA comes in next year).
According to APES 230:
• Commissions for Financial Planning Services which are entered into prior to 1 July 2013 in respect of life insurance, other risk contracts and the procurement of loans can only be accepted by members until 30 June 2018, where the member provides additional services in respect of those contracts or loans;
• Commissions for Financial Planning Services which are entered into between 1 July 2013 and 30 June 2015 in respect of life insurance, other risk contracts and the procurement of loans can only be accepted by members up until 30 June 2018, and only if the member makes specific disclosures to and receives informed consent from Clients.
There's no direct implication for New Zealand accountants (or financial advisers) from the APES 230 or FOFA rules, however, they do add more weight to the growing international pressure on financial product remuneration arrangements.
In the UK, for example, the Retail Distribution Review (or RDR), which comes into play by January next year, will ban investment product commissions amongst other measures.
A story published at one of my old haunts, this week quotes Thomas Balk, president of US-based managed funds giant Fidelity Worldwide Investments, talking up the worldwide nature of the anti-commission movement.
"[Banning commissions on financial products] is something which is happening in Australia as well," Balk says in the story. "But in Europe, the UK kind of started that trend, and it's happening in Europe with MiFID [the Markets in Financial Instruments Directive] as well. So I wouldn't be surprised if in 2013 and the years ahead it becomes a global trend."
As a former local regulator told me last week, it's hard to see how New Zealand won't catch the anti-commission wave sometime soon.
Yet it sounds like it will be imposed on teachers and the like so why should there be two different sets of rules.
One for the money men and one for everyone else.
However, when the client is using an intermediary he doesn't always see the evidence of the commission being paid.
I have also known of cases where clients have paid two lots of life mortgage protection assurance, once to the company granting the loan and once to the broker.
Certainly the client needs protection and all steps in this direction should be supported