A recurring dream - world without commissions

Photo / Hawkes Bay Today

I don't know exactly how many stories I've written on the subject of financial adviser commissions but it's lots.

This one, penned about a year ago for the Herald, will do as an example. Reading it 12 months on I can hardly fault it, except, maybe, my last sentence, which began "Australia is a long way from banning commissions".

For just this week the Australian government announced it would ban adviser commissions by 2012, mirroring a move confirmed by the UK regulator last month.

It was probably the first of Australia's Storm scandals that sealed the end for commissions. The current disgrace facing Melbourne's rugby league team is nothing compared to the $3 billion disaster known as Storm Financial.

Mark Weir, who heads the action group seeking recompense for Storm Financial clients, surprisingly had little truck with the commission ban.

Weir told the Brisbane Times:

"If they want to [improve] the integrity of the industry, they should be introducing some mechanism to determine if they're lying,' he said.

"Everything should be taped and kept on a database that ASIC [the Australian Securities and Investment Commission] could have access to. That way it would keep people honest.

"The greed doesn't start with the financial planner, it starts with those people who own the products, and that is the banks."

But why is greed so contagious? You could argue, which the Australian and UK governments have, that commissions help spread the virus.

The New Zealand government, absorbed with its own reform of the financial advisory sector, will be under immense pressure to join the 'death to commissions' club.

As Good Returns reported, the noise is starting already.

The lobby group representing big fund managers and insurers, the Investment Savings and Insurance Association (ISI) also reacted immediately to the Australian news.

In a statement, Vance Arkinstall, ISI chief, said: "In NZ, ISI is finalising an announcement that will result in a voluntary policy to discontinue the payment of commissions on investment products, including KiwiSaver. The proposed ISI policy will include the discontinuance of volume-based performance bonuses or commission and ongoing renewal commissions."

Note the voluntary nature of the ISI proposal but compulsion will no doubt follow.

The upshot of all of this is that consumers will have to learn to explicitly pay for advice, which, as Ian Cowie in the UK Daily Telegraph argues will be good for everybody.

But please excuse me, I've been over this before. In hindsight, I should've used an old story and just charged for it again, and again, and again...


David Chaplin