Some advisors earn hundreds of thousands of dollars a year in commission from their books of KiwiSaver clients, Catherine Emersen said. Photo / RNZ, Reece Baker
By Susan Edmunds of RNZ
New Zealanders need to question whether it’s appropriate for advisers to be paid commission for work with KiwiSaver, one provider says.
Kernel chief customer officer Catherine Emerson said she had heard from two Kernel members recently who were told by their adviser to move from Kernel or not switch to it, because the adviser wanted them to stay with a provider that paid somewhere between 0.2-0.5% per annum in commission.
She said some advisers earned hundreds of thousands of dollars a year in commission from their books of KiwiSaver clients and it seemed out of step for New Zealand to still allow commission of this type on KiwiSaver, when Australia had taken steps to ban commission to advisers from Australian superannuation funds.
There, the industry had moved to an advice fee facilitated by the superannuation fund that the client agreed to have deducted from their account.
“The industry, including all the providers, really rallied around the fact that they all felt that advisers should be remunerated for retirement advice, but in order to do that in a way that aligned to both client interests and adviser business needs, they built the payment mechanisms within superannuation schemes in order to help an adviser facilitate a fee for service.
Emerson said she was “not at all in favour of advisers not being paid. I think advisers should be paid for their work” – but the way in which they are paid and how that’s been traditionally communicated in New Zealand has not really improved or innovated at all in the past 10-20 years.
“Do I think it’s creating less-good outcomes for investors? I do, I definitely do.”
She said it should be made clearer to customers which schemes “independent” advisers worked with.
“As a consumer, I have a better way of knowing that if I walk into Westpac and chat to an adviser there, I won’t be getting advice about ANZ. I can see clearly their alignment, but I cannot easily tell by working with an independent adviser which schemes they work with and what potential commissions they are paid from each scheme.
“If providers had to disclose this information publicly, it would highlight the vastness of the problem. The Financial Markets Authority (FMA) cares about fund fees being value for money, but they never will be if there’s enough fat in the system to comfortably support a commissions regime.”
FMA financial advice head Romil Ghelani said advisers had to disclose the fees, incentives and commissions connected with their advice.
“Clear and transparent disclosure on commissions is essential to help consumers make informed decisions about the advisers they engage with and the services they receive. Our view is that any fees should be reasonable and relative to scope of the financial advice service.
“We do have plans to undertake a thematic review to deepen our understanding of financial advice business models and remuneration structures. A future phase of this work will specifically examine KiwiSaver advice models.”
KiwiSaver adviser Edward Glennie, of Genesis Advice, agreed there was a lack of understanding of what advisers did for their fees.
“In this case, to me, it is a real opportunity to go over and beyond in terms of servicing your client beyond their expectations. The KiwiSaver provider benefits from this, as does the client,” Glennie said.
“Servicing and advice fees always have to be disclosed, but to me, as a new adviser, it is a much easier client proposition if there is no cost to them. Kiwis don’t like paying a cent more than they need to and financial advice is no different.
Glennie said he attended a KiwiSaver provider event for their independent advisers recently. “They understand the value of the independent adviser distribution channel and have seen big inflows from them in the last few years.
“I’ll do a full write-up of the event for my relevant clients. This keeps them better informed, and they can then see first-hand the value I bring for my servicing and advice fee – and even better for them, it doesn’t cost them a cent.”
Ben Brinkerhoff, head of advice at Consilium, which operates the KiwiWrap scheme, said his scheme was already operating with a fee model, rather than commission.
“All retail clients in our scheme receive advice and, as part of the on-boarding process, the adviser uploads the corresponding advice document. As such, we don’t operate with a commission structure.
“Instead, clients agree to a fee that varies, based on the value proposition presented by the adviser.”
Milford Asset Management wholesale head Michael Robson said it too had opted for a fee model, but he said any advisers who were being paid by commission from other advisers would have to clearly disclose it to clients.
Robson said conversations with advisers were probably more often about fund selection than choosing a provider.
Financial Advice New Zealand did not respond to a request for comment.
– RNZ