Financial Advice New Zealand recently submitted its response to MBIE on the recent disclosure consultation paper (see: MBIE Seeking Feedback…).
In it, the new body suggested a shift in focus from adviser remuneration to client cost is needed.
Rather than prescriptive regulation around disclosure of commissions, the new body recommended the disclosure of embedded costs, for example, the margin (expressed as percentage) that an insurer adds to the premium to cover the costs of using adviser distribution.
It stated this focus should be to extended to all types of advice given by all types of advisers and that disclosure must be simplified to make it easier for clients to understand and for advisers to manage.
“The main aim of these commission disclosures is to highlight actual and perceived conflicts of interest. However, clients often get confused that they are paying these commissions and additionally confused as to whether they are paying extra premiums for their insurance,” Financial Advice NZ stated in its submission.
Financial Advice New Zealand Chair, Sue Brown, says the industry should strive for a more useful disclosure between the client and adviser.
“We do not believe that with the right compliance measures, processes and disclosure in place commissions lead to poor client outcomes,” said Brown.
“We want to see a much more meaningful disclosure of the cost of advice…”
“We want to see a much more meaningful disclosure of the cost of advice to ensure consumers are fully and accurately informed, and that advisers can have an accurate ‘value conversation’ with their clients,” she added.
Brown said a principles-based rather than a prescriptive approach to disclosure of potential conflicts best serves the interests of both client and adviser.
“A ‘principles-based’ approach provides a high duty of care on financial advice providers, advisers and their supporting financial advice processes without the limitations of a prescriptive approach,” the submission stated.
“We see new disclosure rules as an opportunity to enhance trust with the public through transparency; to ensure that consumers are in a position to make an informed decision; to give advisers a tool to clearly communicate the value of advice and their services; and to dispel confusion as to what advice actually costs,” Brown said.