The Ministry of Business, Innovation and Employment (MBIE) has made it clear that banning commissions would achieve little, following the release of its response to submissions on the draft Financial Services Legislation Amendment Bill (FSLAB).
The 100 page report responding to the submissions follows the Select Committee’s report released last week, which detailed proposed changes to FSLAB (see: FSLAB Select Committee Report Missed the Mark).
In their submissions, Citizens Advice Bureau and Consumer NZ recommended the Bill include a ban on commissions and other conflicted remuneration in the financial advice sector, claiming “…this is the only means of ensuring that financial advice will not be influenced by how much an adviser will earn”.
MBIE disagreed, explaining such a ban would limit access to financial advice for those who are unable, or unwilling, to pay for it.
“…such a ban would limit access to financial advice for those who are unable, or unwilling, to pay for it.”
“It is intended that the disclosure regulations will improve transparency of conflicts of interest, including commissions and other conflicted remuneration, giving consumers the information that they need to make informed financial decisions,” MBIE stated in its report.
Melior Law and Regulation pointed out in its submission that high rates of commissions are a concern.
Referring to the Commerce Act 1986, which prohibits product providers from ‘getting together’ to discuss and agree to lower commissions, it suggested officials obtain authorisation from the Commerce Commission for product providers to discuss this.
Although MBIE noted that high rates of commissions are indeed an issue, it responded that “providers should seek authorisation themselves if necessary, if they consider the public benefits of any prohibited discussions may outweigh any potential competitive harms”.
Commenting on the requirement to disclose commissions to the consumer, an individual who made a submission, John Devery, voiced concern against the requirement as it could lead to advisers leaving the industry.
“…the consumer may find [the commissions] excessive without having regard to the amount of unpaid work conducted by many financial advisers,” Devery said.
MBIE noted his concern and stated it is in the process of developing the disclosure requirements and will take into account stakeholder feedback.
MBIE released a discussion document on disclosure requirements earlier this year (see: MBIE Seeking Feedback…).
Click here to read MBIE’s responses to the FSLAB submissions in full.