The FMA has restated its ongoing concerns around what it refers to as ‘commission creep’ within the financial advice sector.
Its concern was raised in the authority’s 2021 annual report – released at the end of January.
In 2018 and 2019 the FMA and RBNZ reviewed the conduct and culture of New Zealand banks and insurers and “…found serious weakness across both sectors” that it says put customer at risk of poor outcomes. (See our story Government Considers Capping Commissions).
The FMA subsequently asked the banks and insurance companies to address its concerns and increase their focus on governance and conduct risk.
Last year the FMA reviewed progress on these plans and found most banks, and some insurers, have completed – or will shortly complete – their plan and transition the improvements they have made to “business as usual”.
However, while the regulator has seen encouraging signs, mixed results in some areas are concerning the regulator.
…we still have concerns about commissions paid to intermediaries…
“Sales-based incentives for staff have generally been replaced with incentives that focus more on good outcomes for customers,” says the FMA.
“However, we still have concerns about commissions paid to intermediaries, and have seen commission levels increasing, after they were lowered following our initial reviews.”
On the upside, the FMA says many firms have increased their focus on customer vulnerability, with initiatives such as improved identification of vulnerability risk factors, and training staff to engage with customers who may need additional support.
However, it says reporting on remediation activity, where firms have identified issues that require them to compensate customers for not providing a product or service as intended, has been “…inconsistent, and issues requiring remediation continue to be identified”.
During 2021 the FMA appointed a new CEO in Samantha Barrass. She took up her new role in January, replacing Rob Everett who resigned.