The FMA’s new Financial Conduct Report, which sets out its regulatory priorities for the 2026-27 financial year, includes a focus on managing conflicts from remuneration structures in the financial advice sector.
The report says that the FMA is shifting towards a stronger sector focus and has identified four themes that “currently pose significant risks for consumer and market outcomes across the sectors we regulate.” How these themes are addressed will vary by sector.
On the financial advice sector specifically, the 32-page report says that the FMA’s priorities for 2026/27 are:
- Managing conflicts from remuneration structures
- Fraud detection and prevention
- Use of complaints data to drive improvements
- Digitisation opportunities (such as AI) in financial advice
In the section regarding managing conflicts from remuneration structures, the report says it will focus on “…ensuring financial advice providers have effective processes and controls in place to manage conflicts of interest arising from commissions, and to detect and deter misconduct that may be incentivised by commission-based relationships.”
It says this includes misconduct arising from both upfront commissions and ongoing commissions.
…it will undertake targeted monitoring of FAPs to review processes, controls and governance arrangements for managing conflicts…
The FMA will undertake targeted monitoring of FAPs to review processes, controls and governance arrangements for managing conflicts associated with specific features of remuneration models.
It will also look at agreements between product providers, such as insurers, “…including expectations set in those agreements and how FAPs may influence conduct and regulatory compliance.”
The FMA report says it will draw on insights from its ongoing reviews of FAP business models and remuneration structures “…to set expectations for FAPs’ processes and controls for detecting and deterring poor conduct driven by commission-based relationships.”
It’ll also focus on whether disclosures clearly explain the nature of ongoing services and related remuneration, so consumers can readily understand what to expect from their financial advice provider over time.
As to why it has this remuneration focus, the FMA says many FAPs and financial advisers are remunerated by commissions and while it recognises that commission-based models can improve access to advice, these carry risks for consumers that need to be managed.
…we continue to receive reports of misconduct motivated by high upfront commissions…
“The financial advice regulatory regime provides the framework to ensure clients’ interests are prioritised, but we continue to receive reports of misconduct motivated by high upfront commissions.“
It’s aware of instances of unmanaged conflicts leading to poor or unsuitable advice, inappropriate replacement business and fraudulent activity.
…“We are aware of high upfront commissions for financial advice across life, health and disability insurance products, and KiwiSaver…
“We are aware of high upfront commissions for financial advice across life, health and disability insurance products, and KiwiSaver, which increase the risk of consumer harm. We also see inconsistencies in how advisers disclose ongoing (servicing) commissions.”
It notes too that the FMA monitoring of the financial advice sector in 2025/26 found the gaps that support this focus.
“As part of our previous priority focus on fees, incentives and commissions, we identified inconsistent disclosure practices across the sector, particularly in the disclosure of the actual commission payable to both the FAP and the individual adviser, and in the treatment of clawbacks where advice does not proceed or products are replaced early.
The report points to several key questions for FAPs’ boards, CEOs and senior leaders across the areas it is focusing on:
- How do you ensure your compliance arrangements, governance and controls work together to manage conflicts of interest arising from remuneration structures, including the risk of unsuitable advice or replacement business?
- How do your advisers explain to clients what they can expect in terms of ongoing service and advice, and how do they disclose remuneration for ongoing commissions?
- Do you identify themes and trends in your complaints data? Are you using those themes and trends as an important input when considering how to make service improvements?
- What controls, escalation pathways and oversight arrangements do you have in place to detect, prevent and respond to fraud risks? How does the board monitor the effectiveness of these controls given the risk of significant consumer harm?
- How does the board set and oversee an appropriate risk appetite for innovation (including AI) that improves the accessibility of financial advice while maintaining the quality of advice, governance and consumer protection?
The Insurance Sector
Insurance was amongst the other sectors included in the priorities report and the FMA says the focus in that sector is on:
- Product design for new and redesigned products
- Use of complaints data to drive improvements
- Fraud detection and prevention
Under product design, the FMA report says it will focus on ensuring that, when developing new products or redesigning existing ones, firms prioritise consumer needs while also considering the capabilities and limitations of their systems and processes, to ensure they can reliably deliver what is promised.
“This supports our longer-term objective that products are designed to meet consumer needs, continue to meet those needs at all stages of the product lifecycle, and are delivered as promised.”
The other sectors highlighted in the report were Consumer Credit; Banks and Non-Bank Deposit Takers; Capital Markets; Investment Management.
Click here to see the full report
