ASB fees system on the way out

By ELLEN READ

ASB Bank's controversial system of commissions to its financial advisers will be outlawed by pending securities trading law revisions.

A Consumer's Institute online article has raised concerns about the incentives being offered to ASB financial advisers.

While saying the country's five major banks all paid incentives to their financial advisers, it singled out ASB for special attention, saying its commission payments were weighted towards its advisers selling customers longer-term riskier investments.

Senior writer David Hindley said an ASB adviser would earn no incentive payments from placing a $100,000 lump sum investment into a low-risk cash fund, only $100 to $150 if it went into a low-risk mortgage fund but up to $900 if the money was placed in a higher risk investment.

"All of this creates a big conflict of interest. On the one hand, the advisers should be recommending investments to suit your needs.

"But there's a huge financial incentive for advisers to steer you towards a higher-risk investment," Hindley said.

Advisers could earn more than $100,000 in incentives.

ASB has rejected the implication that its commission structure creates adviser conflict.

"[We have] a rigorous and robust process to ensure customers invest in the most appropriate product for their needs. Investment advisers use a five-step investment guide to take customers through a self-directed process to determine goals, financial situation, risk tolerance and time horizon," ASB head of retail banking and marketing Barbara Chapman said.

She said a "significant majority" of customers placed their money into ASB's income and cash funds, which earned the least commission for the advisers.

Longer-term growth funds made more money for the bank, because of their longer-term nature, and that was why ASB "shares more incentive from those product sales with investment advisers".

Commerce Commission communications manager Jackie Maitland said the practice did not appear to have any Fair Trading Act implications as there were safeguards in place for the client.

Securities Commission general counsel Liam Mason confirmed there was nothing wrong with the practice but said it was preferable that any commissions were disclosed to clients before they took advice.

Under Securities Trading Law revisions due to go before Parliament, disclosure would become mandatory for all advisers, he said.

The full disclosure view is shared by Mary Holm, Herald columnist and publisher of Holm Truths, a newsletter for employees and clients.

She also speaks out against the paying of any commissions in favour of a flat salary or hourly payment - a situation which would go much wider than the ASB situation.

A Government taskforce is investigating the regulation of financial advisers, including those employed by banks.