Watchdog wants advice commissions ban

A consumer watchdog wants a ban on payment of commissions to financial advisers after an Australian report recommended its Government work with the industry to do the same.

Consumer New Zealand, which recently claimed the advice being given was "scandalously poor" after anonymously reporting on 17 firms, said New Zealand should follow moves in Australia and Britain.

In June Britain's Financial Services Authority proposed abolishing all types of commission within the investment industry by 2012.

"We hope policymakers in New Zealand take note of the reforms that are taking place in Australia and the UK and introduce similar measures," said Consumer NZ chief executive Sue Chetwin. "Consumers need to know they are getting unbiased advice."

The Australian "Ripoll" report was released after a nine-month inquiry into financial services and products.

It stopped short of calling for an outright ban on commissions, but recommended the Government make a law change to ensure advisers put their client's interests' first.

It also recommended the Government work with the industry to stop advisers being paid by commissions or bonuses.

In New Zealand, commissions have been blamed for advisers recommending failed finance companies.

A financial adviser code committee, set up by the Securities Commission last week, began a consultation process to define the minimum standards of ethical behaviour and client care for advisers as part of a re-vamp of adviser legislation due to kick in at the end of next year.

It proposes that New Zealand advisers "place the client's interests first and must act with integrity" and provide "independent and objective advice".

It does not recommend a ban on commissions, but wants feedback on whether those who take them will have to call themselves product provider "aligned" or "non-independent".

Securities Commission supervision director Angus Dale-Jones said this week the commission was keen to align New Zealand with Australia.

"The transtasman approach makes good sense."

Commissions were at the heart of rebuilding public confidence in the financial advice industry, and he planned to consult the industry over the Australian report's recommendations.

But Institute of Financial Advisers president Lyn McMorran believed banning commissions outright would be a step too far.

"Until New Zealand consumers are confident with the value advice provides and are happy to pay a fee, it is going to be really difficult for advisers to make a living if you put a blanket ban on commissions."

She was also concerned that fee-only advice would put it out of the "realm of affordability" for middle New Zealand.

"I would hate to see something only the rich could afford."