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Ban Commissioned Advisers

Media Release
5 November 2009

Ban Commissioned Advisers – Fast Track KiwiSaver Regulation

Consumer New Zealand’s recent analysis of financial advisors is further evidence that commissioned salespeople must be prevented from providing financial advice, according to investment manager and commentator Dr Gareth Morgan.

``Despite the industry’s promises to tidy up their act, the latest Consumer report shows that commissioned sales people are unlikely to offer unbiased advice. New Zealand needs to follow the example of the Australian authorities, who have moved to ban commission in the financial advisory sector,’’ said Dr Morgan.

``Consumer’s study found that less than 20% of plans provided by advisers were any good, that costs were not transparent and failed to equate to quality unbiased advice. The study also noted that until commissions are banned this won’t become the industry norm.’’

Despite the awful pain felt by New Zealand investors over the last two years, the Securities Commission appear to have their head still firmly in the sand and have taken no effective action, and the new financial adviser regulations are still a year away.

``We see the same thing happening in the promotion of KiwiSaver where many advisers direct investors to KiwiSaver providers on the basis of commissions rather than the quality of the investment management or investor fit.’’

IRD’s recent two year assessment of KiwiSaver found that 78% of KiwiSaver funds were with nine providers, leaving 21 providers battling it out for the remaining 22% of funds. On top of that the rate at which children are being signed-up to KiwiSaver has more than doubled over the last year to 26%. Struggling providers are likely to be more concerned with their own survival than the wisdom of joining up kids whose parents are in no position to contribute to their accounts. It tells us a lot about the ethical vacuum that still pervades the investment advisory business.

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``You don’t need to be a rocket scientist to work out what is going to happen over the next year until KiwiSaver selling becomes better regulated. Small uneconomic providers will pull out every stop to get enough members to make their business viable before the new adviser regulations recognise KiwiSaver as a category one complex product and restrict salespeople to those who hold a level five qualification. Commission driven, unqualified salespeople will have a field day.’’

``The Government must act now to bring forward the introduction of the financial advisor regulations to clean up the KiwiSaver industry and protect consumers,’’ said Dr Morgan.

Currently the Financial Advisers Act 2009 will not be fully operational until late 2010.


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