Consumer NZ’s claims show lack of understanding
Consumer NZ’s claims around commissions show lack of understanding, says Financial Advice NZ
A claim by Consumer NZ that financial advisers suggest clients look at new life insurance policies just so they can boost their commissions is sensationalist and shows a total lack of understanding of how the sector works, says Financial Advice NZ Chief Executive Katrina Shanks.
“It’s a very naïve statement, and it’s also based on an outdated review.
“Financial advisers have clients’ interests top of mind and ahead of their own, and the sector’s current code of conduct will be further strengthened by the Financial Services Legislation Amendment Act, which comes into force in July, and which will demand a higher standard of care and transparency for all advisers.
“The first obligation of financial advisers under the revised Professional Standards is to treat clients fairly, over and above their own or product provider interests.
“They’re required to understand clients’ needs and ensure they’re fully aware of the nature and scope of the advice, to provide advice that’s suitable, and that they have time to absorb it. This includes disclosure on how commissions work.
“Consumer NZ’s advice to consumers to switch companies purely to save money is also naïve and misleading. Unlike switching between power companies, there are major risks to switching insurance policies, which require expert advice by a financial adviser. Key risks include such things as non-disclosure, pre-existing cover, and policy wording. Consumers could be left with inappropriate and inadequate insurance cover or, even worse, no cover at all.”
The Consumer NZ report on their annual insurance survey also draws some long bows around commissions and conflicts of interest.
“Taking aim at conflicts of interest created by commission-based selling also shows a lack of understanding.
“Advisers are well aware of the issue of conflicts of interest, and they are actively managed.
“The current commissions model has been reviewed by the Minister of Consumer Affairs, officials, and the sector in the past year, and have all agreed it’s a viable model.
“Commissions, as a form of remuneration, help maintain a sustainable business model for advisers so they can continue to provide New Zealanders with low-cost advice on how to increase their financial health, wealth and wellbeing.
“Consumer quotes an old review – from January last year – that’s been superseded by recent policy direction and ministerial statements in relation to volume-based incentives.
‘There’s no evidence commissions cause significant additional costs or harm to consumers or encourage poor adviser behaviour.
“Consumer’s claim there is a lack of insurer oversight and responsibility for sales and advice where life insurance is sold through a broker also quotes from last year’s report, which has also been superseded by Cabinet policy and the new Financial Markets (Conduct of Institutions) Amendment Bill, which has been tabled in the House. The bill carves out insurance companies having oversight and responsibility for the advice process because that’s been covered by the FSLAA legislation.”