A new discussion document released by the Ministry of Business, Innovation and Employment (MBIE) says there is a lack of transparency regarding commissions and other incentives that can influence financial advice.
It also states that the various disclosure requirements can cause confusion and result in clients ‘making incorrect assumptions about the services an adviser can provide, or the factors that might influence their advice.’
The report comes amidst heated debate on various regulatory issues surrounding financial advisory businesses, including offshore incentives and commission fee transparency.
In the new document, MBIE proposes that financial advisers should be required to disclose whether they receive any commissions or other incentives, whether there are any conflicts of interest, and to provide a description of the limitations in the nature and scope of advice that they can provide.
“The Bill requires anyone who gives regulated financial advice to give priority to a retail client’s interests,” says MBIE. “We think that customers will benefit from being aware of these commissions and incentives. Having this information will help customers decide whether to seek advice from a particular person and may lead to a conversation about how these conflicts are managed.”
MBIE suggested three options for the disclosure of commission fees; advisers would either be required to provide a comparison of the commissions and other incentives they could earn from other product providers; be required to disclose their commissions and incentives in dollar terms; or alternatively, regulations would only provide principles for disclosure, and not concrete methods.
“I want consumers to make the best decisions they can during their financial planning, so ensuring important information is available and easy to understand is crucial,” says commerce and consumer affairs minister Kris Faafoi. “For example, information hidden in fine print isn’t helpful to customers- that might be information about commissions that the provider receives, and the fees that will be charged.”
“Customers should have that information to assist them to decide whether to obtain advice from a particular provider. I want to make sure that important information is presented in simpler terms that consumers understand.”