The Professional Advisers Association CEO Rod Severn has defended advisers against a number of recommendations within the newly released MJW Report, funded by the Financial Services Council (FSC) to help create and inform discussion around the Ministry of Business Innovation and Employment (MBIE) review of the Financial Advisers Act 2008.
Although the PAA agrees with the Report’s recommendations on some points including simplifying disclosures and having a clear distinction between insurer representatives and independent advisers, it disagrees with its suggestions on the role of QFEs; requiring disclosure of profit margins by individual sale; and their recommended remuneration model which the association says would threaten the viability of the advice industry.
“The remuneration model recommended by the MJW Report is unsustainable, and as such is not in the best interest of consumers,” Severn said in a statement.
“Reducing remuneration by up to 75 per cent – which according to our research would result in an estimated 40 per cent of impacted advisers closing their doors – is obviously not in the best interest of consumers.”
The PAA statement said the Report has focused on adviser remuneration as the key lever to address issues such as replacement business and conflict of interest.
“The Report did not address or qualify these issues across all channels in the industry, but rather focused on the advisers. This resulted in an unbalanced assessment and associated set of recommendations. And importantly, it presented an inaccurate picture of the value advisers offer the New Zealand public.”
The Minister of Commerce and Consumer Affairs Paul Goldsmith said in a recent press statement that it is unlikely that the Review of the FAA will result in changes to adviser remuneration.
“The reason that would be is because commission has just taken over the conversation here and is focusing in the wrong area,” Severn told NZ Adviser
. “It’s around remuneration - it is not around commissions and there is quite a difference between the two.”
He says taking out 75% of commission doesn’t allow the adviser to have a sustainable business moving forward, leaving little left to cover costs such as rents, rates and wages.
“It’s being completely blown out of proportion and out of focus and it should be around behaviour and around the sustainability of the advice industry,” Severn says.
“I defy anybody to have 75% of their income ripped out from under them and then be told to carry on as normal as if nothing’s changed.”
Severn told NZ Adviser
that what advisers want to see at the end of the FAA review are a better defined disclosure statement and a level playing field – where one set of rules apply to all advisers.
“Recommendations on change to adviser remuneration needs to be designed by those who truly understand the industry – those who are consulting with the regulator on a regular basis; those who understand the complexities of the advice process and consumer needs,” the association’s statement said.
The PAA continues to work closely with the regulator and has met with MBIE and the FMA many times this year.
Moving forward, Severn says as an association they want to have more impact around the Code Committee and are looking at a potentially new remuneration model of which more details will be revealed in early 2016.