Push for advice reform

THE CAPITAL Markets Development Taskforce is poised to recommend law changes likely to prevent financial advisers from taking commissions.

The industry-led group, which is tasked with suggesting ways to create a more healthy environment for investors, is due to report its final findings to the government next month.

Taskforce chairman Rob Cameron said a call for an outright commission ban was not likely. Instead, the taskforce would call for the law to require advisers to act in the best interests of clients.

This "clear fiduciary duty" to clients could, in effect, outlaw commissions.

The conflicts of interest implied by commission payments have been blamed for elderly and risk-averse clients being steered to risky finance companies in order to earn the commissions those companies paid.

A ban on commissions is being considered in Australia, where the federal government has just released the Ripoll Report, an inquiry following a major scandal involving financial advice. Thousands of Australians had been advised to mortgage their homes to gamble on the sharemarket.

That followed the November 18 publication in New Zealand of a draft code of conduct for financial advisers which floated a commission ban.

The UK has already committed to banning commissions, and on Tuesday AMP in Australia said it would move away from fees. Its New Zealand business – the largest financial planning group in the country, with more than 300 advisers – looks likely to follow.

Independent financial adviser Robert Oddy said commissions went hand in hand with some of New Zealand's most unsavoury financial practices, such as fund manager secrecy.

"In my opinion people who take commissions are sales agents."

He said banning commissions would be a shock to the financial planning industry but advisers like him were living proof there would be advice without them.

"It would take time, but we could achieve it," he said.

But Phil Macalister, publisher of the GoodReturns news website for financial advisers, said it would be a mistake to assume that banning commission would end bad advice.

"Fee-based advice is no route to a Utopia of investment advice," he warned, saying consumers should be free to choose whether to go with an adviser who charged fees or one who was paid by commission.

- © Fairfax NZ News