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Financial Advice New Zealand has made its submission on the Disclosure Consultation Paper, emphasising three key issues on the topic of commission disclosure.
Submissions closed on May 25, and the paper discusses the disclosure obligations that should apply to individuals and firms who offer financial advice. Under current regulations, insurance advisers operating as RFAs are subject only to limited requirements, and are not obliged to disclose details of any conflict of interest.
In its submission, Financial Advice New Zealand emphasised the need for one rule to apply to all advisers, the need for effective management of conflicts of interest and the effect of commissions versus cost to the customer.
“We see new disclosure rules as an opportunity to enhance trust with the public through transparency,” said Financial Advice New Zealand chair Sue Brown.
“They are also an opportunity to ensure that consumers are in a position to make an informed decision, to give advisers a tool to clearly communicate the value of advice and their services, and to dispel confusion as to what advice actually costs. As a general principle, we would like to see a simplification of disclosure to make it easier for clients to understand.”
According to Brown, the right compliance measures, processes and disclosure would help ensure commissions don’t lead to poor client outcomes, and improved disclosure processes would allow advisers to have ‘accurate and meaningful’ conversations with their clients.
The submission also asserted its ‘firm position’ that one rule should apply to all financial advisers when disclosing costs to customers.
“One rule for all individuals and entities providing advice will ensure a level playing field, and, importantly, provide the client with a meaningful comparison of alternatives,” says Brown. “The intent of disclosure is to ensure customers have all information required to make an informed decision – which includes either accepting or rejecting potential conflicts of interest.”
To achieve this, Financial Advice New Zealand suggests implementing a principles-based approach that would place a high duty of care on advice providers, and would not have the limitations of a prescriptive approach.
Ultimately, Brown says, an adviser’s time is often spent educating clients as to what their options are, and there is immense value in this service. The goal is to arrive at a framework that ensures clients have all the information they need, and also support advisers’ ability to provide their ‘crucial’ service to more New Zealanders.
