By Paul McBeth
The Government may impose tougher ethical obligations on financial advisers to help confused consumers, but doesn't favour dropping commissions paid by providers such as fund managers or insurers to sell their products.
Commerce and Consumer Affairs Minister Paul Goldsmith today released an options paper on ways to improve the seven-year-old law for consumers, saying the current regime was "overly complex and that this has reduced access to financial advice."
Goldsmith singled out rules around the disclosure of commission and potential conflicts of interest as being inconsistent, and that people "don't always know whether they are getting genuine advice or whether they are being sold a product."
"We consider the current situation - with different advisers facing different ethical requirements but without clarity to the consumer that this is the case - needs to change," the Ministry of Business, Innovation, and Employment paper said.
A Financial Markets Authority survey of AFAs covering the year to June 30, 2014, found commissions accounted for about 45 percent of their remuneration and bonuses about 40 percent.
While the MBIE paper didn't offer a preferred option on how to deal with the ethical and client-care obligations shortfall, it said a ban or restriction of conflicted remuneration, such as commissions, trail-fees or sales targets with bonuses was not preferred.
In the case of a commission ban, the paper identified more positives than negatives, in that it would give customers more assurance advice wasn't motivated by conflicted remuneration, would raise perceptions about the industry, and if limited to a sub-set of advisers could let them market themselves as independent.
The stance on commissions comes as a number of insurers quit their industry body, the Financial Services Council, after research funded by the body recommended a crackdown on the fees paid to advisers by the life insurance sector.