Last month, the central bank and financial regulator slammed life insurers for the mis-selling and over-charging customers, and took aim at remuneration relationships between insurers and advisers. The FMA and RBNZ said high upfront commissions for advisers were "not acceptable", and they "expect" insurers to “review their commission structures and volume bonuses for intermediaries” to ensure they’re delivering “good customer outcomes”. With regard to soft commission, the regulators “expect insurers to change their qualifying criteria" to "ensure they mitigate conflicts of interest and incentivise advisers to improve customer outcomes”.
Andrew Scott, general manager of Newpark Home Loans, formed last year after a breakaway from Mortgage Link, believes the FMA and RBNZ comments "will clearly have an impact on mortgage brokers". He believes the pressure on intermediaries will be felt across product lines, rather than being isolated to insurance. "The FMA and RBNZ approach will not just cover one product line. They won't make that differentiation, it will be one size fits all. I haven't seen any evidence the FMA is working in partnership with advisers, they're just wielding a big stick."
Scott, whose group encourages members to place insurance and mortgage products, was "disappointed" by the FMA and RBNZ report. "It has really taken the spotlight off what a good job advisers do, providing people with products in times of need and putting a roof over people's heads when they can't get funding.
The insurance report followed a review of banking conduct published by the FMA and RBNZ in November. The report highlighted a series of "conduct risks" between lenders and intermediaries, and questioned whether intermediary pay incentives were "aligned with good customer outcomes".
Scott believes the regulatory pressure on advisers is unwarranted: "I think it has had a damaging impact on the adviser industry. Everyone wants to have a crack at advisers. We seem like a soft target, and no one is focused on the positives of what we do."
It comes the financial advice industry awaits the final details of the Financial Services Legislation Amendment Bill, which will reform regulation for New Zealand financial advisers. The adviser sector is set for an onslaught of regulatory change in the coming years, with new disclosure requirements, rules on conduct, new licensing requirements, and additional scrutiny on remuneration.
The changes arrive against the backdrop of the Australian Royal Commission, which has proposed a ban a trail commission and other forms of commission, as well as a fee-for-service model for Australian borrowers. The Australian government has proposed a ban on trail commission from next year, though other recommendations from the Hayne Report will go through a consultation period. Events in Australia are widely expected to influence New Zealand, with the big four banks all Australian-owned.