Are you a registered or authorised financial adviser or something else?
Financial advisers and the companies that pay them handsome commissions have had a bad rap of late.
A report into the conduct of life insurance companies by the Financial Markets Authority and the Reserve Bank of New Zealand found life insurers in particular were encouraging advisers to put sales and profits before customers’ needs.
Back in November the FMA also told banks to remove sales incentives completely for their own staff and a progress report is due in March.
The lure of commission and incentives such as holidays means the less honourable practitioners sell policies or products on the basis of what they could earn rather than what was good for the customer.
For the 15 years I’ve been back in New Zealand I’ve heard complaints about financial sales people hawking products on the basis of the commission. Sometimes those products don’t pay out as a result.
“Not me” I always hear when I write about the subject of commissions skewing behaviour, although some, to their credit, do behave impeccably.
The industry’s argument is that Kiwis wouldn’t get advice if they had to pay up front.
It’s a catch-22 situation because consumers often do need advice for complex financial products such as insurance and investments, and we’ve been conditioned by the commission model to think we can get advice for free.
Individuals can also help themselves by asking the following questions when shopping around for an adviser or products.
If the adviser looks uncomfortable, then move on.
What do you sell?
Be clear whether they’re selling insurance, mortgages, investments, property or a mixture. Don’t expect someone selling property only to advise you about your KiwiSaver or other stock-market-based investments such as bonds or funds. A registered financial adviser will mostly sell either insurance or mortgages. Only an authorised adviser can provide a financial plan and advise about funds.
Which companies’ products do you offer?
Some advisers may only sell products from a limited number of companies that pay the best commission and not the entire market. Although they can shop around on your behalf, they may not be considering a wide range of products.
What percentage of your business is with the company you’ve just recommended?
Financial advisers selling insurance sometimes move a good chunk of their business from one company to another, gaining new commissions every two years. That one-size-fitsall advice can be very tempting for the adviser, but is not usually in the interests of clients.
If I refinance my mortgage or replace my policy within two years do you charge me fees and if so, how much?
This is a question from Financial Services Complaints Limited, one of the organisations that handles complaints advisers. Customers are sometimes shocked when hit with a bill from the adviser clawing back commission if you move on within two years.