New Zealand life insurance advisers are engaging in practices that are not in clients’ best interests, according to an industry review by the Financial Markets Authority (FMA).

Poor outcomes for customers are the result of a remuneration model built around upfront commissions and incentives, which focus on sales targets instead of client needs, it says.

Half of the 24 advisers reviewed by the FMA are either unaware of the fiduciary duty or have breached the obligation to exercise care, diligence and skill in their work.

The review found many are poor at record-keeping, which is part of their work requirements.

Many advisers also fail to recognise that the remuneration model creates a conflict with the interests of clients.

“The failure to exercise care, diligence and skill for their clients was a consistent finding in our review,” FMA Director of Regulation Liam Mason said. “Among the 24 advisers who were subjects of this round of inquiries, it was both striking and concerning that many did not even recognise that conflicts of interests can arise from incentives and commission.”

The review focused on sales and advice around replacement business in the life insurance industry.

Advisers earn significant upfront commissions, including up to 230% of the first year’s premium for a new or replacement policy, and enjoy bonus incentives such as overseas trips.