Submissions to a review of New Zealand’s Financial Advisers Act (FAA) include calls for a distinction between selling products and giving advice, and urge the retention of commissions for general insurance products.

IAG wants a distinction between sales and advice when describing the role of financial advisers.

“The basis for distinguishing between advice and sales should rest on the notion of for whom the individual is acting, and not how one frames their sentences,” the insurer’s submission says.

“If one is acting for the product or service provider, then one is selling. One is not a financial adviser, and should therefore fall outside the remit of the FAA.”

IAG says if an individual is acting for a consumer, they are providing advice and should meet their legal obligations.

“This would see much of the complexity that arises from a definition based on phraseology swept away and replaced with a simple test based on agency to determine when one is a financial adviser,” the submission says.

QBE agrees there should be a clearer distinction.

“All information provided by a product provider as part of a sales process would not constitute ‘financial advice’, but rather be dealt with as sales information,” its submission says.

“Consumers are generally aware when dealing with a product provider that they will receive ‘sales advice’ on the products being sold.

“They would not expect an independent assessment to be conducted on the appropriateness of that product compared with other products in the market.”

The Insurance Brokers Association of New Zealand (IBANZ) says terms used in the legislation to describe advisers are confusing for consumers.

“We note the term ‘broker/broking services’ as defined in the legislation is completely different to common usage,” the submission says. “This has caused confusion within financial services and with clients.”

IBANZ says its members prefer to be called insurance brokers, because this is the term in common usage.

“Having commonly used terms would assist consumers in understanding the type of services an adviser is able to give advice on.

“As a poor alternative, there could be a generic term for all financial advisers, with their disclosure statement identifying which areas of financial products they handle and the services they provide.”

The Insurance Council of New Zealand (ICNZ) opposes a ban on commissions in the general insurance industry, and argues insurers and brokers should be free to determine how they are paid.

“Restricting this commercial freedom would be unjustified and unnecessary, in our view,” its submission says.

“Consumers may also not want to pay fees for advice if commissions are banned, which would affect the availability of quality independent advice about insurance products.”

But ICNZ agrees there should be transparency about conflicts of interest involving brokers.

“Brokers should have to disclose that conflict to the insured, irrespective of what ‘type’ of adviser they are under the FAA,” the submission says.

“Further, for brokers that are independent and are therefore giving pure insurance advice, we submit that basic details of any remuneration agreement should also be disclosed to the insured, alongside the fact of their conflict of interest.”

Major New Zealand general insurer Tower supports ICNZ’s call to keep commissions for general insurance brokers.

“However, we do support the disclosure of commission,” it says. “Commissions in the general insurance industry are materially lower than for the life industry (5-20% for general versus 80-250% for life).”

Tower argues banning commissions in general insurance would “lead to an exacerbation of underinsurance among consumers”.

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