The New Zealand’s Financial Markets Authority (FMA) has warned the life insurance sector to mend their ways after a review of 24 advisers revealed that nearly 12 were either in breach, or unaware, of their obligations.
During the evaluation process, the financial market watchdog found that some financial advisers were receiving high commission to push clients to change their life insurance.
Criticising the insurance industry’s business model of incentivising the advisers for selling customers new plans or persuading them to change their existing ones, the FMA said that advisers were paid up to 230% of the first year’s premium of a “new” or replacement policy – and other additional incentives such as qualifying for overseas trips.
In its report, the FMA said that half of the advisers reviewed were either not aware about their obligation, under section 33 of the Financial Advisers Act 2008.
The review also highlighted that advisers were poor at maintaining the records of the advice they provided to their clients.
Also, advisers failed to recognise that commission they receive creates a conflict with the interests of their clients.
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FMA director of regulation Liam Mason said: “The failure to exercise care, diligence and skill for their clients was a consistent finding in our review of 24 advisers.
“Among the 24 advisers who were subjects of this round of inquiries, it was both striking and concerning that many of them did not even recognise that conflicts of interests can arise from incentives and commission.”
At present, there are more than 8,200 registered financial advisers (RFA) in New Zealand, who are not required to inform their clients how they get commission or disclose any conflicts of interest.
Contrary to the authorised financial advisers, the RFA are not required to adhere to a code of conduct which describes minimum standards of client care, ethical behaviour, knowledge and skills, besides professional training.