In its Strategic Risk Outlook for 2015, the FMA says it wants to address the misselling of financial products, including KiwiSaver and insurance products.

“Misselling of insurance products, including selling products that do not meet the customer’s needs, or churning of customers is an area of concern. We have received an increasing number of complaints regarding insurance sales and will undertake work to more accurately size the problem. Insurance misselling will be included as a key monitoring theme for our team.”

It said it would prioritise reports of RFA misconduct, particularly in relation to insurance misselling.

David Whyte, of DCW Management, said that seemed to imply that the FMA was going to decide what constituted good practice. “Is it in the interests of the client or otherwise? They will use their monitoring resources to get close to that issue.”

For advisers who were looking after their clients well, it would not be a problem, he said. But there would be some who might be concerned.

The issue of churn had become high-profile recently, he said, as ASIC in Australia highlighted poor insurance advice practice there. “Their commission rates are 110% to 120%. Nothing like the levels in New Zealand. One wonders what ASIC would think of the market here,” Whyte said.

Russell Hutchinson, of Chatswood Consulting, said it was important that the FMA not prejudge that replacement business was necessarily bad for consumers.

He said the challenge for the FMA would be who it pursued.

Going after an individual adviser for churning business could have less impact than cracking down on an organisation such as a bank, direct-to-consumer operation or other group. 

Depending on the point of view of the person at the helm of the monitoring, the action had the potential to become very commission-focused, he said. “But the FMA doesn’t get to control commissions, that would require legislative change, which is hard to do.”