Insurance industry consultant and former managing director of AIG Life Australia and general manager of AIA New Zealand David Whyte made a submission in response to the Financial Advisers Act issues paper review.

He said New Zealand should "studiously avoid" following Australia's example of slashed commissions.

Across the Ditch, commission will be capped at 60% of the first year's premium, with a three-year clawback period, as of 2018. Volume-based payments from insurers to groups will be banned.

Whyte said the presence of commission was not, in itself, enough to cause "churn".

"It is rather the behaviour of the intermediary toward the remuneration that is the central issue, as it is possible to abuse any system of remuneration," he said.

"From the adviser's perspective, the arrival of a regulatory regime has added significant cost, and the prospect of reduced earnings could well drive some out of the industry. There has already been some suggestion that there are not enough qualified advisers around to provide guidance to consumers - following the Australian experience will exacerbate the lack of choice."

Whyte said there was little evidence to show that New Zealand consumers were worried about commissions.

"There are a considerable number of AFAs who write risk business and there are no reports of client objections being raised on the disclosure of commission earnings."

He said commission was an acquisition cost for insurers and a reduction in the amount of commission allowed would reduce their expenses.

“However, attractive as this may be to some Life Offices, there is a danger that inefficient companies are being forgiven their expense over-run sins to the detriment of cost-efficient manufacturers that can allocate commission to stimulate ever increasing amounts of new business, invest in new products and systems, and still offer good shareholder value. Regulating commissions disguises the inefficiencies and prevents a free competitive marketing operating effectively.”

Whyte said part of the solution would be a system where all financial advisers were qualified and required to disclose their earnings.

The client and the adviser would then be free to negotiate how the cost of advice was funded.