Milford doesn’t pay commissions on any of its products including KiwiSaver, the fastest-growing segment of the market, where trail commissions are usually about 25 basis points

Gaynor said the decision not to pay trails wasn’t made with the intention of “bypassing” financial advisers, but admitted it had slowed down Milford’s growth in funds under management.

“That’s been our philosophy at the beginning.  We could have paid trailing fees at the beginning and we would have grown a lot quicker but we’ve got no regrets about it.”

The UK has recently moved to ban commissions on investment products and Gaynor said it was “inevitable” that New Zealand would follow one day. 

“We’ve seen with the finance company model where they were paying trailing fees that it’s not a good model.  In the end most jurisdictions are moving away from that because it’s a flawed model.”

And a fellow fund manager believes advisers will be well-equipped to handle the transition if commissions are banned because many of them have switched to a fee-for-service model already.

John Berry, executive director of Pathfinder Asset Management, said his firm also doesn’t pay commissions and this hasn’t been a problem for most advisers.

“The adviser community is a long way down the track of not accepting commissions… we’ve only had a couple of advisers who looked unhappy when we said we don’t pay them,” he said.

Berry said there was nothing inherently “evil” about commissions but they could create a conflict of interest - or a perception of one.

“They don’t necessarily influence the behaviour of advisers but it’s the perception they do that is the problem,” he said.