Questions have been raised in recent years about the appropriateness of trail commission being paid to advisers who are no longer able to offer advice on a product, once the client has moved to a new adviser, or when the adviser has lost touch with them.

It’s an issue that has also attracted attention in Australia.

Trail commissions are common in insurance and with some KiwiSaver providers.

Angus Dale-Jones, chair of the working group developing the new code of conduct, said at present there was no obligation for advisers to give any ongoing advice if they received trail commissions.

It is not something that is addressed in the existing code of conduct.

But he said the new code will have to consider such situations as it moves from predominantly applying to the more one-off domain of investment advice to cover ongoing insurance relationships, too, he said.

His group had sought approval from the select committee considering the Financial Services Legislation Amendment Bill for the code to apply to ongoing advice relationships.

At present, it only applies when advice was given.

“One of the indications of an ongoing advice relationship is the payment of trail commissions,” he said.

Dale-Jones said it was “almost inevitable” that somewhere in the regime it would have to be dealt with but it was not yet clear whether it would be through the code or other regulation such as the new disclosure rules.

He pointed to situations where a client might move to a new adviser who would provide ongoing service but would have no entitlement to the commission. “We think the code should be able to touch that.”

Financial services lawyer David Ireland said FSLAB did not follow the Australian FOFA route of requiring an ongoing agreement from clients and did not explicitly regulate payments of commission.

He said, in cases where advice was  not being given, no regulatory conduct duties would arise. "Is it then a conduct issue for the provider/payer of the commission? Potentially, although contractual obligations are likely to impact."

But Paul Flood, of Ron Flood and Associates, said it was not something that regulation or legislation should get involved with, and instead it should be worked out between product providers and advisers.

It was a contractual agreement between the two, he said.

Some insurers have been encouraging advisers to move away from high upfront commissions to higher trail structure.  But Flood said that could encourage a situation where they eventually were incentivised to do nothing, so as not to interrupt that ongoing flow of commission.

His firm supported trail commissions not following clients, he said, because the commission was agreed with the product provider as part of the initial deal.