Financial services advisers are warning that fees charged to clients will have to increase as commissions are scrapped voluntarily.
Australia has announced reforms to its financial services sector, aimed at giving more protection to retail investors.
Moves to deal with the issue voluntarily are under way in New Zealand.
Investment Savings and Insurance Association chief executive Vance Arkinstall said that, under a new regime, investment houses, banks and superannuation funds would stop paying commissions on any investment product.
The board was expected to approve the new policy next week.
A starting date for the new policy was still to be set but there would be a period of about 18 months to allow companies to amend their systems.
Dunedin financial adviser Peter Smith, of Peter Smith Financial Services, said the changes were aimed at companies which brought business by offering greater-than-normal incentives.
A report on the industry specifically mentioned Bridgecorp, which was known to provide incentives for larger volumes of business.
"It is also aimed at advisers who do not disclose what they are being paid when offering advice," Mr Smith said.
All finance companies had always paid brokerage, which came from the company's margins, not from the investors' capital, he said.
The industry norm was 0.5% of the capital for each year of the investment term.
For managed funds, initial front-end fees could be charged, ranging up to 5%.
That fee came off an investor's capital.
The fee was paid to the adviser who had discretion, in most cases, to rebate it to whatever level they chose.
Very few investors would be charged the full 5% fee, Mr Smith said.
There had always been grumbling from investors about the manager expense ratio (MER) on managed funds, whereby the provider charged fees for managing the fund.
The average MER would be 2.2% to 2.5%.
From the MER, many providers paid advisers a "trailing fee" of about 0.2% a year.
Complaints about trailing fees were erroneous, as investors were employing a fund manager to manage an investment, lower the risk by pooling and using their industry knowledge to give a return above average.
Fund returns were usually reported after fees and tax.
If trailing fees were removed, the MER should reduce as well, he said.
"If trailing fees are scrapped, then many financial services advisers will have to increase their fees to clients."
The trailing fees allowed for administration of a practice for a large amount of work that could not necessarily be charged directly.
"As a result, I am able to operate on a low fee structure such that many of my clients do not pay a direct fee as a result. The outcome of having to charge directly a fee for service will be interesting. It will not improve advice given to investors."
Mr Smith expected many investors to resist direct fees.
However, it meant advisers could be more selective with whom they dealt.
Craigs Investment Partners broker Peter McIntyre said the changes would be good for both advisers and investors, as it brought transparency into all transactions.
There would be a cost to advisers and they might increase their charges, he said.
The scrapping of commissions to advisers had brought the insurance industry into the spotlight and there were calls yesterday for more transparency around those commissions.
Insurance Council chief executive Chris Ryan said the move highlighted a significant omission in current legislation, that meant with general insurance, commissions did not have to be declared.
The council did not necessarily agree with the move to ban commissions but debate was needed, he said.
