Independent Adviser? What does that even mean?
Let's start with a simple question. When someone gives you financial advice, who are they actually working for?
You'd hope the answer is obvious. You're sitting across from them, you're the one with the money, you're the one with the retirement to fund. Surely you're the client.
But for much of New Zealand's financial history, the honest answer has been a lot murkier than that. In many cases, the person advising you was being paid — sometimes very handsomely — by the company whose product they recommended. And that changes everything.
Whose side is your
adviser really on?
A plain-language comparison of commission-based and independent fee-only financial advice — and why the difference matters for every Kiwi investor
Research-based · NZ context · Based on global studies
Structural conflict
Aligned incentives
Invisible drag
Full visibility
Proven bias
Whole of market
Churning risk
Low risk
Required, but limited
Nothing to hide
The core conflict: who pays the adviser shapes what they advise
Decades of academic research, regulatory inquiries, and real-world scandals across the US, UK, Australia, Europe, and South Africa converge on a consistent finding: commission-based remuneration in financial advice creates systematic, measurable conflicts of interest that distort adviser behaviour — often at significant cost to clients. The contrast with fee-only, independent advice is stark.
What the research shows about commission-based advisers
Product bias and churning. A landmark 2012 study by Inderst and Ottaviani (published in the Journal of Finance) modelled how commissions distort product recommendations, showing advisers steer clients toward higher-commission products regardless of suitability. This was corroborated empirically by Anagol, Cole and Sarkar (2017) in India, using an audit study where mystery shoppers found advisers overwhelmingly recommended high-commission products even when better alternatives existed.
Churning for trail commissions. Research from ASIC (Australian Securities and Investments Commission) prior to the Future of Financial Advice (FOFA) reforms in 2013 found widespread "churning" — advisers moving clients between products not because their situation had changed, but to generate new upfront commissions. The UK's Financial Services Authority found similar patterns ahead of the Retail Distribution Review (RDR).
Confirmation bias amplified by incentive. A 2016 study by Mullainathan, Noeth and Schoar (NBER) sent trained auditors posing as investors to US financial advisers. The results were striking: advisers reinforced clients' existing biases (like chasing past returns) rather than correcting them, because commission-generating products often aligned with what clients wanted to hear. Independent advisers, by contrast, were more likely to push back.
Differential treatment by client wealth. The UK FCA's Financial Lives surveys have consistently shown that commission-based advisers disproportionately served wealthier clients with complex, high-commission products, while lower-wealth clients either received no advice or were pushed toward packaged products with embedded fees they couldn't easily see.
The "advice gap" illusion. Industry groups often argue that commissions make advice accessible to those who can't afford fees. However, research by the Australian Productivity Commission (2018) and the UK's FCA found that commission-based advice was not meaningfully cheaper for clients — the costs were simply hidden inside product charges rather than disclosed transparently.
What happens after commission bans: natural experiments
Two major regulatory experiments provide compelling evidence.
The UK's Retail Distribution Review (2013) banned commissions on investment products and required advisers to be qualified and charge explicit fees. Studies by Finney et al. and subsequent FCA reviews found product recommendations became better aligned with client needs, though an advice gap did emerge for lower-wealth clients. Importantly, the quality of advice received by those who did access it improved substantially.
Australia's FOFA reforms (2013) and the subsequent Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (2018) exposed jaw-dropping evidence of commission-driven misconduct — including fees charged for no service, dead clients being billed, and systemic product mis-selling. The Royal Commission's final report concluded that conflicted remuneration was structurally incompatible with acting in a client's best interest.
South Africa's Retail Distribution Review, launched in 2014 and still unfolding, has documented similar dynamics in the local market, with particular concern about replacement of policies (churning) in the life insurance market.
The independent, fee-only adviser: what the evidence shows
Fee-only advisers — those who charge for time or a percentage of assets under management but accept no commissions or referral fees — exhibit measurably different behaviours across multiple studies.
Research by Bergstresser, Chalmers and Tufano (2009) in the US found that clients of commission-based brokers held higher-cost funds with worse risk-adjusted performance than clients of fee-only registered investment advisers (RIAs). The gap was not explained by client sophistication alone.
A 2020 study in the Journal of Financial Economics by Egan, Matvos and Seru found that commission-based advisers were significantly more likely to have misconduct records, and that misconduct clustered in firms and geographies where commission incentives were strongest.
Fee-only advisers are also more likely to
recommend low-cost index funds,
hold diversified portfolios,
avoid unnecessary product switching, and
give advice that scores better on measurable client outcomes.
Not because they are inherently more ethical, but because their incentive structure aligns with client outcomes rather than product sales.
Why the difference is structural, not just personal
The research is careful to note this is not primarily about individual honesty. Commission structures create what behavioural economists call "motivated reasoning" — advisers genuinely convince themselves that the higher-commission product is also the best one.
Cognitive dissonance is resolved in favour of the income-generating recommendation. This is documented in studies of doctors receiving pharma payments, lawyers with referral arrangements, and accountants recommending tax products — the pattern is cross-professional and deeply human.
Fee-only advisers face their own conflicts (assets-under-management fees can discourage clients from paying down debt or making lump-sum withdrawals), but these are structurally less severe and more transparent.
The compound cost problem
One of the most important findings is how commission costs compound over time. An extra 1% per annum in product costs — hidden inside a commission-paying fund — over 30 years of retirement saving can reduce the final portfolio by 20–25%. The client never sees the charge as a line item, so they cannot make an informed comparison. Fee-only advisers make their costs visible, which also creates competitive pressure to justify their fees through genuine service.
The behavioural mechanism: it's not just about bad apples
The research is emphatic that the problem is not individual dishonesty. It is structural incentive design. When a person is paid more to recommend product A than product B, their brain constructs reasons why A is better — a well-documented psychological process sometimes called "motivated reasoning" or "self-serving bias." Studies using brain imaging (neuroeconomics research at Carnegie Mellon) show that financial incentives literally alter the brain's evaluation processes. The commission-based adviser who genuinely believes they are acting in the client's interest may still be systematically influenced.
This is why regulatory responses — banning commissions rather than asking advisers to try harder — have been more effective than disclosure regimes. Disclosing a conflict does not eliminate it; it often backfires by creating a "moral licensing" effect where advisers feel they've satisfied their ethical duty by telling the client about the commission, then proceed to recommend it anyway (Cain, Loewenstein and Moore, 2005, Journal of Legal Studies).
The honest nuance
Fee-only advice is not perfect. Advisers charging a percentage of assets under management have an incentive to grow and retain assets even when a client might be better served withdrawing money, paying off a mortgage, or moving to a simpler structure. Hourly-fee models reduce even this conflict, but can discourage clients from seeking advice at all due to cost anxiety. The evidence suggests fee-based structures are substantially better aligned with client interests — but no structure is entirely free of conflict. Good regulation, ongoing professional obligations, and genuine fiduciary duty requirements matter alongside the remuneration model.
New Zealand has been here before
We don't have to look to Australia or the UK to understand how badly this can go. We've lived it.
Cast your mind back to the mid-2000s. New Zealand was awash with finance company debentures — high-yielding, aggressively marketed, and sold by advisers who were earning healthy commissions on every placement. Companies like Bridgecorp, Hanover Finance, Provincial Finance, and Strategic Finance had glossy brochures and celebrity spokespeople. Advisers put their clients' retirement savings into them.
Then the Global Financial Crisis hit, the property developments underpinning these companies collapsed, and somewhere north of $3 billion in investor money evaporated. Tens of thousands of New Zealanders — many of them elderly, many of them people who could least afford it — lost significant portions of their savings.
How had so much money flowed into products that were, in hindsight, poorly governed and dangerously concentrated? The commission trail is a big part of that answer. Advisers were paid to place money, not to scrutinise what they were placing it into.
The regulatory response was New Zealand's Financial Advisers Act 2008, followed by the more comprehensive Financial Markets Conduct Act 2013 and the eventual overhaul of adviser licensing under the Financial Services Legislation Amendment Act 2019. These reforms moved toward requiring advisers to act in clients' best interests and to disclose conflicts of interest. They were long overdue and important.
But disclosure alone — telling a client that you're being paid a commission before you recommend the product — doesn't solve the problem. Research from Carnegie Mellon found that disclosure can actually make things worse: advisers feel they've discharged their ethical duty by mentioning the conflict, and then proceed to recommend the high-commission product anyway. Clients, meanwhile, don't fully internalise what the disclosure means until it's too late.
Bridgecorp, Hanover, Provincial, Strategic Finance fail
Over $3 billion in investor money lost. Many clients were placed into these products by commission-paid advisers. Thousands of retirees devastated.
Financial Advisers Act 2008 passed
First attempt to regulate financial advice. Created Authorised Financial Advisers (AFAs) and Registered Financial Advisers (RFAs) with different obligations. A step forward, but critics said it didn't go far enough on conflicts of interest.
Financial Markets Conduct Act
Broader market conduct rules. Required clearer disclosure of fees and conflicts. Still did not ban commissions — advisers could continue receiving them provided they disclosed them to clients.
FSLAA — the most significant reform yet
Financial Services Legislation Amendment Act removed the AFA/RFA distinction. All advisers now required to operate under a Financial Advice Provider licence and meet a "client's best interests" duty. Commissions remain legal but must be disclosed and cannot override the best interest obligation.
KiwiSaver grows to $100B+
Launched in 2007, KiwiSaver has grown into one of New Zealand's largest savings pools with 3.3 million members. As the pool grows, so does the commercial interest in capturing it.
The KiwiSaver adviser surge
A new wave of advisers has entered the KiwiSaver market. The pattern echoes earlier eras: a large pool of money, commissions or referral fees attached to switching, and advice that can be hard to distinguish from sales. The FMA has signalled ongoing scrutiny of KiwiSaver distribution practices.
The KiwiSaver gold rush
If you want to see commission incentives shaping adviser behaviour in real time, look no further than the KiwiSaver market right now.
KiwiSaver has grown into a genuinely enormous pool of money. Total funds under management have passed $100 billion. There are now around 3.3 million active members. And the annual contributions keep flowing in, year after year, from employers and employees and government alike.
This has created an extraordinary opportunity for any business that can capture a slice of those funds. Fund managers compete furiously for KiwiSaver mandates. And a surge of advisers has materialised to help Kiwis "review" their KiwiSaver — often with one eye on the referral fees or adviser commissions that flow when a member switches from one provider to another.
Some of this activity is genuine and valuable. Plenty of New Zealanders are in default funds that aren't well-suited to their age or risk profile, and moving them to something more appropriate is worthwhile work. But a meaningful portion of the KiwiSaver "advice" happening right now is product distribution in disguise. The tell-tale signs are familiar: the adviser has a preferred provider or two; the conversation always ends with a recommendation to switch; the fee structure rewards the switch rather than the outcome.
Watch for the pattern. When there's a large pool of money and a commission attached to moving it, advisers appear. That's not a coincidence. It's the market responding to incentives.
The alternative: an adviser who works for you
The contrast with a genuinely independent, fee-only adviser is stark — and it goes deeper than who writes the cheque.
A fee-only adviser charges you directly for their time and expertise. They might charge a flat fee for a financial plan, an hourly rate for ongoing advice, or a percentage of the assets they help you manage. What they don't do is accept commissions, referral fees, or soft-dollar benefits from product providers. No free conferences in Queenstown courtesy of a fund manager. No volume bonuses for placing clients with a particular KiwiSaver scheme.
Because their income doesn't depend on which product you end up in, their recommendation can actually reflect what's best for you. They can look you in the eye and tell you that the cheapest index fund on the market is a better fit than the actively managed one their mate runs. They can tell you to pay down your mortgage before topping up your KiwiSaver, even though that means less money under management and a smaller fee for them next year. They can recommend a policy that pays them nothing, because it's the right policy.
Research from the United States — where the distinction between commission-based brokers and fee-only Registered Investment Advisers is well studied — found that clients of fee-only advisers held lower-cost funds, had better risk-adjusted returns, and were significantly less likely to chase past performance. A major study by Egan, Matvos and Schoar found that misconduct was roughly three times more prevalent among commission-based advisers than fee-only ones. Not because fee advisers are saints, but because their interests and yours are pointing in the same direction.
The cost you can't see is the cost that hurts most
One of the most important things to understand about commission-based products is how well the cost is hidden.
When a fee-only adviser sends you an invoice for $2,500 for a financial plan, you feel it. It's visible, it's on paper, and it makes you think carefully about whether you're getting value. That's actually healthy.
When a managed fund takes 1.5% per year from your balance — partly to pay the adviser who put you there — you never see an invoice. It's deducted silently, before the return you're quoted. Most people have only a vague sense that fees exist. They have almost no sense of what they compound to over time.
Here's the maths. A 30-year-old with $30,000 in KiwiSaver who contributes $5,000 a year could retire with roughly $530,000 in a fund charging 0.4% annually, versus around $440,000 in one charging 1.4% annually — assuming identical underlying investments. That's $90,000 of retirement money quietly consumed by fees. That's real. That's a car, a trip, a year or two of financial security.
So what should you look for?
The honest test is simple: ask your adviser how they're paid.
If the answer involves commissions, trail fees, referral arrangements, or any payment from a product provider — that's useful information. It doesn't make them a bad person, but it tells you what questions to ask and whose interests you need to check are actually being served.
If the answer is that they charge you directly, accept nothing from product providers, and are required by their own professional obligations to recommend what's genuinely in your best interest — that's a meaningfully different relationship. One where the advice is actually advice, not a sale dressed in friendly clothing.
New Zealand has made real progress in financial regulation over the past fifteen years. But the commission model is still legal in many forms, and the incentives it creates are still very much at work — particularly in KiwiSaver, insurance, and mortgage advice. The surge of interest in helping Kiwis with their retirement savings is genuine in some cases, and commercially motivated in others. The two can look identical on the surface.
The question worth asking is simple, and asking it costs you nothing: who is paying my adviser, and for what?
The pattern repeats because the incentive repeats. Every time a large pool of money appears in New Zealand — finance company debentures in the 2000s, and KiwiSaver today — advisers follow. Most are decent people doing reasonable work. But the commission structure means their interests and yours don't always run in the same direction, and over time, in ways that compound quietly and invisibly, that gap costs you money.
The good news is that genuinely independent advice exists in New Zealand. The question is whether you know how to find it — and whether you know to ask.
A note on where New Zealand stands now — and why there's genuine cause for confidence
It would be unfair to tell this story without acknowledging how far New Zealand has come, and how seriously the Financial Markets Authority (FMA) is taking its job.
The regulatory architecture that exists today is genuinely robust. The Financial Services Legislation Amendment Act 2019 (FSLAA), fully in force from March 2021 and requiring full licences from March 2023, overhauled the entire financial advice regime from the ground up.
Every financial advice provider (FAP) now
needs a licence,
must meet a code of professional conduct, and is
legally required to act in the client's best interests.
The old patchwork of registered and authorised advisers with different obligations depending on what product they happened to be selling has been swept away.
Then came the Conduct of Financial Institutions Act (CoFI), fully in force from 31 March 2025. This is the piece that applies directly to the banks, insurers and non-bank deposit takers sitting behind the advisers — and it includes an outright ban on target-based sales incentives determined by volume or value. That is a direct legislative attack on the commission problem. It won't solve everything, but it's meaningful, and it came from a regulator and government that had been watching what happened in Australia and were determined not to repeat it.
What's particularly encouraging about the FMA's approach is that they aren't trying to be a gotcha regulator. Their philosophy is explicitly outcomes-focused — meaning they care whether clients are actually getting good advice and fair treatment, not whether the paperwork is ticked in the right boxes. As the FMA's Chief Executive Samantha Barrass put it when the 2022 Annual Report was released, the shift is toward "a strong focus on the outcomes being achieved, with compliance being a means to an end and not an end in itself."
That shows up in how they've approached monitoring. In 2024 they published their first monitoring insights report on the new financial advice regime — the result of around 60 monitoring visits covering over 350,000 clients. The tone was constructive: they identified genuine progress, called out the advisers doing it well, and were candid about where gaps remain. The FMA was clear that advisers taking a tick-box approach to compliance rather than genuinely thinking about client outcomes are missing the point — and that where serious client harm was found, formal regulatory action followed. Licence cancellations have happened. Public censures have happened. The enforcement is real.
In early 2025 the FMA also announced a dedicated review into access to financial advice in New Zealand — looking at where Kiwis can and can't get advice, what's working, and what the barriers are. Data from the FMA's regulatory returns showed 8,472 licensed financial advisers as at September 2024, and the FMA's assessment is that the sector remains healthy following the regulatory changes.
The FMA's willingness to publish guidance, engage with the industry, host educational events, and clearly explain what good looks like — rather than just waiting to punish people for getting it wrong — reflects a regulatory culture that is trying to lift the whole sector, not just catch the bad actors.
None of this means the job is done. The FMA's own monitoring report noted that some advisers still don't fully grasp the purpose and intent of the regime, and are treating compliance as an administrative exercise rather than a genuine commitment to client outcomes. Commissions in many forms remain legal provided they don't override the best interests duty — and as decades of research confirms, the gap between legal and ideal can be wide.
But the direction of travel is right, the legislation is substantive, and the regulator is active and engaged. For Kiwis trying to navigate their financial lives, that matters. The framework now exists to hold advisers genuinely accountable in a way that simply wasn't possible fifteen years ago, when finance company investors were losing their life savings without any meaningful recourse.
The regulatory foundation is solid. What still varies is whether the individual in front of you is building on it.
Information sources
Relevant links — New Zealand regulatory framework
The FMA monitoring insights report on the financial advice regime (2024): https://www.fma.govt.nz/library/reports-and-papers/financial-advice-provider-monitoring-insights/
FMA page on the CoFI regime and what it requires: https://www.fma.govt.nz/business/legislation/conduct-of-financial-institutions-cofi-legislation/
FMA CoFI now in effect (March 2025): https://www.fma.govt.nz/news/all-releases/media-releases/cofi-regime-in-effect/
FMA financial advice regulatory regime fully in force (March 2023): https://www.fma.govt.nz/news/all-releases/media-releases/financial-advice-regulatory-regime-now-in-full-effect/
FMA regulatory approach — outcomes focused: https://www.fma.govt.nz/about-us/regulatory-approach/
FMA financial advice accessibility review (2025): https://www.fma.govt.nz/news/all-releases/media-releases/fma-unveils-review-into-financial-advice-accessibility/
Financial Advice Provider industry snapshot — sector data: https://www.fma.govt.nz/library/reports-and-papers/financial-advice-providers-industry-snapshot/
Financial Services Legislation Amendment Act 2019 (NZ Legislation): https://www.legislation.govt.nz/act/public/2019/0008/latest/whole.html
Research referenced in the report — source links
Academic studies
Mullainathan, Noeth & Schoar (2012) — The Market for Financial Advice: An Audit Study The foundational audit study showing commission advisers reinforce client biases rather than correct them.
NBER official page: https://www.nber.org/papers/w17929
SSRN (free download): https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2028263
Bergstresser, Chalmers & Tufano (2009) — Assessing the Costs and Benefits of Brokers in the Mutual Fund Industry Broker-sold funds deliver lower risk-adjusted returns than direct-sold funds. Published in Review of Financial Studies.
Oxford Academic (journal): https://academic.oup.com/rfs/article-abstract/22/10/4129/1590351
SSRN (free download): https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1479110
Egan, Matvos & Seru (2019) — The Market for Financial Adviser Misconduct Large-scale US study finding roughly 7% of advisers have misconduct records, concentrated at commission-heavy firms. Published in Journal of Political Economy.
Journal of Political Economy: https://www.journals.uchicago.edu/doi/10.1086/700735
NBER working paper: https://www.nber.org/papers/w22050
SSRN (free download): https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2739170
Harvard Business School page: https://www.hbs.edu/faculty/Pages/item.aspx?num=53404
Anagol, Cole & Sarkar (2017) — Understanding the Advice of Commissions-Motivated Agents: Evidence from the Indian Life Insurance Market Field experiment in India finding agents overwhelmingly recommend high-commission products regardless of suitability. Published in Review of Economics and Statistics.
MIT Press (journal): https://direct.mit.edu/rest/article-abstract/99/1/1/58373/Understanding-the-Advice-of-Commissions-Motivated
SSRN (free download): https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1978876
Harvard Kennedy School summary: https://www.hks.harvard.edu/centers/cid/publications/understanding-advice-commissions-motivated-agents-evidence-indian-life
Inderst & Ottaviani (2012) — How (Not) to Pay for Advice: A Framework for Consumer Financial ProtectionTheoretical model showing how commissions systematically distort product recommendations. Published in Journal of Financial Economics.
ScienceDirect (journal): https://www.sciencedirect.com/science/article/abs/pii/S0304405X12000074
IDEAS/RePEc: https://ideas.repec.org/a/eee/jfinec/v105y2012i2p393-411.html
Cain, Loewenstein & Moore (2005) — The Dirt on Coming Clean: Perverse Effects of Disclosing Conflicts of Interest Landmark study showing disclosure of conflicts can make bias worse due to moral licensing. Published in Journal of Legal Studies.
University of Chicago Press (journal): https://www.journals.uchicago.edu/doi/abs/10.1086/426699
Chicago Unbound (open access): https://chicagounbound.uchicago.edu/jls/vol34/iss1/1
SSRN (free download): https://papers.ssrn.com/sol3/papers.cfm?abstract_id=480121
Regulatory reports and official inquiries
Australia — Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (Hayne Royal Commission, 2019)
Official final report: https://www.royalcommission.gov.au/banking/final-report
Treasury republication: https://treasury.gov.au/publication/p2019-fsrc-final-report
United Kingdom — FCA Evaluation of the Retail Distribution Review and Financial Advice Market Review (2020)Post-RDR assessment of what changed after commissions were banned.
FCA main report: https://www.fca.org.uk/publications/calls-input/evaluation-rdr-famr
Full PDF: https://www.fca.org.uk/publication/corporate/evaluation-of-the-impact-of-the-rdr-and-famr.pdf
FCA press release: https://www.fca.org.uk/news/press-releases/fca-publishes-evaluation-financial-advice-market
New Zealand legislation
Financial Advisers Act 2008 (now repealed)
Financial Services Legislation Amendment Act 2019 (FSLAA) The current framework governing NZ financial advice.
A note on access: some journal articles sit behind paywalls. Where that's the case, the SSRN or NBER working paper links above provide free access to the same underlying research. The findings in working paper and published versions are materially identical.