Fee-Only vs Commission-Based Financial Advisers in NZ

Fee-Only vs Commission-Based Financial Advisers in NZ

Most people assume the difference between a fee-only adviser and a commission-based one is simply who writes the cheque. It isn't. The difference is what happens to the advice itself when the person giving it is paid by the thing they're recommending.

Here's the part that surprises people. The New Zealand regime does not ban commissions. It requires them to be disclosed, and it puts statutory duties on anyone giving regulated advice. The design assumption is that disclosure plus duties manages a conflict rather than removing it. That means the system hands you information instead of protection, and the disclosure document becomes the most important piece of paper in the relationship.

We've laid out how each model works, what the law actually requires, and the questions that make the difference visible before you sign anything.

How We Researched This Guide

We worked from primary sources: the Financial Markets Conduct Act 2013 as published on the New Zealand Legislation website, the FMA's material on the financial advice regime, MBIE's disclosure requirements, and the Financial Advisers (Disclosure) Regulations 2010. The commission figures come from the FMA's own published numbers, not from adviser marketing.

One thing genuinely surprised us. The FMA puts life insurance upfront commission at up to 200 per cent of the annual premium, with servicing commission of 5 to 25 per cent in later years. An adviser can be paid a multiple of a year's premium at the moment you sign. The law that governs all of this is set out in full on legislation.govt.nz, and it's worth reading alongside any disclosure document you're handed.

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The Quick Summary (60-Second Version)

If you only read one part of this, read this bit.

• Fee-only means you pay the adviser directly and they take nothing from product providers. Commission means the provider pays them, often a percentage of what you invest plus an ongoing trail.
• Hybrid arrangements exist and are common — a fee from you plus commission from the provider.
• Since 17 March 2023, anyone giving regulated advice to retail clients must hold or operate under a full FMA licence.
• Statutory duties in sections 431I to 431P of the FMC Act require advisers to prioritise your interests, exercise care and skill, and follow the disclosure regulations.
• All remuneration from someone other than you must be disclosed unless a reasonable client would consider it too insignificant to influence them.
• Neither model is inherently better. A disclosed commission you understand beats a fee arrangement you don't.

What Each Model Actually Is

Fee-only means the client pays the adviser directly. That might be a fixed amount, an hourly rate, or a percentage of assets under management. The defining feature isn't the shape of the fee — it's that no product provider pays the adviser anything. The recommendation and the payment are separated.

Commission means the provider pays. Usually a percentage of the amount invested, plus an ongoing trail or servicing fee for as long as you hold the product. This is standard for insurance, KiwiSaver and investments, and it's the reason a first meeting often costs you nothing.

Hybrid sits between them. You pay something, the provider pays something. It's worth asking which portion is which, because the commission side still carries the same incentive.

Why commission isn't automatically wrong

A commission model means advice can be accessed without an upfront payment. For plenty of people, that's the difference between getting advice and not getting any. The FMA's focus is on controlling conflicts, unsuitable replacement of existing cover, and unclear ongoing-service remuneration — not on banning commissions outright.

The clawback mechanism

Clawback periods, usually two years, apply if a client cancels early. That's the mechanism that discourages an adviser from churning one policy into another to collect a second upfront commission. It's a genuine safeguard, and it's worth knowing it exists.

What the Law Requires Them to Tell You

The Financial Advisers (Disclosure) Regulations 2010 require an adviser to disclose the specific fees, commissions, extra payments and other benefits received or that may be received — before giving the advice, or as soon as practicable after. Not a general statement that commission applies. The actual amount or range.

The Code of Professional Conduct for Financial Advice Services 2025 came into force on 1 November 2025 and replaced the first version. It sets standards for ethical behaviour, conduct and client care, plus competence requirements. Standard 6 requires competence equivalent to the general qualification outcomes of the New Zealand Certificate in Financial Services (Level 5).

There's a fee estimate duty worth knowing. If an adviser charges a fee, the disclosure must set out the basis, a reasonable estimate, and when it's payable. If it becomes apparent the estimate is likely to be exceeded, they must tell you and give you a further estimate. That's a real protection, and it only works if you've read the first estimate.

The ongoing service question

A trail or servicing commission is paid every year for as long as you hold the product. The FMA has questioned arrangements where ongoing remuneration is unclear. So the practical question isn't whether a trail exists — it's what you actually receive each year in return for it.

How to Work Out Which Suits You

Start with what you actually need. If you're deciding between two KiwiSaver funds, the advice is narrow and the cost of getting it wrong is bounded. If you're coordinating retirement drawdown, insurance cover, tax and an estate plan, the advice is broad and the cost of a biased recommendation compounds.

Then look at total cost, not the visible cost. Commission-based advice has no invoice, but the cost sits inside the product — in the premium or the fund fee — and it's paid every year. Fee-only advice has an invoice you can see and compare.

The questions that make it visible

• Are you paid by a fee from me, commission from the provider, or both?
• Do different providers pay you different commission, and how is that managed?
• What is the total cost, including all underlying fund or product costs?
• What is the amount or range of the commission, not just that commission applies?
• What happens if I cancel early, and are there clawback consequences?
• What am I paying for on an ongoing basis, and what service do I receive for it?

Those six questions are answerable under the disclosure rules. If you don't get clear answers, that's information too.

Check the licence, not the job title

Anyone giving regulated financial advice to retail clients must hold a Financial Advice Provider licence or be engaged to operate under one as a Financial Adviser or Nominated Representative. You can check the Financial Service Providers Register. Platforms serving New Zealanders must be registered there, belong to a dispute resolution scheme, and meet anti-money-laundering obligations.

Questions You Might Have

Is a fee-only adviser always better?

No. Fee-only removes one conflict but doesn't guarantee good advice. What it does guarantee is that the recommendation isn't tied to a payment from the product provider. That's a meaningful difference, but competence and suitability still have to be assessed separately.

Can an adviser recommend a product that pays them nothing?

Yes, and that's the test worth applying. Ask whether there were alternatives that paid no commission and why they weren't recommended. A fee-only adviser has no reason not to consider them. A commission-based adviser can still recommend them, but the disclosure should make the trade-off visible.

What if I can't afford an upfront fee?

Commission-based advice exists partly because it removes that barrier. If paying a fee isn't realistic, the commission route can be the sensible one. The work then shifts to checking the recommendation is suitable and understanding what the ongoing trail buys you.

How do I know if the commission is significant?

The disclosure standard is whether a reasonable client would consider it too insignificant to influence the adviser. In practice, ask for the amount or range in dollars. If an adviser won't put a number on it, treat that as a reason to slow down.

What happens if I have a problem with an adviser?

All advisers must be part of an approved dispute resolution scheme, which clients can use for free. Your disclosure document must set out the complaints process. Use it — that's what it's there for.

What Matters Most

The regime's design assumption is that disclosure plus duties will manage conflicts, rather than prohibiting them. That means the system arms you with information rather than removing the conflict. The disclosure document is the document that matters, and reading it is not optional.

Neither model is inherently better. What matters is whether the payment is disclosed, whether the amount is material, and whether the adviser can explain why the recommendation suits you. A disclosed commission you understand is safer than a fee arrangement you don't.

Ask the six questions. Check the register. Read the document before you sign it, not after.