Author: James Howard
If you ask most New Zealanders whether their financial adviser works for them, the answer usually comes quickly: yes, of course.
But follow that with a second question – who actually pays your adviser? – and the answer is often far less clear.
That matters, because how an adviser is paid can influence the advice process, the products recommended, and the relationship the client is really entering into.
The purpose of this article is not to criticise other business models. Each can play a valid role. It is simply to help investors understand the differences before choosing who to trust with important financial decisions.
Three Models Worth Understanding
At a high level, most financial advice businesses fall into one of three broad categories, although some operate using a hybrid approach that combines elements of more than one model.
The easiest way to understand the industry is to look past the job title and examine the commercial model underneath it. In simple terms, the model tells you who the adviser is accountable to, how they are paid, and whether product recommendation is part of the business’s revenue engine.
A business model does not automatically determine whether advice is good or bad. Many advisers in commission, brokerage, bank, insurance, and product-led environments care deeply about their clients and do valuable work. The point is not to question individual intent. The point is to understand structure, because structure shapes incentives, and every investor deserves to see them clearly.
How Do Brokers Get Paid?
Brokers typically help clients buy or sell financial products: shares, insurance policies, managed funds, mortgages, and similar instruments. Many brokers provide valuable services and act professionally. However, their role is often transaction-focused, with compensation linked to what is being bought or sold. The potential challenge is that the advice process can naturally become centred on the transaction rather than the underlying problem being solved.
Product Providers as Advisers
Product providers presenting as advisers represent perhaps the most misunderstood category. Many organisations provide financial advice while also manufacturing or distributing financial products. The adviser might work for a bank, a fund manager, or an insurance company; or within a larger institution that creates its own products and then recommends them. The issue is rarely the individual. The issue is the structure. When the same organisation manufactures products and provides advice, an inherent conflict of interest exists because commercial and client interests must be balanced within the same business. That does not mean the advice is wrong. It simply means clients should understand the incentives sitting behind the recommendations being made.
Fee-only Financial Advisers
Fee-only independent advisers are paid directly by their clients. Clients know exactly who is paying for the advice and how much they are paying. There are no commissions, volume incentives, or payments linked to recommending a particular provider or product. That creates a very different relationship. The adviser is not paid by the organisation manufacturing the investment product, and their commercial success is not tied to recommending one product over another. This is the model we use at Cambridge Partners, and it is why independence matters so much to us: it keeps the advice process focused on the client’s goals, not on distributing financial products.
Imagine visiting a doctor. You explain your symptoms, the doctor listens carefully, and a treatment is recommended. Now imagine discovering that the doctor receives additional payment for prescribing one particular treatment over another. The recommendation may still be entirely appropriate, but you would want to know the incentive existed before deciding how much weight to place on the advice.
The most important question is not simply what you are being recommended. It is who pays for the recommendation. Transparency does not make one model automatically better than another, but it allows investors to understand the incentives behind the advice and decide which arrangement best aligns with their expectations.
Before choosing an adviser, an investor should take the time to understand who pays for the advice and the business model behind it so they can make an informed decision.
