8 minute read
REGULATION
Avoid the logjam: just do it
The Financial Markets Authority warns advisers need to get their full licence applications completed ASAP to avoid delays.
BY ERIC FRYKBERG
Financial advisers are soldiering on with getting full licences under the new industry regime, spending thousands of dollars and devoting hours, or even months, of work to get the task done.
Despite this burden, some advisers think full licensing under the Financial
Advice Provider (FAP) regulations is worthwhile. Others are gritting their teeth over an unavoidable necessity - and a majority have still to file their applications.
The Financial Markets Authority (FMA) is worried this delay may continue and that the whole process will fall way behind schedule, creating a serious logjam later on.
The authority insists it is trying to make the process as clear as possible for applicants, but admits it could do better.
More deadlines to meet
Full licensing was required by the Financial Services Legislation Amendment Act 2019. As a step towards this, advisers had to obtain a transitional licence by March last year.
But there are three more deadlines to meet in order to transform those transitional licences into full licences: June 30 for Class Three licences, September 30 for Class One and Class Two licences and March 16 next year, as a final do-or-die date, when transitional licences expire.
At this stage, progress towards achieving those goals is slow. According to the FMA, 355 full licences had been approved as of mid-April, and another 32 were being processed.
That was out of a total number of licences of 1861 – both transitional and fully approved – meaning four-fifths of licences still need to be dealt with.
The FMA is not displeased about this low level of progress, but it is not pleased either, calling it “good, but not good enough.”
Acting director of regulation John Botica told a webinar for financial advisers the authority was tracking in the right direction.
“But as some of my old school report cards would often say about me, he needs to work a little bit harder, he talks too much, and he distracts others.”
Massive volume of information required
One of the problems is the sheer volume of information that has to be provided.
Jeff Royle, of the brokerage iLender, lists the questions that were asked when he got his full licence last October:
“Do you give advice outside New Zealand? How long have you been in the market? Do you plan to appoint directors? Do you plan to apply for additional licences?” And there was more.
“You have to have a business continuity plan, and say when you will review it; you need to have a cyber security policy, and say when you will review it,” Royle said.
“You need to reveal any other parties to your business, you have to say whether you deal with client money, you have to have an approved document process to ensure ongoing compliance, and the list just goes on and on.”
Answering all these questions took Royle 30 hours of work and incurred many thousands of dollars in costs, but he still supports the process in principle of tightening up advisers' operating licences.
“It had to happen; I am quite proregulation as long as it is fit for purpose. In my view, there are still people operating in the market who shouldn't be.”
One consequence of a compliance regime weighed down by volumes of detail is that people are incentivised to find ways to do it all smarter.
Royle says some of the work he had to do last year is now templated, which makes it quicker and easier.
Strength in numbers
Other brokers are seeking strength in numbers.
The FMA says many brokers are ditching their sole trader status and joining aggregator groups. In fact, 320 of the approvals issued by April were for authorised bodies, according to Botica.
“I think it points to some of the traditional licence holders starting to operate under someone else's licence rather than going solo,” he says.
“It is early days, but I suspect we are starting to see some signs of consolidation.”
But this trend is not universal. Sole operators persist throughout the industry. Under the rules, they need to get a Class One licence, and the application must be in by September.
According to Botica, these applications may not be proceeding as fast as they should.
“The sole operators represent 31% of the applications we have received so far,
whereas the current mix of firms tells us that number should be tracking closer to 55%.”
Botica holds back from blaming the advisers themselves for these difficulties. He believes some of the problems with full licensing so far can be attributed to genuine concerns among brokers.
One possibility is that intending applicants may not have enough resources to spend time on their application.
Another is they may not have the information needed - or may be nervous about using the on-line portal.
Botica believes some brokers may not have the confidence to be able to manage the licensing process properly, and may worry that what they write in their application will not be good enough.
He says case studies have shown ways to overcome those difficulties; one way of doing so is through a step-by-step approach.
“Lock away some time on a daily basis, or perhaps a weekly basis,” he advises.
“In those times, do nothing else but work on your licence application. Don't get distracted by emails and things, just focus on what you need to do.”
No one is watching in the background
There was also reassurance from the FMA: it respects advisers' privacy, and is not watching over them as they work.
Another FMA staffer, Anita Frazer says the authority doesn’t see an adviser’s answers till the applicant has paid and pressed ‘submit’.
“So don't think we are going to be watching in the background. We are not trying to trick you.
“We are here to assist people get a licence, not to stop you carrying on with your business. We may have some questions; we may ring up and ask you to clarify what you mean by something, but then we will move on quite quickly.”
To help with this procedure, the FMA has developed - and added to its website - an eight-step process.
The authority is also suggesting another way of making things easier: consider applying for a Class Two licence first up.
Even if still a sole operator, you may be thinking of expanding later, so getting it all done at once could save duplication, and an extra fee, down the track.
The fee for a Class One licence is $703.80, a Class Two $882.05 and a Class Three, $1,060.30. However, these costs are usually overshadowed by steep in-house costs as advisers prepare their application.
Apply ASAP to avoid a logjam
Some in the industry have praised the FMA for processing applications quite quickly. The FMA itself says it will work as briskly as it can.
In the meantime, it says advisers need to get applications in as quickly as possible to avoid a logjam later as deadlines loom.
In a reference to this danger, Anita Frazer cites a negative experience when transitional licences were being approved last year.
“In the last two weeks [before the deadline] we had 18% of all applications coming through the door. The guys (in the office) worked till midnight for days and days to get all the transitionals processed.”
Frazer says she does not want this to happen again; there’s a risk that sort of cramming would be more difficult to achieve with more complex licences.
Brokers are responding to this message in different ways.
Maurice Mehlhopt is a 75-year-old broker who now focuses on reverse mortgages. He has his transitional licence and is working on the full licence programme, but hasn't filed his application yet.
He admits he needs to get on with it.
“I’ve been through the preliminary stages, but haven't pushed the button on the final hurdle because I thought I’d wait a little; I've got some time.”
So, has the process been difficult?
“If you're not an accountant, these things are always a bit trying - but I guess we just have to do it. I don't think the process is that great; I must admit I haven't put my mind to it, but I need to.” ✚
John Botica
