7 minute read
REGULATION
Traffic builds on the road to full licensing
The transition to full financial adviser licensing is inching along. Daniel Dunkley talks to Strategi CEO Daniel Relf to see what is happening.
We’re more than five months in to the new financial advice regime under FSLAA, with transitional licences now valid for two years until March 15, 2021.
Transitional licence holders will need a full licence by March 16, 2023 if they want to continue providing advice under their own licence.
Meanwhile, anyone applying for a financial advice provider (FAP) licence must now apply for a full licence under the new regime.
TMM spoke with Strategi chief executive Daniel Relf about how advisers are approaching the new regime, how many advisers have applied for their full FAP licence, and whether it has led to an exodus from the advice profession.
Advisers have until 2023 to get a full licence – are you seeing any sense of urgency among advisers? Have many people got their full licence yet?
We are seeing similar behaviour with full FAP licensing as we saw with transitional licensing. A small number of firms are early adopters and have applied for and received their full FAP licence.
Our understanding is that under 110 full FAP licenses have been approved. We are not seeing any sense of urgency from FAPs to get licensed.
There are many reasons behind the slow start to FAP licensing. Larger FAPs often have greater resources, so are generally further ahead with their FAP licence documentation and are able to apply by now.
Business has been booming for most financial advice businesses and transitionally licensed FAPs have been flat out handling new clients.
The Covid lockdown will have had an impact, but only over the past five weeks. While a number of businesses have not yet fully decided if they will sell, obtain their full FAP licence or become an authorised body. There is still much fluidity in this area.
Do you expect many mortgage advisers to go for their own FAP licence? Or work under a group/ aggregator FAP?
We anticipate a lot of movement in the total number of FAPs and authorised bodies as we get closer to the March 15, 2023 due date. This has been caused by the need for strategic alignment and the risk appetite of the FAP, aggregator groups and authorised bodies.
This will see aggregator groups removing high risk FAPs and authorised bodies from their agreements and FAPs deciding to become authorised bodies under the aggregator groups or another FAP.
Conversely, many authorised bodies will realise that the compliance involved with holding a full FAP licence is not as expensive or scary as some commentators have been suggesting. These firms will decide to obtain their full FAP licence.
Do you expect some advisers to abandon plans to get their own FAP licence once they realise how tough compliance demands will be?
Yes, there is and will continue to be a decrease, but it’s not necessarily due to increased compliance demands.
Over time the number of FAPs will decrease as like-minded FAPs consolidate and merge to gain economies of scale to service their clients and meet their strategic goals. This is a similar trend we’ve seen in other jurisdictions in Australia and the UK.
We agree that compliance obligations have risen in the new regime but they are not over the top. The cost of compliance is not a deal breaker and any small profitable well run business should be able to cope with a few thousand dollars of compliance costs each year.
One way or another, a FAP (be it a licensed FAP or an unlicensed FAP (authorised body)) will pay more – either directly to a licensed FAP or to some third party to provide the needed compliance support.
Daniel Relf
Has the new regulatory regime resulted in many advisers dropping out of the market?
At this stage, the number of industry exits is still relatively small as the barriers to operating are still low.
There will be an increased level of exits as we approach the end of the transitional period, but many of these will be people who have delayed retirement. We do not expect the level of industry exits that Australia had as our regulatory regime here is very different. The compliance costs in NZ are a fraction of what they are in Australia.
Despite the doomsayers, there are plenty of new entrants to the industry. Many existing adviser businesses are desperate to hire new advisers but this is primarily due to expansion rather than adviser attrition.
There are some great examples emerging of innovative use of technology in delivering financial advice.
We are seeing an increasing number of advisers starting to treat their business as a proper business and build formal policies, processes and controls into how they operate. This creates a sound platform for their future growth. ✚
CoFI debate back
Advisers face further regulatory changes as the Financial Markets (Conduct of Institutions) Amendment Bill (CoFI) heads back to Parliament, writes Matthew Martin.
CoFI is back on the agenda.
The Financial Markets (Conduct of Institutions) Amendment Bill is set to reform the way banks and insurers pay commission to advisers, with sales and volume based incentives set to be outlawed.
The legislation will not affect traditional linear commission, according to legal experts.
However, under the proposed law, financial institutions will not be able to force advisers to place a certain amount of business to retain their accreditations, or provide bonuses or prizes to advisers that place the highest volume or value of loans.
Parliament began the bill’s second reading on June 10 with just two MPs speaking before the debate was interrupted.
The FMA admitted New Zealand’s insurers are not ready to implement the bill saying general insurers “... broadly have a poor understanding of, and commitment to, good conduct and culture practice”.
In June, Minister Poto Williams started the second reading saying some changes to the bill had been made after consultation.
Williams said 59 submissions were made with the majority supporting it in principle but after the second round of consultation she said there would be further amendments.
The minister said the bill fills a legislative gap and it was important to ensure consumers were treated fairly. She said there can be an imbalance of power between institutions and customers.
Minister Poto Williams
“The select committee has recommended that minimum requirements for fair conduct programmes be clarified and included in the bill,” Williams said.
“This is in response to submitters’ feedback that leaving the detail of conduct programmes to regulations would leave the regime uncertain.”
Under the bill, the minister will have the power to make regulations related to incentives. Cabinet has already banned value or volume-based incentives and the minister will have a list of matters that have to be considered.
Also, intermediaries, such as financial advisers, will not need to comply with an institution’s conduct programme.
Concerns were raised that the regulation-making power was too broad. In response, the minister said the group of intermediaries this power extends to has been narrowed.
MBIE is currently consulting on intermediary provisions for the bill “... to ensure the intermediary obligations are right-sized and will work in practice”. While the vast majority of those submissions supported the intent of the bill most of those submitters said it was too broad in its scope. National MP Nicola Willis criticised it as “... a compliance heavy, box-ticking exercise”.
Willis said her party opposes the bill but acknowledged the fact that “... financial institutions, banks, insurers and the like should have controls in place to ensure they are focused on the best interests of their customers”.
In its submission, AIA NZ said it was concerned the scope of the proposed regime was too wide and, in some cases, overlaps existing licensing regimes.
“That wider scope creates commercial uncertainty for market participants and creates an additional layer of complexity and cost upon the financial services industry where the case for imposing that burden has only been partially made out, or where recently introduced legislation is in the process of being implemented.”
AIA NZ said commercial uncertainty and added red tape could result in increased costs and negative outcomes for consumers. ✚
