STRATEGI SPONSORED CONTENT

Small FAP governance: practical tips

Taking a practical and proportionate approach to governance and director duties will serve small FAPs well, according to Strategi Group executive director David Greenslade.

BY DAVID GREENSLADE

Small FAP governance: What not to do

Sometimes size doesn’t matter. A financial advice provider (FAP) with only one person on its board still has legal obligations to comply with the multitude of legislation that applies to all companies, just as a large FAP would.

Where the obligations lie

The Financial Markets Authority (FMA) expects FAPs to have an oversight body – the board – responsible for overseeing compliance with licence obligations, Greenslade says. Really small businesses might have a one-person board, while larger entities might have several board directors – one or more of whom would be independent. Whatever category the business falls under, it still must comply with the relevant legislation for companies, which includes the:

Companies Act 1993

Fair Trading Act and Consumer Guarantees Act

Privacy Act (remember it changes on December 1, 2020)

Health and Safety at Work Act.

Furthermore, and in addition to those obligations that befall any company, the director and board have responsibilities in relation to financial services legislation and operating a FAP that need to be attended to as well.

Challenges for small FAPs

Strategi frequently fields the following common questions from small business owners.

How do I achieve independence and oversight if I am the director, manager and adviser?

How do I hold meetings with myself and why draft reports to myself?

How do I get time to do all this governance stuff and still make a living?

Do I need a board and if so, how to make it work?

Answering these questions: What not to do

The first thing Greenslade advises clients, is NOT to do any of the following things.

Ignore the issue, thinking the problem is going to go away.

Appoint your spouse to the board to make up numbers.

Appoint people who do not meet the “fit and proper” test.

Build a structure and set of documents you don’t intend to follow.

Have a complicated business structure.

What you should do

Greenslade recommends taking a practical and proportionate approach to governance and this begins with focusing on yourself first. The most important step for FAPs is upskilling yourself as a director. This could involve attending comprehensive governance courses held by the likes of the Institute of Directors or Governance NZ. Alternatively, it might be undertaking governance modules on Radar, or attending the Strategi Institute Governance Course for Small FAPs.

Get good quality help

Engaging with business mentors and business advisers can also help to provide some formality and structure around periodic board meetings (especially if the board is only one person), Greenslade says. He suggests the following ideas.

Expanding your engagement with the right compliance provider so they attend your board meetings and help challenge you in the governance space.

Asking your accountant or lawyer to sit in on your board meetings.

Establishing an advisory board as the business starts to grow. (This might evolve into a formal board later.)

Greenslade believes selecting the right director or business adviser is critical to governance success. He says quality beats quantity and having one person who ticks all the boxes for competence, knowledge and skill is usually better than having a number of people who add little extra value other than warming a seat. Once you decide to be a business owner, then you must take reasonable steps to meet your responsibilities as a director, Greenslade warns. This applies to licensed FAPs and to authorised bodies which are effectively unlicensed FAPs. Firstly, business owners need to know just what their obligations are and then act to implement simple, yet effective, solutions to meet them.

Both Strategi and the FMA have a range of good material for business owners that can help you on your way. ✚

Strategi Group is the leading provider of compliance and training services for the New Zealand financial advisory industry.

For more information, visit

www.strategi.co.nz

David Greenslade