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Fees have potential to discourage independence

The cost of providing financial advice under the new regulatory regime is beginning to take shape, with fears already surfacing that the charges will discourage the provision of independent advice.

Wednesday, October 21st 2009, 3:59PM 6 Comments

by Sonia Speedy

The Financial Service Providers Act 2008 and Financial Advisers Act 2008 Fees Regulations Discussion Document proposes that financial service providers and advisers should pay a one-off $350 charge to be registered, followed by an ongoing annual charge of $60.

Advisers looking to be registered and authorised will pay $1,385 upfront, with $410 ongoing, while registered Qualifying Financial Entities (QFEs) will pay $4,630, followed by $1,140 per annum. All fees are inclusive of Goods and Services Tax (GST).

Additional costs include $35 per person for criminal history checks and/or a $30 contribution to the administration costs of the dispute resolution scheme, depending on the make-up of the provider.

Between 10,000 and 12,000 financial service providers - including around 7,200 advisers - are expected to pay the fees which will cover the cost of an electronic Register of Financial Service Providers; a Ministry of Consumer Affairs run consumer dispute resolution regime; and Securities Commission supervision and authorisation of individual advisers and QFEs.

Treasury and Auditor General guidelines state the proposed fees are to be no more than is necessary to recover the costs incurred by the government.

On top of these costs advisers will need to belong to a dispute resolution service. Good Returns reported last week that Financial Services Complaints Limited is launching just such a scheme with standard price based around a one-off $500 joining fee charge, an annual fee of $500 and $1,000 for each complaint.

Institute of Financial Advisers president Lyn McMorran described the government proposed fees as confusing and believes they will dissuade independent advice, with QFEs looking a more cost-effective option.

"I'm certainly struck by how expensive it is to be an Authorised Financial Adviser. I'm concerned that there's not going to be that many to be honest," she says.

Murray Weatherston, head of the Society of Independent Financial Advisers, says advisers are price takers in the regulation process and therefore have to accept such charges as a cost of doing business. However, he is concerned about what other costs are to come, such as around competency requirements.

Submissions on the discussion document close on November 13.

« AMP Capital takes a knock from direct property investmentSovereign takes regulation bull by the horns »

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Comments from our readers

On 21 October 2009 at 6:42 pm Mark Jory said:
What a total rip-off!

I would want to see a break down of the justification of these type of costs.

Surely to be registered only requires a database, a bit of stationary and a $0.50 stamp each year/per adviser, plus the salary for a part-time admin person, maybe $15,000 - $20,000 p.a.

I'm sure there are many sole operator financial advisers who currently monitor a datbase with 1,200 or more clients, and do it at a cost significantly less than $60/year/client. More like $6/year or less/client!

As a member of the IFA who already have a robust professional disciplinary process, I woudl expect the IFA to take on this role and little or no need for my IFA fees to increase to cover a 'service' they already provide.

Of course we can all just join a QFE, take in significantly less individual repsonsibility and pay nothing, while offering our clients with far less consumer choice - was that the whole reason behind regulating the industry?

On 22 October 2009 at 11:54 am Independent Observer said:
I've now re-read this article numerous times in an attempt to find the link between an annual fee for financial advice participants and the apparent negative impact upon "independence". In short there isn't any link... perhaps just sour-grapes.

Murray's comments are spot on: in that the financial advisory community will have little (if any) discretion around what fees they require to pay - in other words: you either pay to play, or find something else to do with your time. In following this logic through, the obvious victim from this proposed regime will be industry bodies who are also touting for industry fees. As margins continually come under pressure, financial advisory participants will begin to question value for money in joining various industry entities, with many expected to pay nothing more that their regulatory obligations.

Is this the right outcome? Probably not - although to be fair, the financial services industry has had many years to develop a cohesive and collaborative approach to impress regulators that self-policing is the way forward. In the absence of success, the rule-makers are now stepping up to take control.
On 22 October 2009 at 12:38 pm Independent Observer said:
I've now re-read this article numerous times in an attempt to find the link between an annual fee for financial advice participants and the apparent negative impact upon "independence". In short there isn't any link... perhaps just sour-grapes.

Murray's comments are spot on: in that the financial advisory community will have little (if any) discretion around what fees they require to pay - in other words: you either pay to play, or find something else to do with your time. In following this logic through, the obvious victim from this proposed regime will be industry bodies who are also touting for industry fees. As margins continually come under pressure, financial advisory participants will begin to question value for money in joining various industry entities, with many expected to pay nothing more that their regulatory obligations.

Is this the right outcome? Probably not - although to be fair, the financial services industry has had many years to develop a cohesive and collaborative approach to impress regulators that self-policing is the way forward. In the absence of success, the rule-makers are now stepping up to take control.
On 22 October 2009 at 1:45 pm Ron Flood said:
One could be cynical and assume that the fee's imposed on a licenced AFA will be higher as the commission understands that individuals operating in the marketplace will have a vested interest in ensuring their advice process is sound and robust. The lack of revenue from these AFA's from fines and penalties needs to be addressed with higher fees to cover the cost to the commission to supervise their activities.
Many QFE employees will be expected to meet unrealistic sales targets, as happens presently within the banking insurance sector. Such demands will most likely result in more breaches and subsequent fines, therefore negating the need for higher upfront fees.
On 23 October 2009 at 12:31 pm Andy said:
Rather than educate the public and show them the value of paying for advice, it seems the commission is hell-bent on making independent advisers pay for the advice they give. On top of that, ridiculous comments from the “big Boys” such as Darren Gannon, head of Newpark Financial Services “…the recent trend of mortgage brokers switching to insurance advice was "devaluing the quality of the adviser market"”. It seems that individual and independent advisers will no longer have any capacity in the economy, and consumers will now find it easier to fall prey to big companies offering all services - whether those services are best for them or not. As was said previously –we can pay up (whatever the cost) or p… off! Will someone please explain to me how this will give the consumer better protection and access to better independent advice! And as for the Disputes and Resolution process – why don’t the consumers pay for it, instead of us. After all – it would be like an insurance – they are the ones needing protection! It seems to me that the wrong end of the crocodile is being attacked…
On 23 October 2009 at 5:54 pm Darcy Sollitt said:
It will not matter what price they put on wanting advisers to pay. All I would say is that the advisers need to make sure they have good PI cover for when the companies like Sovereign will not pay claims and that adviser gets sued..
Commenting is closed

 

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