Tate slams FAA levy

Institute of Financial Advisers (IFA) president Nigel Tate has hit out against some of the proposed Financial Markets Authority (FMA) funding proposals, criticising the “huge amounts they’re wanting to levy.”

Wednesday, June 15th 2011, 8:01AM 11 Comments

by Benn Bathgate

Tate said some of the proposed funding structures outlined in the Ministry of Economic Development (MED) discussion paper – which could see AFAs face annual levies of as much as $1,715 – are “inherently imbalanced” against advisers as the 797 AFAs (to date) are “the smallest group that would benefit.”

The MED’s favoured option is for a combined FMA/FAA levy that would see AFAs operating through a limited liability company charged $1,715, RFA sole traders $1,140 and QFEs $69,435.

Tate said the IFAs favoured option in the MED paper was option four, a $40 levy on “all companies, limited partnerships, building societies, credit unions, industrial and provident societies, friendly societies and contributory mortgage brokers.”

He said the IFA would make an official submission and he expected there to be “thousands of submissions” from AFAs and RFAs concerned about the significantly higher levy options.

Tate said he believed the cost of funding the FMA should be spread evenly across all financial market participants as the market as a whole is set to benefit from the mooted increase in investor confidence the FMA is to usher in.

The MED paper also highlights the wider spread of costs a combined FMA/FAA levy would result in.

“The main advantage of a combined levy is that it would dramatically reduce the amount payable by each FAA entity or individual.”

However, the MED also outlined why the combined levy was not its preferred option - an argument that flies in the face of Tate’s main point that if regulation is to benefit the whole market, all participants should fund it.

“Although its is administratively simple, distributing the costs of FAA regulation across a broader group does not reflect the objective that: those benefitting from regulatory functions provided, or contributing to risks that warrant a regulatory response, should bear the costs of those regulatory function.”

Ultimately Tate said higher regulatory costs could also force more advisers out of the market.

“I don’t see how that’s going to encourage confidence,” he said.  

Benn Bathgate is a business reporter for ASSET and Good Returns, email story ideas to benn@goodreturns.co.nz

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Comments from our readers

On 15 June 2011 at 11:32 am John Bates said:
Sorry Ian but you have to pay to play now. The 'regualtion' of the financial services industry by bodies such as the IFA has been such a joke for so long that this clean up needs some adult supervision.

You get to pay for that

I think the real squeal is that many adviser will look at their IFA renewal and decide to pass on that. The only reall card you have to play is the FPA trademark and while that might be important to you and your advisers. The average consumer doesn't give a rats.
On 15 June 2011 at 11:58 am Forthright said:
Bates you need to learn your history a bit better. The IFA has never portrayed itself as the regulator of the financial services profession. The IFA is made up of members who firstly adhere to a code which puts the clients’ interests first and secondly promotes best practice standards.

IFA and its members can promote an opinion, just like you can, without fear of someone taking pot shots.

I receive a tremendous amount of value from my IFA membership especially in the area of CPD.
On 15 June 2011 at 12:36 pm Dispassionate Observer said:
My understanding is that AFA's are the ones who will benefit the most from regulation. It was initially estimated that there would be 5-10,000 AFA's. The reality is that approx. 5,000 have opted for the less onerous RFA designation and that there are only currently 797 AFA's who have been approved thus far. For this elite group, the Government have suceeded in decimating your competitors for you. There will soon be less people able to give investment advice. It may take a while but once the public realise this it should result in more business for you. The harsh reality is that AFA's will probbaly require more supervision, audit (and investigation?) than RFA's etc. and therefore should pay more on a 'user pays' basis. The QFE's are going to be charged $69,435 and I understand will be undertaking their own supervision, audit etc. for their advisors. Why should building societies, credit unions etc. all pay a flat fee when they do not offer the same high level of advice as an AFA (and therefore unlikley to cause as much potential carnage').

So 'getover it'AFA's, the Government have offered you a huge marketing advantage on a 'plate'. It's up to you now to capitalise on it!
On 15 June 2011 at 1:21 pm Forthright said:
DO your reality is far removed from mine. You paint a picture of AFA’s swatting away potential investors wanting advice as if they were flies attracted to a month old dead Ewe. You also would have us believe the poor old building societies and credit unions will not benefit at all from the FMA’s prime function of restoring investor confidence.

I don’t see a problem with spreading the cost of funding the FMA evenly across all financial market participants.

There will not be any harsh reality of AFA's requiring more supervision, audit (and investigation?) than RFA's. The only reality is, AFA’s have a far more prescriptive and demonstrable higher standard than RFA have to adhere to, therefore if RFA’s have more wriggle room they have more opportunity for sneakiness.
On 15 June 2011 at 2:52 pm BTW said:
So are AFA's willing to contribute to the finco and other deposit taking insitutions supervisory fees being levied by the RB? What about the new insurance regulatory costs? NZX fees? I assume the trading banks will put their hands up for shared regulatory costs as well. Trustees and auditors?
On 16 June 2011 at 9:11 am JAFA said:
The nine most terrifying words in the English language are, 'I'm from the government and I'm here to help.' Ronald Reagan 40th president of US (1911 - 2004
On 16 June 2011 at 12:01 pm Dispassionate Observer said:
Forthright, I suspect if the govt were to offer most businesses a deal where they eliminated most of their competitors for a fee of only $1715 per annum they would jump at the chance.

AFA's will soon be the only people able to give investment advice and there are only 797 of you at the moment (whereas there used to be 5-10000+ advisors giving investment advice.

While it may take a year or two before the public regain confidence in the industry, the govt and your profesional associations marketing programmes (+ the public being able to complain about you easier) should mean that investors will want to deal with an AFA. I understand this has happened in Australia post their own regulation.

Finally, you should easily be able to justify increasing your fees to your clients to cover this increased cost.

I believe this presents a huge marketing opportunity for AFA's if you view it positively rather than just focussing on this one fee!

On 16 June 2011 at 1:07 pm Regan said:
@ D O: Are you serious? Investment adviser numbers dropping from 10,000+ to 797? What rock have you just crawled out from under? Firstly the 10,000 was a dumb guess and has since been proven wrong. There will be a hell of an lot of non AFA investment advisers aligned to QFE's giving advice on only the QFE products so your second paragraph above is totally incorrect. These advisers will be supervised by their employers, not the FMA directly, and will obviously not be giving advice truly matching the client's unique requirements every time because they wont have the product range to do so.

For example a mortgage broker who is in a nation-wide group QFE selling KiwiSaver to a client. These guys are able to offer the same product as any AFA but will they have demonstrated suitable practices, competence and qualifications to do so?

Perhaps AFA's should be prepared to pay to be able to have that point of difference but it is still hard to accept so high a levy on such an uneven playing field.
On 16 June 2011 at 1:33 pm BTW said:
DO, with respect, I don't think you're right with your analysis. First, both RFAs and AFA's are now members of the same complaints regime, so there's no distinction there. Second, I think your reference to "Investment advice" is a bit broad. Apart from the various stautory exceptions, its only personalised advice to retail customers that is captured. That leaves a lot of opportunity for investment advice to be provided. Really, as a generalisation, the legislation mainly only affects traditional financial planners.
On 17 June 2011 at 4:49 pm Andy said:
While there seems to be a very healthy debate - I believe some have missed the point. I am still trying to understand how the FMA can legally justify such a high fee when it was not disclosed before we had the chance to opt out. Such non-disclosure could cost me up to $100k in fines!
On 20 June 2011 at 11:49 am NP said:
I think Andy is more to the point. If the FMA has set itself up to services 5k to 10k of AFA's and now has under 1k to keep an eye on. they need to cut overhead. The same way any private business would have to do. And such as non-disclosure what a great example they are displaying. Those that are beefing at each other are doing know body any good
Commenting is closed


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