Two adviser bodies, two funding proposals for FAA

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Advisers could pay either $40 or $275 to fund the Financial Advisers Act (FAA) and Financial Markets Authority (FMA) if the Ministry of Economic Development (MED) adopts proposals outlined by adviser bodies.

Friday, July 29th 2011, 6:21AM 1 Comment

by Benn Bathgate

In their submission to the MED the Professional Advisers Association (PAA) opts for the MED's Option 4 suggestion of a flat $40 levy on all market participants to fund both the FMA and the FAA.

The Institute of Financial Advisers (IFA) has come up with its own proposal for funding, suggesting separate levies of $25.40 for all market participants to fund the FMA and $250 paid by both AFAs and RFAs to fund the FAA, with QFE advisers paying $175 each.

In its submission the PAA also criticises the MED's preferred funding option saying it would disproportionally hit advisers.

"The ‘preferred option' in the MED discussion document proposes that just 6,900 registered financial advisers (RFAs) and AFAs provide $6.3 million on FMA funding, while 75 QFEs covering some 23,500 QFE advisers provide less than $100,000 in FMA levy funding. Plainly this is inequitable."

A lack of consideration for the effects the charges will have on consumers is also highlighted.

Chief executive Edward Richards said, "I think they [the MED] were possibly budget focused rather than consumer focused."

For Edwards there are two main areas of concern; that higher costs will be passed on to consumers resulting in less people seeking advice, and the creation of another cost barrier that could have the double-whammy effect of making some advisers quit and discouraging new entrants to the profession.

"Access to financial advice was completely ignored and we are concerned as to whether the authors have a sufficient understanding of the role of financial advisers in the marketplace."

For IFA chief executive Peter Lee, one of the main concerns is getting the right system in place now.

He said that despite MED promises to review the funding arrangements two years after implementation, "Things that are done for two years have a habit of being a lot more permanent. Once you've established the status quo, that becomes the default position. So we think it's better we get the right principle now."

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

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