Thinking on DIMS turned upside down

Under the new Financial Markets Conduct Act, which comes into force next year, advisers who offer class DIMS will need to be licensed.

Authorised financial advisers will be able to continue to offer personalised DIMS services under the Financial Advisers Act.

PAA board member and consultant Angus Dale-Jones said the fact that class advice was counted as higher risk than personalised under the FMC would require many advisers to up-end their thinking.

“In advice, the higher level, more complex advice is personalised. But with DIMS the reverse applies. There are higher licensing conditions applied when an adviser is managing a pool of clients. In my view, it’s a shame they’ve used the same terms because advisers are used to thinking that if they are only offering a class service, they can get away with less paperwork.”

The FMA last week issued a consultation paper on the proposed requirements for licensing.

Dale-Jones said they were aligning managed funds with DIMS, which was progress. “But AFAs need to get their heads around a new way of operating. From that magic date next year, class DIMS cannot be provided by an AFA.”

It would be easiest for advice businesses that were already structured like managed funds organisations to make the change, he said.

Some advisers would need to restructure their businesses. While consumers would be most affected by the requirement that DIMS providers use an independent custodian, Dale-Jones said advisers would find the biggest new requirement was the need for financial and professional indemnity insurance. “It might take it to a level they’re not used to.”

Some would likely decide it was not worth getting a licence. “Everybody in the industry reassesses what they want to do, whether the costs and obligations associated with the licence make sense.”

Dale-Jones said the FAA had always been a temporary fix in the DIMS space, because the risks associated with managing money were quite different to those that came with advice.

Comments from our readers

On 22 November 2013 at 2:04 pm Barry Read said:

There is also time for advisers the industry to respond to the discussion document and point out that maybe the regulators, or legislators, have got it wrong! The DIMS Class verses Personalised requirements make no sense from a risk to consumer point of view. It almost looks like someone got them around the wrong way.

On 28 November 2013 at 2:24 pm Wayne Ross said:

The proposal appears to include the ability of a licenced class advice DIMS provider to provide personalised financial advice to investors without having to be an AFA. Surely this is directly at odds with the concept of the different QFE/AFA designations and efforts to date to ensure investors have access to appropriate, unbiased and personalised advice. If this is indeed what class DIMS providers are offering then why should they not be required to attain AFA status?

On 29 November 2013 at 12:00 pm Mac said:

Wayne, I think this is the result of the lobbying influence of the banks to sidestep the AFA requirements to market their investment products.

Thinking on DIMS turned upside down

Advisers will need to completely reverse the way they think about “personalised” and “class” services when it comes to discretionary investment management services.

Friday, November 22nd 2013, 6:52AM 3 Comments

Comments from our readers

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