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FMA offers guideline for license applicants

A 40-page guide for people considering applying for a license under the FMC Act illustrates the FMA’s desire to make DIMS the domain of big institutions, some advisers say.

Thursday, April 3rd 2014, 6:00AM 5 Comments

by Susan Edmunds

The FMA says the guide is intended to offer information on what people can expect when they apply for a DIMS license.

Those offering class DIMS require a license from December 1. The FMA has indicated that most DIMS services will be class.

The guide indicates licensing applications will ask for a lot of detail. It says the FMA will want information on a business’ total FUM, retail FUM, number of clients, money-handling, use of wrap platforms and products.

It will also want to see the business structure, how directors and senior managers meet “fit and proper” standards, and details of how new clients will be approached.

Would-be DIMS providers will have to lay out how they will meet minimum research standards for selecting investments, how they will stress-test portfolios and how they will monitor investments.

They need to give information on any outsourcing, how staff will be supervised, their governance and oversight, record-keeping, business continuity plans, and persuade the FMA that they have a sufficiently strong balance sheet.

The FMA says small businesses may have relatively simple processes that are not fully documented but they would still need to explain them thoroughly.

Robert Oddy, of SiFA, said the guideline was interesting for its length.

He said licensing would be a tough call for independent advisers. “The institutional funds management approach is being adopted with a lot of things.. there seems to be an attempt to push out smaller advisers and have advisers just as asset gathers or money gatherers for the institutions.”

Adviser Murray Weatherston agreed the guidelines were lengthy: “Seems to assume applicants will be like General Electric; I wonder how they will handle sole adviser practices where the AFA does just about everything....once again it favours the big end of town.”

Alan Clarke said it would drive advisers like him to a fund manager. “All a huge paper war to get and keep a DIMS  -  all  pretty much beyond the small adviser’s resources – I neither have the time or energy for another level or regulation.”

Adviser Duncan Balmer said he did not think the FMA was right with its definition of class advice: “I’m still hoping that FMA will come to understand that the fact that all my clients fall into a small number of risk profiles, and they all have portfolios made up of (differing proportions of, and different mixes of) a limited number of approved investments, does not mean that I am not offering a genuinely personal service to each of my clients.”

A class DIMS licence application will cost $3565 but the FMA can charge more for more complex applications.

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Comments from our readers

On 3 April 2014 at 8:56 am Carey Church said:
DIMS Submission to MBIE

Having done my submission, I was impressed that they seem to want to know more about our business and how we work. Here is your chance. These are the questions that they are asking:

These are the questions:


1. What types of discretionary investment management services (if any) do you provide? Please set out any limits on the circumstances in which you provide these services: e.g. that they are provided only when your client is unavailable to agree to transactions (e.g. on holiday), or only to rebalance portfolios (and in this case, what are portfolios rebalanced to?)

2. In what ways (if any) are the investment strategies that you use personalised to the financial situation and goals of your client?

3. What changes have you identified that you will need to make to comply with the FMC Act to provide discretionary investment management services, and what is the timing and sequence of those changes?

4. What are the key variables that will affect the timing or pathway to compliance? E.g. which changes could not be implemented until the outcome of the licensing decision is known?

5. Do you have any further comments?

I also note that it is a good idea to save your answers in a word document, as if you push the wrong button it wipes your entries (thank goodness I saved all mine in a word document as I was working!!!)

Some things I mentioned that you might want to think about in your submission:

1. Do you have clients with regular investments to their portfolios? How do you use these to adjust investments and asset allocations?
2. Do you take into account clients investments that are held outside the portfolio?
3. It is vital to note that MBIE and FMA are focussing on the PROCESS of DIMs - they dont consider that the fact that your clients have different profiles means that you are providing personalised DIMS. It is all about how you go about determining your asset allocations, the individual investments and whether you consider and take into account individual client goals.

Remember, the people making the decisions and recommendations that makes up the regulations and legislation are NOT financial planners. They don't know how we work.

This is our chance to tell them. You can request that your submission is not published if you have confidential information in the submission.

Lets aim to get at least 40 submissions representing us 'small guys'.

On 3 April 2014 at 9:55 am alan clarke said:
all the regs in the world don't change attitudes

the same in aviation where I was a commercial pilot - small aircraft and helicopters - for 20 years

Too many accidents were caused by the pilot's attitude, and still are

The same in financial services - DIMS won't improve things, because it won't change adviser's attitudes

Mums and dads will pay more, have less choice, and find it harder to get personal advice

Meanwhile the little adviser is hobbled by it

And the big boys will add to their FUM & profit - they must love this

And how about Code One ?? see Brent Sheather's recent comments, they were right on the money
On 4 April 2014 at 11:01 am Carey Church said:
PLEASE make a submission. This is really important to our industry. We only have until 8th April to have our say and influence the outcome.

There are five questions - here is the link to the DIMs submission: http://www.med.govt.nz/business/business-law/current-business-law-work/financial-markets-conduct-act/financial-markets-conduct-regulations-2013-draft-regulations-stage-2/extended-consultation-on-transition-requirements-for-dims
On 4 April 2014 at 3:37 pm graemetee said:
40 page document, $000's per application and strong balance sheet all sounds too familiar in NZ where "industry capture" is the name of the game. The spin from the bureaucrats is investor confidence but really the only thing that will be gained is more market share to the banks.
On 7 April 2014 at 5:11 pm Elaine Broderick said:
Graemetee you are so right. The FMA have set out from the start to capture the industry. They started dictating how to sell KiwiSaver and now it appears they are starting to offer advice directly (bank sub-debt). Still too many lawyers and too few practitioners. Soon all we'll have is the predefined KiwiSaver funds bundled and unbundled pushed by Banks with their paint by numbers advisory forces.

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