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Strong demand for outsourced compliance: Austin

Advisers would find a system of auditing each other for AML/CFT compliance doesn’t pay off, says the head of one compliance company.

Tuesday, April 22nd 2014, 6:00AM 2 Comments

by Susan Edmunds

Institute of Financial Advisers president Nigel Tate suggested last week that experienced advisers could save money and pick up skills by doing audits for each other when they are due every two years.

The guidelines allow an independent person to perform an audit and say that reciprocal audit arrangements with a similar company should be considered.

Tate said some compliance companies were charging up to $2000 for an audit, and said it was “compliance for compliance’s sake”. He said there had been a proliferation of companies that were making money out of adviser regulation.

But Gavin Austin, of ABC Compliance, said most audits of independent financial advisers could be done for just under $1000.

“If you look at what’s involved, to say that a senior practitioner would do that for a few hundred dollars, it’s never going to happen.”

He said it was not only the time of the audit, which would take about three hours, but the work that would have to be done on keeping up with the requirements.

“You’re better to spend time in your practice, seeing clients and building up the business, that’s where you make a heck of a lot more profit.”

He said it made sense to call in specialists because there were consequences to getting it wrong. “Would you have your GP perform brain surgery?”

Austin said there was strong demand from advisers for external compliance advice.   “I wouldn’t be in business if advisers weren’t prepared to pay $900 to $1200 a year for compliance.”

The new DIMS rules would drive that further, he said.

He had been contacted by a number of small firms that wanted advice on navigating the new DIMS rules, and to find out whether they would be able to continue to operate as they were.

The FMA needed to take the lead to explain to the industry how it might get around things such as HR requirements and the need for an investment committee, he said. Austin suggested some smaller advisers might opt to say a research firm such as Morningstar was fulfilling the requirement for an investment committee – but that would require them to stick rigidly to Morningstar’s approach.

“Someone needs to sit down and see what it’s like to go through the process, no one wants to be the first. They need to explain how it will work for small advisers, not just the big end of town.”

He said the class DIMS requirements were very similar to the rules that institutions had to meet to be licensed as QFEs.

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Comments from our readers

On 22 April 2014 at 10:56 am Ally said:
The big winners from the new DIMS arrangements will be stock broking firms. Their advisors are AFAs and already offer DIMS. The firms will apply for a class licence and away they go: business as usual.

By the way Gavin, slightly out of your area of expertise perhaps, but do you think a DIMS arrangement is akin to a managed fund for tax purposes ? i.e. would capital gains on NZ/Aust shares be tax free as they are in a managed fund ?
On 22 April 2014 at 12:46 pm Gavin Austin ABCompliance said:
Hi Ally
Tax advice is definitely out of my area of professional expertise ie I am not qualified to give tax advice. I am not aware that there will be any tax treatment that will be different now that the FMC Act has redefined DIMS as such. My unqualified opinion is that nothing changes.

I'm not sure that the Stock Broking Firms would agree that they're big winners but you do make a good point. It will be easier for the "BIG" end of town to jump through the hoops and over the hurdles when it comes to applying for a "Class DIMS Licence". For most other practitioners it's more of a "how the heck do I do this". Until someone manages to get through the process and can perhaps share their insights it's all a bit scary. As I've said before it will take someone from FMA to actually sit down with perhaps IFA, and take them through a typical case study of how to do it. But don't hold your breath. IF an AFA has a relationship with a larger "group" then maybe that's the channel to go down. AFAs will need to look at their business and re think what the future will need to look like when it comes to DIMS or no DIMS.

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