AFAs can apply for personalised DIMS licences under the Financial Advisers Act, but they will have to go through the same process as organisations seeking a class licence under the Financial Markets Conduct Act.
It describes a personalised DIMS service as being once which “only covers services where you design bespoke investment strategies for each of your DIMS clients.
"This is a more specialised service than a class DIMS service where you rely on investment strategies designed to meet the needs of a class of clients.”
It its guidance notes the FMA says the process is designed to be flexible enough to take into account the size and nature of the applicant’s business.
“All licence applications are assessed against the same minimum standards, but if your DIMS business involves lower risk s to clients this will be taken into account.”
To assess these risks the FMA asks many questions around whether the applicant is “fit and proper”, capabilities, operational infrastructure, financial resources and governance.
The questions asked are quite detailed, especially for small advisory firms.
For instance questions in the capability section are designed “to ensure you or your organisation has the right mix of people, with the right skills and experience, in the right roles, to manage your licensed business properly and effectively.
Under operational infrastructure businesses providing DIMS are asked “What stress testing do you conduct on your investment strategies?
While bigger organisations appear to need detailed stress testing the bar is lower for AFAs.
“The purpose of stress testing your investment strategies is to understand what would happen in specific uncommon, but possible, circumstances, and to learn from those results.”
“For smaller DIMS businesses we wouldn’t expect to see fully documented stress testing, but we would expect to see that you’ve thought about the issues that might arise in adverse market conditions, and whether any further action is appropriate.”
The FMA says firms need to have adequate financial resources to effectively perform the licensed service. This includes disclosing accounts, the firm’s net tangible assets and in some cases audited accounts. (Helpfully it also tells advisers how to calculate the NTA).
“If you have an existing DIMS business that has a history of financial stability, this will give us significant comfort.”
On governance the FMA expects firms to have a high level body responsible for overseeing compliance with your obligations as a licensee and ensuring appropriate risk management.”
For most small DIMS businesses, the oversight body will be the board of directors, a sole director, or the single person if the applicant is an individual.”
The notes confirm that there is a new class of DIMS – the Contingency DIMS.
“The exemption will only apply where an AFA normally provides financial advice (not DIMS) to a client but the client gives the AFA authority to manage their portfolio for a limited period of time when it’s inconvenient for the client to make active investment decisions.”
The scope of this new exemption, and the conditions are still being finalised.
It also confirms there has been an extension of the start date. Advisers offering a new DIMS service are stuck with the original December 1 implementation date.
Existing DIMS providers have until June 1, 2015 to apply and need to have their amended documentation completed by December 1, 2015.
FMA DOCUMENTS
How to apply for a DIMS licence
Guide to licencing for small DIMS
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