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FMA: We don't expect many personalised DIMS authorisations

Just a handful of authorised financial advisers are likely to be able to offer personalised discretionary investment management services (DIMS) after the middle of next year, the Financial Markets Authority says.

Wednesday, November 26th 2014, 6:00AM 13 Comments

by Susan Edmunds

Under the new Financial Markets Conduct Act (FMCA), all providers of DIMS will have to be licensed to offer class DIMS, or authorised under the Financial Advisers Act (FAA) to offer personalised DIMS.

Director of compliance Elaine Campbell said the FMA’s understanding was that very few AFAs were providing a personalised DIMS service at present. The majority were using a model portfolio. “Personalised DIMS is a bespoke investment strategy that moves clients so far away from the underlying model portfolio that it is truly bespoke for the one client and his or her needs.”

She expected at most 20 or 30 might be authorised to provide DIMS under the FAA once the new regime kicks in.

The FMA is expecting to licence about 200 AFAs for class DIMS.

But Campbell said those 200 licenses could cover more advisers as it would be the company that is licensed, not each individual adviser. “Large advisory houses may have a number of AFAs working for them who would then not need to seek out their own authorisation or licence.”

Those who offered personalised and class DIMS would only need the license, not authorisation, to do both so the number authorised to offer only personalised DIMS could be eroded further.

Campbell said the standard required of advisers would be the same across class and personalised DIMS so there was no benefit to the adviser in avoiding being licensed. “The eligibility standards have been drafted to ensure people can’t arbitrage between the two regimes.”

She said whether advisers wanted to be licensed or to carry on offering personalised DIMS, they had to take some action by the middle of next year. Those who want to apply for a license for class DIMS must do so by the end of May 31 to take advantage of transitional provisions.

Those who want to offer personalised DIMS under the FAA, even if they are currently authorised to do so, were required to file a new ABS by the same date. Campbell said: “If someone wishes to continue to provide personalised DIMS, we need to be satisfied that person meets the new eligibility criteria the law sets out.”

If advisers had previously indicated they were offering DIMS and did not apply for a license or authorisation, they would come in for regulatory scrutiny.

Some advisers have said it will not be worth offering DIMS under the new rules. But Campbell said people should not make business decisions based on regulatory change. “If you believe it is in the best interests of your client that you do not perform the service and the client sources the service elsewhere, that’s a discussion between the AFA and the client. We would be concerned if the AFA was changing their business model in response to changes in regulatory settings. Advisers performing DIMS to a high standard should be confident that they can meet the criteria.”

She said the licence criteria were flexible to reflect the processes of smaller businesses.

Campbell said while there was always room for improvement, she felt the FMA had handled the DIMS process well.  “Within the constraints we have had, we did endeavour to engage extensively.”

She said the FMA would continue to consult and make itself available to help people understand where their services might fit under the new regime.

« Adviser designations need attention: ScottRFAs watch out, the FMA is coming »

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Comments from our readers

On 26 November 2014 at 8:00 am MPT Heretic said:
The FMA clearly is going to require all AFA's to be licenced, despite their obligations already under the FAA. More power to them. The class v personalised DIMS distinction is unworkable nonsense and will disappear with the FAA review about to start. Next area of focus will be rounding up all those advisers who are intending to offer investment advice via the sham of a non-discretionary account structure. This will probably depend on how long it takes for someone to sue their adviser or the FMA for getting them invested in something they really have no idea about despite signing off on the trade...
On 26 November 2014 at 9:44 am alan clarke said:
Wasted words since most of us "coal facers" know very few will run with personalised DIMs

But still no words on simple DIMs that a lot of us might use ?

I won't change my business model aka "trying hard to do right by my clients" but due to the DIMs paper mountain, I may change HOW I work so I have some time left to do so



On 26 November 2014 at 10:24 am AFA said:
The best solution is to offer DIMS for wholesale clients only. You don't need to be authorised or licensed to do so. A wholesale investor must own financial products of a least $1 million and agree to be classified as "wholesale". Many will he happy to do this to avoid the hassle of having to fax approval for every transaction to the platform their advisor uses.
On 26 November 2014 at 12:43 pm Brent Sheather said:
Good point from “AFA”. This is a great solution for advisers. A bit perverse that Elaine Campbell would say “people should not make business decisions based on regulatory change”. Hello … regulatory change is dominating many business decisions these days. I don’t do DIMS … whatever that is … but sooner rather than later I will definitely be moving in the direction “AFA” has suggested and that will be a huge monkey off my back. Possibly bad news for some clients but you have to do what you have to do.

Regards
Brent
On 26 November 2014 at 1:57 pm Murray Weatherston said:
In reply to AFA
Methinks you should have another look at the definition of wholesale in the FMCAct. Its not the same as in the FAAct.

A wholesale client for "advice" is not necessarily a wholesale client for "DIMS".
On 26 November 2014 at 2:12 pm Murray Weatherston said:
"She said whether advisers wanted to be licensed or to carry on offering personalised DIMS, they had to take some action by the middle of next year."

I would like to repeat a question I asked earlier in a much more direct form. What is the exact regulation in the new regulations that is authority for that position

My reading of the transitional provisions is that if you haven't supplied a new ABS by 31 May 2015, the new investment authority and reporting requirements apply from 1 June.

But nowhere do I see the new regs say that all AFAs with an existing DIMS authorisation have to provide an updated ABS by 31 May as the story states.

Surely the law should be applied as it is written.

And while I have my keyboard open, has anyone else thought there is something mighty strange with the method to be used (according to both the license and authorisation regulations) for reporting returns to DIMS clients? If no takers to this teaser in 48hrs, I might just give a clue.
On 26 November 2014 at 4:48 pm Murray Weatherston said:
My comment at 2.12pm not quite clear.

My issue is only in relation to AFA personalised DIMS authorisation.

It is clear you can't offer a Class DIMS after 1 Jun 2015 unless you have applied for a licence by 31 May 2015.

Sorry about any confusion I created.
On 26 November 2014 at 6:43 pm AFA said:
Murray, here is the link to definition of "wholesale" investor
http://legislation.govt.nz/act/public/2013/0069/latest/DLM4092471.html

I don't see any reference to it being different for a DIMS
On 26 November 2014 at 9:27 pm Bobby said:
Have to agree with MPT heretic. I think Brent Sheather said on this site on 2nd June that he didn't offer DIMs, but instead offered "Non-discretionary advice of course. But if any client consistently ignores it they get told to go away".
To me this is taking the proverbial in the first degree.
My guess is that there lots claiming that clients make the decisions, when in reality they are simply rubber stamping the adviser's decisions.
On 27 November 2014 at 1:49 pm Murray Weatherston said:
In reply to AFA
I concede the point where specified financial products are concerned.

I had in mind the "large" investor wholesale exemption where the net assets required are only $1 million in FAAct, but are $5 million in FMCAct (Schedule 1 s 39 -the next section to the one you have quoted.)

My general warning that not all clients who are wholesale for FAA are wholesale for FMC still stands though.
On 28 November 2014 at 3:04 pm AFA said:
Basically, as from Dec 1, to be classified as a wholesale investor in terms of the FFA and FMC Act, the client will need to own $1 million in financial products or have $5 million in total assets. Previously the hurdle was $1 million in total assets (which includes property). You won't here much from the FMA about the wholesale client thing because, under the relevant legislation, an AFA dealing with such clients only has to adhere to the "skill, care and diligence" requirements of the Code. All this other nonsense in the discussion doc. recently released doesn't apply - no doubt to the annoyance of the bureaucrats at the FMA who want to treat all AFAs providing DIMS as children in need of the benefit of their vast experience .......
On 4 December 2014 at 3:31 pm MPT Heretic said:
I think anyone considering going the wholesale route needs to consider another couple of important points. The FMC Act refers to $1m in 'specified financial products' over the past 2 years. So that excludes cat 2 products such as bank accounts or Cash PIE's and any interest in a retirement scheme. That will narrow the potential client base quite a bit I would think. And if they are holding part of the $1m+ assets directly themselves when you do the calc, good luck tracking what they are up .... wouldn't want them to say sell the assets and put the money in the bank without telling you. A trailing 2 year window provides a long time to be tripped up...
On 4 December 2014 at 3:41 pm MPT Heretic said:
The FMA has obfuscated Personalised DIMS from existence despite the law clearly offering it as a viable option for already licenced AFAs. Not sure why, presumably because they feel the FMC Act offers them more control. The irony is that in doing this they have opened up the real possibility of the majority of AFA's stepping outside the cost and compliance of the DIMS regs entirely and offering only non-discretionary solutions to ill equipped investors.

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