DIMS requirement 'overkill'

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A requirement that discretionary investment management services (DIMS) advisers calculate their net tangible assets at least monthly has been slammed by industry participants.

Wednesday, February 11th 2015, 6:00AM 1 Comment

by Susan Edmunds

The FMA has clarified its additional standard conditions for AFAs providing personalised DIMS.

The proposed additional standard conditions will be incorporated into the standard conditions for advisers on June 1.

They require that AFAs calculate their tangible assets at least monthly, including as at the AFA’s balance date each year.

If the AFA’s calculation shows that the AFA did not have positive net tangible assets at any time, the AFA must notify the FMA and provide an explanation.

Adviser Robert Oddy said it was very surprising. “We have had meetings with the FMA and one of the final things that was commented on at the last meeting was the need to recognise that AFAs are individuals and DIMS regulation is coming from a corporate approach.”

He said expecting individual AFAs to have to calculate their NTA every month was another cost on adviser businesses.  “It flies in the face of reported comments taking note of the cost of regulation for advisers.”

He said original suggestions for stress-testing of investment portfolios seemed to have been replaced with stress-testing the advisers.

“Even though custodial requirements mean that the adviser hasn’t got the opportunity to nick the money even if they wanted to. It’s overkill. Is it an attempt by the regulator to kill of the opportunity introduced by the minister last year for personalised DIMS?”

It would require the input of an accountant each month, he said.  “How will they account for practices that have debt, such as those have borrowed to purchase another practice? It isn’t logical.”

FMA compliance director Elaine Campbell said the NTA requirement had been simplified.

“We have removed a mandatory requirement for an AFA’s NTA to be audited.  This was seen as adding further burden and cost, as most AFAs would not already be subject to financial statement audit.  However the requirement to calculate NTA remains an agreed procedure, and is very similar to that for FMCA DIMS licensees. This approach is so there is a level playing field between both DIMS regimes.”

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