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Govt should bear more of FMA funding cost: IFA

New Zealand's Government should step up funding of the Financial Markets Authority, to avoid the burden being passed to industry participants, the Institute of Financial Advisers says.

Tuesday, August 9th 2016, 6:01AM 3 Comments

by Susan Edmunds

The FMA is consulting on proposed changes to its levy that would see advisers and DIMS providers pay more each year to the regulator.

The FMA currently gets $26.2 million a year in funding, $11m of which comes via taxpayer funding from the Government.

It says it needs more to pay for its newly expanded regulatory operations.

The consultation paper outlines three funding options that are possible. The FMA would like to get to $38.6m per year.

With no funding change, 60% of the FMA’s total funding will come from the FMA levy, reset to $17.1m.  Under the biggest change proposed, the levy would make up 70%, or $27m a year.

IFA chief executive Fred Dodds said the percentage increases to the overall levy take being discussed were large, ranging from a 33% increase at the lowest proposed level, through to a 65% increase for the "enhanced case", which is the FMA's preferred option.

"With those sorts of increases you would think that Government should be 'encouraged' to increase its $11m," Dodds said.

He said it would be reasonable to expect the Government contribution to rise to $15m.

He said the Ministry of Business, Innovation and Employment had expressly noted in the Financial Advisers Act reviewthat it wanted to see no undue compliance cost for advisers.

Under the no-change model, AFAs would pay $300 a year, or 4.1% of total levy revenue. Under the lower funding case, they would pay $420, or $520 under the FMA's ideal scenario.

For DIMS providers, the increases are bigger.

At the moment what they pay depends on whether they operate a personalised DIMS service under the Financial Advisers Act, which costs them $304 a year, or if they are licensed to offer class DIMS through the Financial Markets Conduct Act, which costs $1739.

New tiers would be introduced that would increase those charges to between $4000 and $6500 for those with up to $100m under management, $8000 to $13,000 for those with $100m  to $250m and $26,000 to $38,000 a year for those with more than $250 million invested through DIMS.

"The Financial Markets Conduct Act represents a significant increase in the scope of the FMA’s regulatory framework – so more 'contributors' to the funding and more from big end of town," Dodds said.

He said the FMA's increased spending was justified because they had a focus that included conflicted conduct and more oversight of sales and advice.

"With a whole lot more 'financial advisers' up for conduct requirements they certainly would need more or pass the ball on some regulatory stuff to some licensed professional bodies to assist with this task. "

The FMA said it was unable to comment.

Tags: financial advisers FMA IFA

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Comments from our readers

On 9 August 2016 at 1:05 pm Murray Weatherston said:
Well said Fred - you couldn't be more right.
The consultation paper takes the view that the Government contribution should be fixed at the $11 million level it was set at a number of years ago. What a weak negotiating stance for the regulator to take. (Although i suppose it is much easier to levy the regulated whose only options are to pay up or leave, than it is to plead with the Government to increase their funding.
The total $10 million increase in funding that would be needed in the enhanced case would be below the rounding error for Government spending.
There needs to be a debate as to how the Regulators costs should be raised between the industry and the beneficiary - the public.
As an opening position, why shouldn't those costs be split equally (50/50) between the industry and the Government on behalf of the public.
Sometimes when i hear the regulator, I think they think they are consultants to industry - if they know so much about what the industry should do, why don't they jump the fence and set up product providers themselves.
I have yet to see any analysis that supports the statement that the benefits of the increased regulation actually exceeds the costs.
On 10 August 2016 at 2:28 pm said:
Murray, I am pleased you posed the question about benefits of the increased regulation actually exceeding the costs.

To get the ball rolling, perhaps saving NZ insurance consumers about $4.5m a year by eliminating churn.

Pressure on KiwiSaver providers to reduce their fees to be in the middle quartile of comparable countries in the OECD. Resulting in about an extra $120m into KiwiSavers fund balances.

Making sure all KiwiSaver account holders had adequate advice about being in the right KiwiSaver funds. Perhaps adding another $1b to KiwiSaver account holders.
On 12 August 2016 at 12:09 pm Simon Hassan said:
Couldn't agree more, Fred and Murray!

Sound financial advice is essential to a trusted and effective financial system.

Clearly this is a social good. And if regulation is required to promote and protect it (and I believe it is) this should be provided for by the government from taxes.

Imagine if they decided that doctors should pay (and therefore charge their clients) for the regulations they work under!

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