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New levies final nail for independent DIMS providers

Proposed levy changes from the Financial Markets Authority could spell the end of independent discretionary investment management services (DIMS) providers, it has been argued.

Monday, August 15th 2016, 6:00AM 2 Comments

by Susan Edmunds

The FMA is taking submissions on changes to its funding structure. It needs more money to carry out is regulatory duties and it is being suggested that more of the cost could be borne by industry practitioners.

DIMS providers are in for a particularly large levy increase.

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.

Newton Ross is an independent financial advice firm that has offered a DIMS service since it launched in 2003. Its directors, Wayne Ross and Mike Newton, said DIMS was a good fit because clients did not always have the right skills to decide on the most appropriate investments for them.

“The DIMS structure allows us to invest efficiently in a timely manner and to minimise costs to clients through scale benefits.”

But they said the proposed levy changes will not help achieve the Financial Markets Conduct Act's aims of better and more confident participation in the financial markets.

“There is a significant risk that the proposed sharp and significant increase in DIMS levies will reduce the supply of DIMS services and limit the opportunities for retail investors to deal with independent DIMS providers,” they said.

“Disincentivising DIMS providers reduces the very purpose of having licensed DIMS or personalised AFA DIMS in the first place which is to better protect investor interest.”

They pointed out that there were only 60 licensed DIMS providers under the new FMCA regime, instead of the more than 200 the FMA had expected. The new changes would only tilt the playing field further in favour of big institutions, they said.

“Clearly the new regulations have had a material impact on the viability of DIMS for smaller adviser groups, concentrating DIMS offers primarily to larger institutions and restricting access for a large number of retail clients. There has already been a substantial increase in ongoing compliance and levy costs and the proposed additional increases will only exacerbate the trend to fewer and fewer larger players, at the expense of fair and efficient markets and further limiting options for investors seeking independent providers and advice.”

The consultation paper did not recognise the significant differences between managed investment schemes and DIMS, Newton and Ross said.

“The two options do not have the same inherent risks and they should not be regulated or levied in the same way.”

It was also unfair that brokers were getting off more lightly than DIMS providers under the proposals. Brokers would pay a maximum $1900 levy.

“How brokers, with billions of investor monies can pay much lower levies than a DIMS provider with less than $10m in retail client monies is inconceivable,” they said.

Submissions close next Monday.

Tags: DIMS Newton Ross

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Comments from our readers

On 15 August 2016 at 8:52 am Brent Sheather said:
Oh dear. At least the FMA/Government/Ministry of Investment Banking are consistent in their anti-competitive behaviour. Thank goodness my firm didn’t waste all that time and money going down the DIMs track.
How should we respond to all this pro-bank activity? The “putting client’s interests first” thing should be being picked up by advisors/the investment associations and we should all be protesting in front of Parliament that high fees define bad products, that one of an advisor’s primary jobs is to minimise fees and therefore advisors who only sell high cost products like bank advisors cannot, by definition, be putting client’s interests first. On that subject on Saturday night I asked a group of friends what, whoever dreamt up that term in this context, meant by “client’s” as follows:
A. All the banks
B. Some of the banks
C. Banks with ASB polo shirts on
The consensus was of the opinion that the correct answer is all the banks. The consensus also decided that implying that firms which only sold high cost products were also putting client’s interest first totally ruined what limited credibility that the FMA had left.
Not many things get me upset these days but people stating that black is white and good is bad tends to get me going. What do other people think??

If you want to hear an interview with Mr Everett on the subject check out :
http://www.radionz.co.nz/national/programmes/ninetonoon/audio/201810519/financial-watchdog-responds-to-criticism

It is pretty clear that Kathryn Ryan wasn’t impressed either. Not really surprising, embarrassing and sad.
On 15 August 2016 at 10:30 am AFA said:
The solution to this, as it has been for all things to do with DIMS, is to provide DIMS to Wholesale clients only.

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