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Bean: Stop advisers going extinct

DIMS providers say it is getting harder to run a profitable business in the current regulatory environment.

Wednesday, November 9th 2016, 6:00AM 2 Comments

by Susan Edmunds

It was revealed last week that the Government had signed off on the FMA’s “enhanced” funding case – giving it almost $10 million more each year, mostly through an increase in levies from financial markets participants.

AFAs’ levy was initially proposed to increase to more than $500 but instead will drop slightly because of concerns about the impact of the change on small players, and the fact that the Financial Advisers Act review is still be worked through and its outcome is unclear.

But personalised DIMS providers say they will be hit hard by the changes.

They have been dialed down from what was initially proposed, so that those with smaller levels of FUM do not face such a large hike.

But the increases are still significant.

A personalised DIMS provider with between $50m and $100m under management will be hit with a levy increase from $304 a year at present to $2400.

If they have between $100m and $500m under management, the annual fee increases to $4800.

One personalised DIMS provider, Alistair Bean, said his business would remain profitable under the new structure “but it’s another imposition”.

“It's becoming a never ending déjà vu,” he said.  “We find ourselves in a position again where decisions have to be made about running one’s business when the regulatory body once again doesn't currently quite know what the outcome or ‘rules’ are going to be.

“This is another cost - or effectively tax -  that has to be born.  The hours and years that have already been spent to date by not only small but also large providers in time and research to meet requirements cumulatively adds up to hundreds of thousands of dollars and for corporations likely millions for something that was only just becoming bedded in and is already changing almost before it began.”

He said he offered a personalised DIMS service so clients did not have to make all the decisions.

“Now it appears that I will be faced with an increased levy to place the clients’ interests first. As an aside, this week I am paying my annual PI cover premium and also my two-early external AML/CFT audit cost, not to mention keeping ahead of my CPD requirements and I have also this year taken on a part-time staff member for the sole purpose of keeping up with compliance.

“Perhaps the Government could consider subsidising the very endangered species of financial advisers …for what is an ever growing demanded service by the public to ensure we don't become extinct. Why do most of us do what we do? Mainly because simply we like to help people, but gee it's becoming harder.”

IFA chief executive Fred Dodds said it was disappointing that the Government had not chipped in more money for the FMA.

The annual FPSR fee will increase from $304 to $460 for those not in any other levy classes and from $304 to $460 at registration.

Tags: DIMS FMA

« FMA: You shoudn't need a 'how to' client-first guideLVR restrictions to be reviewed »

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Comments from our readers

On 9 November 2016 at 11:06 am Pragmatic said:
It is worth considering the “Butterfly Effect” of this ongoing Regulatory pressure.

There are currently circa 1,853 AFAs with the average age circa 57. Approximately 75% of AFAs are employed by financial institutions, with banks (collectively the largest employers) signalling their revision / departure from dispensing “independent advice”. All this at a time when consumers are discovering their new-found Kiwisaver wealth, with rising levels of financial curiosity.

For better or worse, increased Regulatory pressure on the AFA community will no doubt bring forward industry participant’s exit plans. This will undoubtedly leave consumers exposed to either paying a hefty premium for bespoke advice, or seeking alternative (direct) ways to preserve & enhance their financial position. It is the latter disintermediation that will be impossible for the Regulator to monitor, with many weird and fanciful financial schemes just a click away.

The challenge will be for the Regulator to find the right balance between providing the consumer with confidence in the advice process and system, whilst retaining an advice community that is arguably much easier and cost effective to monitor.
On 11 November 2016 at 5:47 pm gavin austin adviser business compliance said:
Pragmatic - Hi with all due respect try analysing the data again - the ratio of Financial Institutional vs other AFA (I confess to making the assumption that others are "independent") has always been about 50% and currently is sitting at that level. I don't necessarily disagree with your other comments but I doubt that consumers will pay a "hefty premium" for bespoke advice. Advisers will need to adapt to a more efficient "Financial Technology"(FinTech) service to improve efficiency at the back office enabling them to look after "more" clients(yes I did attend the first Fintec conference yesterday and it was very thought provoking). Those that think they can just sit on a "book" of clients will either see a diminishing revenue stream as other advisers take their business with more competitive fees and "tailored" improved service levels.

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