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Managers pay up for licenses

Half the licensed managed investment schemes (MIS) had to pay more than the headline fee for their ticks of approval - and some were charged more than $10,000, it has been revealed.

Thursday, March 9th 2017, 6:00AM 5 Comments

by Susan Edmunds

Under the Financial Markets Conduct Act, all managers of a registered scheme had to be licensed by December 1 last year.

The FMA said the application fee for a licence for a manager of a registered scheme would be $3565, covering 25 hours work.

After that number of hours, time spent on the application would be charged at a rate of $200 plus GST per hour for FMA board members and $155 plus GST for staff.

Spokesman Andrew Park said 66 fund managers had been licensed. Of those, 31 had their licenses approved within the 25 hours.

The other schemes were charged fees ranging from $1201 to $27,163. Four applications were charged more than $10,000. The median additional cost was $4045.50.

“Where more time was needed, the FMA charged an hourly rate to complete the assessment. This often reflected complex business models, our need for more information, a failure to meet the minimum standards or changes made mid-application,” he said.

“This was not a sit down three-hour exam exercise. We worked with applicants where necessary and possible to enable them to demonstrate they had met the minimum standards required to achieve a licence.”

Advisers may soon go through a licensing process of their own. The Financial Services Legislation Amendment Bill proposes entity licensing for advice businesses.

Barry Read, of IDS, said if advisers wanted to reduce the amount of time – and extra money – spent on licensing, they would need to make sure their application was complete and met requirements before it was submitted.

He said larger organisations’ applications were likely to take longer because they were more complex.

“This seems fair to me that smaller licence-holders pay less than larger organisations.

“Advisers who haven't been involved in a licensing process with the FMA are unlikely to understand how the process and fees work yet. Though the standard fee may be the same for all financial advice providers, you would expect a licence covering 100 advisers with multiple layers of management or governance would pay more for the extra work to assess the application than a licence for a single adviser entity where the adviser is the director of the company.”


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Comments from our readers

On 9 March 2017 at 10:55 pm Murray Weatherston said:
There are a couple of interesting things in this story.
The first is that it appears that the FMA Board members were probably actively involved in the issue of at least some of the licences - otherwise why would FMA quote an hourly fee for Board member time?
I would have thought that the issuance of FMCA licences would be an operational issue, and handled by management, not a governance issue. That seems an unusual method of governance I would have thought.

Second the additional fees indicate that just over half the applications took more time than FMA had estimated in the base fee.
Reorganising the data, of the 66 licences issued
31 took < allotted 25 hours
Using a conservative figure of $200 per hour
18 took an extra 6 to 20 hours (+24-80% over base)
13 took an extra 20 - 50hrs (+80 - 200%)
4 took more than 50 hours extra with the most expansive overrun taking an extra 135 hours (+640%).
The reason for these overruns could be either that FMA underestimated what would be involved, or some applicants were hopelessly prepared. The data as released gives no indication.
All this is interesting in the context that my guess is that between 2019 and 2021, FMA will be involved in assessing FMCA licences for Financial Advice Providers, which could extend to over 500 licences.
I have no doubt that compliance assistance firms will be rubbing their hands in anticipation.
Phil, did you charge IDS for the advertorial?
PS no disclosure required for me as I will be involved in no more than 1 licence application (my own).
On 10 March 2017 at 8:25 am Barry Read said:
Thanks for the mention Murray. GR asked our opinion and we gave it freely, we also didn't pay MBIE to come up with the proposed changes or the FMA for setting the licence requirements. Obviously we will be available to provide support to our clients to ensure they spend the minimum amount of time, effort and money on meeting their obligations and reducing risks, if they require it. A bit like financial advisers who help clients investing money instead of them DIYing it.
On 10 March 2017 at 9:41 am RussellH said:
@Murray Weatherston - thank you for those numbers, that has to be one of the best comments I've ever seen on goodreturns. I doubt the applicants were hopelessly prepared. I suspect that the licence fee - with or without a lot of extra hours - was a small part of the total cost of the licence application once time and lawyers are taken into account.
Best wishes, Russell
On 10 March 2017 at 11:01 am R1 said:
Murray, That is an interesting point you make re Board involvement. My own experience of Boards being involved in operational matters is that it normally occurs when the Board has lost confidence in the management or there is a skill gap in the management team that a Board member(s) can fill until that gap is filled. Given that licensing is a core function of the FMA, the latter is very unlikely. Given its make-up of industry insiders there is a huge risk of conflicts of interest coming into play and these would need to be transparently managed and documented. It would be interesting to here from the FMA on why the Board was involved and how they managed conflicts of interest.
On 11 March 2017 at 1:11 pm gavin austin adviser business compliance said:
Perhaps I can shed some light on the Boards involvement. Things may have changed but it doesn’t sound like they have.
When a new type of licensing is first undertaken applications are assessed by FMA Staff. The FMA Executive responsible for Licensing then presents the application to the Board for sign off. In some cases, the Board may ask the Executive to provide more information or consider the application again. This can happen due to the Board deciding they need more information before they can sign off or it may be a unique case, in the Boards view, and the Application is returned for re-assessment.
So, when the FMA sets a fee it allows for a certain amount of Board Input and that is reflected in the said fee. Where Board time is required that is more than the allotted time, it is charged just the same as if more time is required from FMA staff.
In most cases the sign off is a rubber-stamping process. All the information that the Board requires is sent out prior to the meeting and all Board members are required at that time to disclose any conflicts. There have been several cases where this happened and the Board member takes no part in the process to approve the Licence.

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