'Individual' licence suggestion causes concern

[UPDATED, ADDS FMA] Advisers are confused by a Financial Markets Authority directive that a financial advice provider under the new Financial Services Legislation Amendment Bill can be an individual or a business.

Thursday, October 11th 2018, 6:00AM 3 Comments

The regulator issued an FAQ based on questions it was asked by advisers at roadshows and other events around the country.

Under the “who needs a licence?” question, it says a financial advice provider can be an individual or a business.

When the new FSLAB regime comes into force, every financial adviser will be required to operate under the umbrella of a licensed financial advice provider.

That has been described as one of the major changes from the current set-up, through which individual AFAs are independently authorised by the FMA.

But SiFA spokesman Murray Weatherston said the FMA directive seemed to run counter to that.

There are concerns that the description in the FAQ may be misleading because it is expected that the number of individuals who will be allowed to licensed independently and directly will be limited.

Weatherston said he was surprised that the point had not been clarified.

“I’m very surprised they have not qualified the circumstances under which an individual human person will be licensed because it gives the impression that you have a choice while the thrust of the reforms have been entity-based.”

He said the only people he could identify who would be licensed directly would be the small number of true sole traders operating under their own name.

An FMA spokesman said: "The draft Financial Services Legislation Amendment Bill provides that a person must have a licence to be in the business of giving regulated financial advice unless the person is exempt from this requirement.  A person may be either an entity or an individual.  This is intended to allow flexibility for the variety of different business models in the financial advice market and to provide the opportunity for financial advisers to save compliance costs.  Financial advisers can give advice for a financial advice provider and they’ll need to be registered.

"We expect to receive applications both from individuals operating alone as a business and from firms that want to take advantage of the economies of scale to obtain a single business licence to cover multiple advisers."

Tags: Financial Services Legislation Amendment Bill Murray Weatherston

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Comments from our readers

On 11 October 2018 at 8:05 am MPT Heretic said:
Allowing an individual to obtain a Licence without having to be registered both as a FAP and an FA actually makes a lot of sense, it effectively replaces an AFA licence with a FAP licence.
On 11 October 2018 at 1:26 pm Murray Weatherston said:
I would have thought "an individual operating as a business" [as per FMA spokesman] is actually an entity.

To me an "individual" is a sole trader i.e. a person who is not operating through a business.

It could be that FMA is counting a single adviser who operates through a company as an individual.

That might be the essence of the differences discussed above.
On 11 October 2018 at 3:01 pm RiskAdviser said:
In principle the legislation must comply with the ownership criteria under our laws, thus, partnerships, individuals and trusts are all able, or will be able to apply for to be a FAP.

However, anyone moderately versed with the management of risk, trading and financial, would know that being a sole trader is a risky position to be and provides an automatic red-flag to the regulator that the individual may not be up to the task required for a FAP license.

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