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How much you will have to pay to be an adviser revealed

The big question advisers are asking is how much it will cost to be licensed under the new regime. Good Returns can now reveal what advisers are likely to pay.

Friday, December 14th 2018, 6:00AM 7 Comments

The Ministry of Business, Innovation and Employment has released a discussion paper on what advisers will have to pay under the new regime and how much will go to the FMA as a levy.

Anyone giving advice under the new regime must work for a licensed financial advice provider.

That can be a single-adviser business or a major product provider such as those currently operating as a QFE.

Commerce Minister Kris Faafoi said it was inevitable that regulation would impose some compliance cost.

"However, it is crucial that compliance costs are fair and reasonable so that financial advice providers can operate efficiently and consumers can continue to access financial advice."

He said it was important that the sector gave feedback on the proposed fees.

"I have heard concerns about how the costs of the regime will affect smaller advice practices. Those practices are a hugely important part of the ecosystem and I want to ensure that compliance costs are appropriate for those practices."

There will be two main sets of fees for financial advice firms: Licensing and FMA levies.

The price of advice

Financial advice providers will have to pay for a transitional licence, to cover the two years of the industry transitioning to the new regime. MBIE is suggesting this could be $363 for all FAPs.

Then, they will have to apply for a full licence.

The size of that will depend on the scale of the business applying.

  • A FAP that was a single adviser business or only giving advice on its own account would pay $575 plus $155 per hour if the processing time was more than two hours, under the MBIE proposals.
  • A FAP that engaged multiple financial advisers but no nominated representatives would pay $730 plus $155 per hour if the processing time was more than three hours.
  • A FAP with nominated representatives would pay $885 plus $155 per hour if the processing time was more than four hours.

There would be additional fees for extra authorised bodies named in the application and any application to vary conditions.

MBIE said there would be no renewal fee - providers would pay that same full licence fee each time they had to renew their licence. But at this stage it is not yet clear how long a full licence will last.

The ministry said licensing fees enabled the FMA to recover the cost of considering a licence application from the applicant.

"We think it is appropriate that these fees are charged to the financial advice provider who receives the benefit of holding a licence by being able to operate in the regulatory environment established under the bill. Without recovering these costs from licence applicants, the FMA would be required to subsidise the cost of licensing from other revenue streams."

The FMA would incur costs related to the staff time spent considering an application and the development of an IT system that was used to process all the applications.

"This system will improve the FMA’s ability to process applications and reduce the staff time required to process applications. It is intended that these costs will also be recovered via licensing fees."

MBIE said its licence fee proposals were based on FMA estimates of relevant costs and the estimates would continue to be refined.

It said at the moment a single adviser business would pay anything from $0 (if it was an RFA) to $996 in authorisation fees for AFAs. Under the new regime, that will be standardised at $575. AFAs currently pay $498 for each renewal.

An advice firm with five advisers would currently pay $4980 in authorisation fees, MBIE said, but that would come down to $730. One with 10 nominated representatives would currently pay $4249 in licence fees but that would drop to $885.

What advisers will pay the FMA

There will also be changes to the levies FMA charges market participants.

MBIE said these were set, not on a cost basis, but reflecting the benefit a participant received from operating in a well-regulated environment.

"At this time we are not reviewing the FMA’s overall funding, the design of the levy model as a whole, or trying to account for the full costs of the new regulatory regime. However, some existing levy classes need adjustments and some new levies need to be set to collect funding from financial advisers and financial advice providers. In setting these new levies we are aiming to collect the same amount as is currently collected from the financial advice industry."

It is proposing FAPs or financial advisers pay $460 at initial registration, then $230 for FAPs each year, $179 per nominated representative and $1106 if the FAP gave advice on its own account.

"To avoid over recovery of the levy, it is proposed that financial advisers will be required to pay the levy (rather than through a financial advice provider) as they may be engaged by multiple financial advice providers (e.g. if they have multiple part-time jobs). However, we are conscious that this may impose administrative costs on financial advisers and financial advice providers and would like feedback on whether these levies should be paid by financial advice providers rather than financial advisers."

It said another option was a flat levy of $230 for single adviser businesses. But it was concerned this would discourage growth. "However, we are considering whether relief should be provided to a single adviser business in relation to the levies payable at initial registration. This could require a single adviser business to only pay the financial advice provider levy (and not the financial adviser levy) at initial registration, if a new registration is obtained."

FSLAB requires the financial advice provider and the individual financial adviser to be registered on the FSPR. Without this relief, a single adviser business would be required to pay a levy for both register entries. Under MBIE's preferred option, this would amount to $497.

At the moment, a single advice business pays either $330 as an AFA or $460 as an RFA.

A firm with five AFAs pays $2110 in levies at present, and with five RFAs, $2760. Under the new regime that will be $1565.

A business with 100 nominated representatives pays $460 at the moment - and $18,130 under FSLAB.

Submissions close February 22.

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Comments from our readers

On 14 December 2018 at 6:51 am Murray Weatherston said:
There is other interesting info in the report being MBIE's first published estimate of the numbers who will be regulated under the new regime.

They think there will be 8000 Financial Advisers and 21500 nominated reps.[Our pure guess @ 10,000 FAs and 20,000 NRs was pretty close to their estimate]

These 29,500 people will be providing advice on behalf of 2240 Financial advice provider licensees.

Only 57 of these will use Nominated representatives - seems low. Its not much different from the present level of QFEs.

So 2183 FAPs (over 97% of the total) will use only Financial advisers.

Of those 1753 will be single adviser practices which is either a sole trader who doesn't engage any other advisers, or an incorporated business which engages only 1 adviser, which adviser is the only senior manager and who is 1 of a maximum of 2 Directors.

Only 450 FAPs are expected to be multi financial adviser practices.

So it seems while the whole shebang is going to change the whole world for everybody, true entity licensing covers only 57 + 450 = 507 entities.

I wonder if they ever knew those numbers at the start of the process?

I wonder if they have an estimate of the cost to the industry of the regime? My guess it is in the hundreds of millions of dollars.
On 15 December 2018 at 10:09 am dcwhyte said:
....and with FSLAB bumped down to #25 in next week's Order Paper, enactment before the holidays seems unlikely.
On 17 December 2018 at 11:17 am Tash said:
Pleaase forgive my ignorance but if all FAPs now need licencing by the FMA, what is the point of the FSPR? Unnecessary duplication?
On 18 December 2018 at 5:54 am JPHale said:
Good to see some clarity on this before the break.

The comment about advisers working under multiple FAP’s opens up an interesting potential approach, which ok some levels I'm pleased to see.

However, it does indicate that the landscape for the consumer could become difficult to navigate and understand with multiple FAP involvement.
On 18 December 2018 at 6:00 am JPHale said:
Tash, the FSPR remains quite relevant as the vehicle for the management of licensing. It's structure will need some changes I expect, as it is the window into the financial services industry as to who is involved and what they are allowed to do.

We’ll have FAP’s (your company) listed in much the same way as we see now (with businesses of two or more advisers), and we’ll also see the individuals as we see them now, listed or linked to the FAP(s) they are involved with.

What's likely to be different, if the FMA intends to track every player, is the addition on named NR’s in the register and their link to their FAP. Which could also be FA’s who operate as NR’s under someone else FAP, as seems to be indicated.
On 18 December 2018 at 3:16 pm Tash said:
Why can't the FMA run the register?

Still seems like inefficient duplication and unnecessary cost. From memory the only reason this has been run through the Companies office was that the FMA had no system back in 2009 and didn't 'licence' everyone anyway.
On 18 December 2018 at 5:49 pm Murray Weatherston said:
JP @ 6.00 am - 2 fact checks on your last paragraph.

1. where do you get the notion that each nominated representative will be registered on FSPR?
2. Where do you get the notion that a financial adviser can operate as a NR under someone else's FAP?

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