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Call to ensure efficient advice licensing

Government has been warned there will need to be systems in place to ensure that financial adviser licensing costs do not blow out to the same extent that some FMCA market licenses did.

Monday, July 1st 2019, 6:00AM 7 Comments

The Ministry of Business, Innovation and Employment has provided more detail about the new licensing regime.

The cost of a full licence will range from $612 to $922, depending on the size and structure of a financial advice provider.

The FMA will also charge an hourly rate when assessing a licence application is more complex than would normally be the case for a particular business type.

There will also be FMA levies to pay.

In submissions received before the fees were set, the Financial Services Council warned the hourly fee model could be risky.

“We note there is no definition of ‘complex’. This leaves open the risk that the licensing fee proposal will fail in its objective of limiting uncertainty to applicants as to the likely total amount of the fees they will be required to pay.

“We understand anecdotally that existing Financial Markets Conduct Act licence-holders were charged materially more than the stated licence fee when hourly rates were included. It is important that fees represent what will actually be charged, so they do not mislead applicants.”

Chief executive Richard Klipin said his members wanted it to be possible to proceed straight to full license application, if a business was ready.

Share agreed hourly rates created uncertainty. The group called for controls to ensure application assessment was efficient.

There was also industry concern about how single-adviser businesses would be dealt with.

The Triple A Advisers Association said there should be a licence fee category for a single adviser business with a nominated representative because many sole-adviser firms had staff who helped them look after KiwiSaver clients. Advisers might want to upskill them to work as nominated representatives.

Financial Advice NZ said many single-adviser businesses were small and “very cost-sensitive”.

Providing relief to single adviser businesses will help to reduce the barriers for new businesses entering the sector and will ensure reduced compliance costs for existing small adviser businesses. It may be worthy to consider a model where there is a package for a single adviser business.”

But G3 Financial Freedom said it did not seem appropriate to give relief to single-adviser businesses when there were so many business models.

MBIE has said it expects all QFEs to become financial advice providers with nominated representatives but Triple A said that was not a correct assumption.

“Many of our members who are currently QFE members of life insurance companies were advised before 25 December 2018 that they will not be invited to become nominated representatives of that Life Insurance company, for which they are currently in as a QFE.”

The conduct report into the insurance sector by the FMA and Reserve Ban had put some off taking on the responsibility, the group said.

Tags: Financial Advice New Zealand FSC licensing MoBIE

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Comments from our readers

On 1 July 2019 at 7:26 am Murray Weatherston said:
I find a couple of things in this article weird.

1. It seems oxymoronic to me to talk about a single adviser firm with a nominated rep to help with Kiwisaver clients. An admin staff member can provide information to clients without coming under the FMCA. If that staff member crosses the line into regulated advice such that they need to become a nominated rep, then that is a two adviser firm.

2. The debate about the cost of licensing beats me. $612 to $922 fee seems to me indicate a 3-5 hour assessmennt. Even if a licence application incurred additional costs for 100 hours (boy the application would have to be ??????" the additional cost would only be $17,800. That would surely be chump change for a FSC member, so I don't see what they are on about. And maybe if a sole adviser's business model was so complex as to incur such a fee, they are actually in the wrong business.
On 4 July 2019 at 3:12 pm MPT Heretic said:
So much for producing clear and concise documents I found the mix of fees and levy's proposed confusing especially for a 1 person AFA looking at options.

Can anyone explain the difference between registering as a FAP & FA (paying $490 annually) or alternatively being a FAP & advising on your own acct (paying $962 annually).
On 5 July 2019 at 7:45 pm all hat, no cattle said:
@MPT heres a go.
Forgive me if you actually feel less informed after reading this.

What we actually pay
Last year my "annual confirmation" cost $460 PLUS the "annual confirmation fee" of $75 PLUS GST. So It was a total of $615.25
For AFAs the actual costs are; Criminal history check $40.25 PLUS Annual confirmation fee $75 Plus FMA Levy $330 PLUS GST = $506

Fees
- Transitional licence will cost a Fee of $363 + GST whether a 1-man business, or multi-adviser business.
- The extra $39 per "body named..." is for multiple trading names or entities operating under the same licence. Most of the 1700 one-man businesses will probably not pay this.
I was told the vast majority of applications should fit within the allowed for 2 hours before addditional charges applied. Advice to advisers is to treat it like a mortgage application - all the required documentation, clearly laid out, fully completed, thought through.

You are far more likely to cause additional charges if they have to re-visit the application or it is incomplete.

- Full licence application Fee will be $575 +GST.
- No real certainty about how often a licence must be renewed.

If I needed to self-fund then I would want at least 5-yearly renewals, or an annual Fee. Companies file an annual return, for example.

- How much will we have to pay for licencing beyond obtaining our 'Full Licence"?

Levies
- Every Financial Advice Provider and Adviser will pay the Levy of $460 +GST to get into the new regime. For RFAs this is the same cost as the 2018 annual confirmation - after it was hiked BY MORE THAN 50% from $304 in 2017.
- For AFA's its a huge hike, previously $330.
- If you are registering both as a FAP, and as an Adviser it looks like your pay $460 FOR EACH!!! So it will cost me $920 PLUS GST (on top of licencing) to get into the new game. Plus whatever else is added (as per current annual confirmation fees).

Likewise for ongoing annual confirmations
- Annual confirmation Levy for me will be $497 +GST
- comprised of two Levies; Licenced FAP Levy $230, PLUS Financial Adviser Levy $267

Proposed "relief" for 'single adviser businesses:
Found in the consultation under para 39 and 40, and Note 13.
- 39 talks about waiving the $267, so only the $230 annual confirmation fee would apply
- Not sure it will fly, but every eligible business would obviously prefer the relief.
- But 1700 (considered to be the number of 1-man businesses) x $267 = $453,900 "lost" to MBIE.
- 40 talks about waiving the initial registration for the adviser, so I would only pay the $460 once instead of twice.

So what is the total actual cost? Who knows!!!

- Trans licence $363 + GST followed soon after by Full Licence $575.
- Plus Adviser Levy of $460, possibly X2
- Plus Companies Office "fee" $75 ???
- Plus criminal history checks???
- Plus whatever else?
so best guess: 363 + 575 + 460 +460 +75 +gst = $2222.95
On 8 July 2019 at 3:09 pm all hat, no cattle said:
Forgive me some more.

according to this
https://www.mbie.govt.nz/assets/f630611225/financial-advice-licensing-fees-and-the-fma-levy-cost-recovery-impact-statement.pdf

on page 2:
The Amendment Act removes the current categories of financial advisers: authorised financial
advisers (AFAs), registered financial advisers (RFAs) and qualifying financial entities (QFEs). In the
new regime, ‘financial advice providers’ will be licensed by the Financial Markets Authority (FMA)
and will be able to give financial advice on their own account (e.g. through a digital-advice platform)
or engage individual ‘financial advisers’ or ‘nominated representatives’ to give advice on their behalf.

The document says they expect 100 of this type of licence (page 14) at a cost of $265 + $737 (plus this, plus that, plus GST, of course)

For us mere mortals the costs will be:
$405 (trans) then $612
plus any additional hours at $155/hour
plus $225 + $265
plus $75 (probably)
plus GST
= $1,819.30 (plus any extra hours, criminal history checks, or others who join in the fun)

then; annual confirmation
$226 for being an adviser
plus $294 as a "Tier 1"
plus $75 (probably)
plus GST
=$684.25 each year
On 9 July 2019 at 7:29 am MPT Heretic said:
Mmm sorry AHNC I am still confused as to the difference between giving advice on their own account, and a sole trader being a FA for their own FAP.

The example of a FAP using a digital advice platform is just than, an example, so presumably you can give advice on your own account not via a digital platform. If so how?

And if you have to be both a FA and a FAP, they seem to avoid double dipping on the fees, but what about compliance? Given the FAP is liable for any FA, does that mean you need to provide oversight of yourself?
On 9 July 2019 at 11:28 pm Murray Weatherston said:
A genuine sole trader is a FAP but not a financial adviser.

In a sole adviser company, the company is the FAP and the adviser is a financial adviser.
On 16 July 2019 at 10:30 am Tash said:
Murray
What do you mean by "genuine" sole trader?
A sole trader is simply someone in business under their own name ("for their own account". A sole trader could be a large FAP with many FAs.

Are you saying that if I am the only FA and operate as a sole trader and I plan to be a FAP I cannot also be a FA???? hire adviserslegal

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Last updated: 15 July 2019 9:47am

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