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[UPDATED - With FMA comment] 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 21 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
On 17 July 2019 at 7:18 am Murray Weatherston said:
Hi Tash
In my understanding a genuine sole trader is a single adviser operating not in corporate form - i.e. in their own name.
"A large FAP with many FAs" owned by a single individual but in unincorporated form is not a sole trader by that definition. I would simply describe that structure as an unincorporated business
I think the rules are quite clear that if that genuine sole trader is not a financial adviser providing advice on someone else's behalf, then they have to license as a FAP and they cannot also be a financial adviser
On 17 July 2019 at 8:02 am MPT Heretic said:
Hi Murray just wondering if you agree with this statement. Jacky Smith who currently operates in corporate form as Jacky Smith Limited will have to licence as a FAP and then engage themselves as a FA - with appropriate controls and oversight in place.
On 17 July 2019 at 10:01 am all hat, no cattle said:
@MPT to paraphrase the great Inigo Montoya
"on their own account". You keep saying these words. I do not think it means what you think it means.

If you are a 1-man business then you are both the FAP and the FA. You cannot be a P giving digital advice on "your own account" because you are a human, not a robot. You cannot engage yourself to provide advice "on your own account" because you are you. You cannot set up as a FAP and hire another individual you to be an FA or nom rep giving your advice on your behalf.
And even if you could, why would would you? - the licence costs more to get.
On 17 July 2019 at 10:59 am Murray Weatherston said:
Hi MPT Heretic.

I agree with your statement. It is going to be interesting to watch how many process and procedures manuals the regulators will require so Jacky Smith as sole Director of Jacky Smith Ltd can control and supervise Jacky Smith as the sole financial adviser allowed to provide advice on behalf of Jacky Smith Ltd.

It is also my view that if Jacky Smith who currently practices as a single-shingle adviser (ie she is the only person in the business) under the name Jacky Smith Insurances ( a non incorporated business) then Jacky Smith will need to license as a FAP, AND/BUT she will not be allowed to be a financial adviser (or nominated rep for that matter) providing advice on behalf of that licensee. Her FAP itself will be the provider of the regulated advice to her retail clients
On 17 July 2019 at 11:15 am Tash said:
Hi Murray
So can the genuine sole trader (sole as in the only one and not incorporated) who provides financial advice legally be a FAP and a FA? Can the unincorporated individual adviser who is licenced call themselves a financial adviser?
The FMA would do well to clarify all of this, it is unclear to me how this works.
On 17 July 2019 at 12:22 pm Murray Weatherston said:
Hi Tash

No, as I understand it, your subject sole trader (who also doesn't want to provide advice on behalf of a 3rd party FAP) has to be, and can only be a FAP. He or she cannot call him/herself a "financial adviser".

I am sure the regulators monitor Good Returns as part of their market intelligence. It's a pity they aren't prepared to step up and make statements on these factual issues to confirm these matters one way or the other.

If I am peddling crap, I would certainly hope they would tell me and I would correct the record. No-one benefits when both crap and good stuff are circulating freely in competition with each other. There's enough right stuff to have to worry about, without also having to worry about the wrong stuff.
On 17 July 2019 at 1:45 pm Murray Weatherston said:
And if all that hasn't done your head in, consider these consequences:

1. How will the poor old consumer (in whose name and to whose benefit all this reform is done [- and who is going to bear all the cost eventually]) going to distinguish between

(a) the sole trader adviser who is a FAP but not a FA; and

(b) the sole practitioner adviser who is corporatised where the firm is the provider of the advice and is a FAP, but the person who the client deals with is a financial adviser.

The substance of the relationship between adviser and client would be pretty similar, I would think, but the legal form is different.

2. An intended consequence? or maybe not?

The sole practitioner who is corporatised is subject to discipline at FADC, because he/she is a financial adviser but the sole trader who is a FAP but not a FA is not.

This latter consequence might lead to some corporatised sole practitioners to contemplate stepping back from their current legal structure and to apply for a FAP licence as a sole trader.....they might end up giving up limited liability, but think it worthwhile if they escape the cane of FADC.
On 17 July 2019 at 2:36 pm MPT Heretic said:
Thanks Murray, it seems we are on the same page. Be great if the regulators could confirm or not.

AHNC, I agree I dont know what "on their own account" means. It may be as you have outlined but the regs are not clear to me at least.

And as Murray has explained a key difference appears to be related to corporate structure for a current AFA considering their future structure as a FAP+FA or just a FAP.
On 17 July 2019 at 4:33 pm all hat, no cattle said:
MPT and Murray this might help

https://www.fma.govt.nz/assets/Fact-sheets/Who-will-need-a-licence-to-provide-financial-advice.pdf


and so might this

https://www.fma.govt.nz/assets/Fact-sheets/What-it-means-to-be-licensed-v3.pdf
On 17 July 2019 at 4:34 pm all hat, no cattle said:
Further reading - Kinsington Swan in February 2018

https://www.kensingtonswan.com/news-updates-and-events/financial-advice-reforms-insights-series-14-penalties-enforcement-complaints-and-disciplinary-matters/
On 17 July 2019 at 10:25 pm Murray Weatherston said:
@all
Put your cheque books away - no need to pay the lawyers to do the research to provide an opinion......

In my old research files, I have found the answer why a sole trader FAP licensee cannot also be a financial adviser. Here's the 3 line proof.

1. The sole trader has to hold a FAP licence in order to provide regulated financial advice to retail clients.

2. FMCA definition of a "financial adviser" will specifically prohibit a financial adviser from being a FAP.

The authority for this will be Clause 5 of the FSLAA, which amends the definitions section of FMCA as follows:

financial adviser—
(a) means an individual who is registered under the Financial Service Providers (Registration and Dispute Resolution) Act 2008 in relation to a financial advice service; but

(b) does not include a financial advice provider

3. Under new s431F of FMCA, which will be introduced by s27 of FSLAA, it will be an offence to hold yourself as a FAP licensee if you don’t have a licence, and it’s will be an offence for someone who is not a financial adviser to hold out that they are a financial adviser.

QED.
On 19 July 2019 at 2:43 pm MPT Heretic said:
Thanks Murray. I wonder how many RFA's are considering becoming a sole trader FAP. MBIE is banking on none according to their fee levy rationale.

But in terms of future business flexibility and viability it looks pretty attractive I would have thought.

Presumably 10000 FAP applications is not what the FMA has ordered for Christmas
On 20 July 2019 at 10:37 am JPHale said:
Interesting perspective discovered, will make things interesting in the next little while.

@MPT many RFA businesses are incorporated LTD's as they provide a level of risk protection, minimal but it's there.

The challenge in being a sole operator choosing to move to sole trading is your agency agreements would also need to move, and the insurers are somewhat less inclined to have principal agencies as sole traders if they already are an LTD.

On 2 August 2019 at 11:17 am The FMA says... said:
[FROM THE FMA] Most of the questions or issues raised appear to be around a similar theme – how a single adviser business might, or should, operate under the new regime. The new legislation is flexible and allows for different business structures as part of licencing, including a sole trader business structure. This means that a licence can be in a business name or individual name, depending, of course, on the preferred business structure.

However, advice firms do need to think carefully about their future business strategy. When it comes to thinking about how best to structure their business arrangements, it is important that advice firms understand the key elements, including liability, in the New Financial Advice Regime.

In some instances, given the complexity of business arrangements in the market, advice firms may need to seek advice on the most appropriate structure given their circumstances.

Today we believe single adviser businesses are typically, but not all, structured as a separate entity. We wouldn’t necessarily see that changing once the new regime comes into effect.

As a starting point, we would encourage advice firms to try out our recently-released online option tool – ‘Explore your options’ – which has been designed for small-medium adviser businesses. It provides links to fact sheets from multiple government agencies, helping to educate advisers on a range of aspects of the new regime, such as the possible structures and costs.

The tool will not detail every way advisers can operate under the new regime and it may not have all the answers, especially for more complex or larger businesses. We will actively monitor how it’s used and will look to expand it to meet the needs of advice firms.

We don’t have all the answers that were raised in your comments section and, as you might expect, some of the topics raised are opinions and we don’t feel it’s appropriate to enter in those exchanges of opinion. When it comes to licencing costs, the online option tool will provide information about the exact licencing costs for each of the four business structures. However these costs, the different categorisations and the way fees are set has been established by MBIE, so it’s best to point questions about these to MBIE.

As always, we encourage any advisers who have further questions to get in touch with us.

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