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As confusion reigns and opinions are strong, is it all a bit much?

There are so many options for advisers under the new regime; licensing, coming under a licence, packing it in, or working for a bank or insurer. Jon-Paul Hale says the answer is quite simple.

Thursday, October 31st 2019, 8:07AM

by Jon-Paul Hale

I would suggest it is far more straightforward than it is being made out. Yes, there are some complex aspects, and the very typical confirmation bias I have seen across my career is alive and well.

If you don't know what that means you're probably subject to it, and you need to take a step back. To clarify, confirmation bias is to hold a view and only accept or take on information that confirms that view.

And I have had a lot of confirmation of this in the last few weeks with my article on "To FAP or not to FAP". (And I mean licensing not the other social colloquialism.)

Very simply licensing is a process, as advisers, we all need to get through if we expect to carry on doing what we are doing.

Will it be the same, no. However, it's not drastically different, come July 2020, than it is now. Even then in July 2022, natural change and external pushback, are going to get most people there. Well except maybe ACC, they're looking to build walls, not bridges, that's another conversation for another day.

Why am I making light of this? Because for the typical trading adviser who has clients, the barriers to taking a transitional licence are pretty straightforward to overcome.

Also too, this is about intentions come 2022, there is plenty of scope to take a transitional licence as a FAP. Then make changes after that which may mean you come under another FAP or a different structure.

However, the hook is advice needs to be compliant with the 2022 requirements from July 2020. Which for some, is going to be a bit interesting. Again, FAP or no FAP, you still have to make the changes, and as I outlined in the last article, the advice risk is also much the same either way.

Many FAPs will look at applicants to be under their licence and judge them based on their ability to be a FAP. If you can be a FAP and choose not to, you are probably going to be far more attractive as a member, than someone who is selling policies off the back of the fag packet and has no process or documentation of advice.

And yes, it is still happening. I had three clients through my office this week (when I wrote this) with complaints about the adviser concerned. They had done little in the way of documentation, except doing the application and illustration with the client, there was no SOA.

I can't even confirm if the disclosure required was given. So yes, some advisers will struggle and the ones my three clients experienced likely need to find a different profession. The message is not getting through yet.

However, how do we unpack this?

First off, as a person, do not register as a FAP in your own name. Yes, that sounds like advice, but needs to be made clear to those that are considering it, because they clearly don't understand the implications.

Age forty now and register as a FAP; then under the new regime, you advise a client. The sale or not of the client base, you're still going to be responsible for that advice when you're creeping around in your zimmer frame at 95. The FAP responsibility does not go away.

Though nor does the FA one, but it is to a more limited degree. The FAP remains responsible for the advice given because the FAP gave the advice you only deliver it.

The only reason you can FAP as a person is for the FSLAA law to maintain consistency with the rest of our commercial law. It's not designed to be used. The first draft did not have this as an option and was only added for the above reasons.

Now this debate about licensing I've raised. It has some interesting responses, and some have been less than educated by people that are supposed to know.

Let's unpack this a little more.

And I'll be clear again; I have not said dealer groups can't be FAPs. I have said many in their present form don't meet the requirements to be a FAP.

The Companies Office administers the FSPR, Financial Service Provider Register, where all of us giving regulated financial advice have to start. We need to get an FSP number, which we typically already have.

The rub is we need to register the trading company we operate under if we have been operating under the single adviser exemption under the present law.

And this is where it starts to get interesting. Having been through this more than a couple of times, I can say the Companies Office is asking significantly more questions than they did when I started in 2012. Due to the FSPR having been abused and misrepresented by some operations.

We are back to where clause 431D from my FAP article comes into play. If the company/organisation registering on the FSP does not have, or does not intend to have, clients they give regulated financial advice to, they don't meet the FSP criteria and cannot register on the FSPR.

And this is the critical step. If an organisation is not listed on the FSPR as intending to be a FAP for regulated financial advice to retail clients, then they cannot apply for a licence.

Which is to say the bulk of the commentary I have had after my FAP article has been about section 396 of the Financial Markets Conduct Act. The clause in the FMCA compels the FMA to grant a licence if the organisation meets the requirements for a licence.

If the organisation cannot register on the FSPR as an FSP, they can't apply to the FMA for a licence, and FMCA clause 396 does not apply. (Part of the criteria for a FAP is to be an FSP.)

It is quite a simple point, that seems difficult for the industry at large to grasp.

However, some clauses allow an application to register when the organisation doesn't meet requirements. That is an entirely different discussion. The FMA has not commented on this aspect, so I have no idea if this is a valid avenue or not.

There is the flip side view potentially from the FMA. "Oh good, you want to step up and take responsibility for something you have no real oversight or control of. Fine by us, fill your boots." If you don't understand my sarcasm here, read my previous article about advice risk.

Now that's not to say that a dealer group can't game the system and get an FSP number and apply for a licence. However, that still doesn't solve the broader issue of who has the contract for the advice with the client.

Because a dealer group gaining a licence on the basis they are taking responsibility for the advice and the clients under the organisation have an advice contract with the dealer group as a FAP, is correct.

That would comply with the rules and would mean that the application for the FSP is valid and the compelling of the FMA under 396 would also apply. Though unlikely to be needed if the dealer group has followed through with the requirements.


  • If there is the intention for the dealer group not to be responsible for the advice of its members, then they can't be a FAP.
  • If they intend for the contract of advice to be with the adviser, or the adviser business giving the advice, again they don't meet the criteria. And frankly, the business providing the advice needs to be a FAP as they are the one giving the advice. Which makes "sit under a FAP" a bit moot, and doesn't meet the requirements of the law either.

As you can see, the bastardisation of the process to sweep advisers under a dealer group licence is more about the maintenance of the present structure. It is not really about adapting to the change the government and regulators intend to apply to how we operate.

Is this going to be disruptive? Yes. Is it going to result in some advisers choosing different careers? Probably. Is it going to result in clarity on who is giving advice independently and who is not? I hope so.

The bit to keep in mind, if the client is not clear on who is giving the advice, and who is responsible for the advice, the regulator is likely going to see that as misleading and deceptive conduct.

So the "safe harbour" of being under a FAP is potentially a double-edged sword when it comes to the security of your brand and reputation.

My suggestion, take a transitional licence to be a FAP, and then once the dust settles on everything, figure out where you are going to sit when 2022 comes around.

And for quite a number of you, you will have either retired, or moved on by then, and it's not an issue to be further concerned about.

Tags: Dealer Groups FAP Financial Markets Conduct Act Financial Services Legislation Amendment Bill FSLAA FSPR Jon-Paul Hale licensing Opinion regulation

« What is the advice risk?Policy ownership, a simple concept? »

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