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[GRTV] Potential FAP costs and CRM intricacies

Finzo CEO Nick Stewart talks: building their own CRM, what their group can offer, and how the future FAP landscape might look.

Wednesday, December 4th 2019, 1:30PM

Nick Stewart

With me now is Nick Stewart. Nick is the Chief Executive of Finzo. Welcome to the studio, Nick. How are you?

Good, thank you. Great to be here.

It's lovely to have you all the way from Hawke's Bay.


Tell me, by the time we go to air, transitional licensing will have opened. How well prepared do you think financial adviser firms are for licensing?

Well, I think a lot of people have sat back sitting on the fence because the long-awaited, promised guidance notes on what a full FAP is and will mean for firms hasn't been delivered.

We've been waiting for it. So I think quite a few people have, basically they're in a period of hiatus, ostrich-like, just waiting for these guidance notes. Hopefully they will arrive in February/March next year, and then I think firms will start to really ramp up their due diligence.

But at the present time, I think there's a bit of apathy.

So, people aren't doing enough, is that what you're saying?

That's my belief. Yeah.

What's going to happen then? Are they going to find that they can't operate, or are they going to have to just suddenly rush off somewhere else?

I think it might be a little bit like Y2K, a whole lot of people at the 10th, 11th, 12th hour, are rushing to get things completed.

So for example, I hear about some firms that are thinking about building a CRM solution at the present time to meet their obligations. It takes years to build a CRM solution, not months, and it's very expensive. 

I spoke to another firm the other day and they reckon they've spent a million bucks building a CRM.

Yeah, that doesn't surprise me, depending on the scale and the complexity of the CRM solution. Let's just unpack the CRM solution.

When you think about it, a lot of people, for a CRM, they just think it's a database management tool, like a modern-day Rolodex. Whereas in fact the CRM solution for what we do at Finzo, it's the whole shaboodle.

It's everything from financial planning, advice documentation, compliance modules, complaints, threads, workflows. Everything's built into the CRM. So very complicated.

You built your own?

Yes, we did.

Why did you go down that track when there's lots of off-the-shelf packages out there?

Well, being an independent firm, being a family-owned business, we wanted to paddle our own water. Back in 2006 we started utilising Xplan.

I like to use the analogy that Xplan’s like a box of Lego. Yeah, you can buy the box of Lego off the shelf, but to create the spaceship you've actually got to spend a little bit of time and you've got to become a Lego builder.

So you're better off to go down your own track.

That's what we wanted. But if you didn't have scale, I think an off-the-shelf solution from a vendor that has actually built it is fine. But bearing in mind that it's a one size fits all.

Look, I find that fascinating at the moment because I've come across so many organisations which are building their own CRMs. There must be a huge amount of money being spent across the industry on this, when there's lots of off-the-shelf products available. It amazes me.

Well I think that it's a little bit like FAPs. Let's say there's 2,500 FAPs on June 29 next year. That means a lot of people are replicating all the same things.

But, in and over time, you'll probably get some more collegiality in mergers, acquisitions, and people working together to drive those costs down and get economies of scale. Because if there were 2,500 FAPs, it would be similar to what the UK market was like pre-regulation, where I believe there was about 148,000 independent boutique advice practices which shrank to 25,000. 

Coming to cost, everyone's talking about the cost and how much it's going to cost to belong to a FAP. At our mortgage broker conference the other week, one of the dealer groups said it was going to be about $21,000 a year for each adviser to belong. Do you think that number is right?

I think it depends on what the FAP is providing, because there are certain spheres of advice that are much cheaper to regulate for the FAP and in terms of the administrative burden.

Whereas I think a firm like ourselves, we were doing pensions, KiwiSaver, wealth management and risk management, both personal and business. It's a more complex animal. There's just more cogs, more things spinning, so there is a larger cost to do those structures.

Do you have an idea of what it's going to cost?

I have a gut feel but I don't want to say what I think it will be until I get the guidance notes. Now, the other aspect with these supposed costs is on where people are sitting.

A lot of people say, well, is the cost a bundle cost? Does that include my PI cover? Does it include any software vendor costs? And a lot of people, I think, they're getting confused with those things because many of the numbers I hear in the market are actually excluding all of the add-ons that are required to be part of the FAP.

It seems to be quite modular in the fact that you're paying a thing and then you've got to pay for your PI. You pay for your CRM. You're going to pay for maybe your audits. How you get to those numbers then is interesting. Tell me about Finzo and the offering that you'll have for advisers. 

Sure. Well we've got a couple of different offerings and one of them will be people utilise our FAP and become an authorised body.

But the other is that we support firms to achieve their FAP. So in other words, they're using our building blocks, our compliance structures, our CRM engine platform, everything integrates through. That's why our little tagline is "integrated financial solutions" because we want things to work together. 

Recently we achieved data integration from our FNZ platform through the Iress Xplan and that just opens up a world of exciting possibilities.

My daughter has a little portfolio, as does my son. We set them up these little portfolios, the smallest portfolios of the company, and I can now look at their portfolios on our portal, on my phone anytime, anywhere. Their balance sheet, their KiwiSaver pull-through, their wealth management pull-throughs, and it's a fantastic opportunity.

But from a compliance viewpoint, I have just locked down a significant amount of risk between platform and CRM, and therefore compliance. Global best practice.

Global best practice. What's going to be your unique selling proposition? Why should an adviser come and use a Finzo product, or become part of your group?

Independence. Family values. We’re a family owned firm, non-aligned. We're not for sale. A nice young team.

And probably nice conferences in Hawke's Bay.

It's good. We actually built a new Finzo facility in Hawke's Bay. We have an in house training facility, we have a media suite, boardroom, meeting rooms, open plan. It's worked really well.

But yeah, so the idea is we can bring people to the Hawke's Bay and have a conference, and then we can take them to some of the best wineries for dinner or lunch afterwards.

Sounds pretty good to me. Tell me, one of the other things which worries me a little bit, and I know it worries the industry, is the regulators have been quite softly, softly about this transitional licensing and saying it's not going to be too difficult. Do you think that's the right approach?

I think to warm people up, that was the right approach. But I think it would be helpful if the language, the messaging was stronger now because the window that people have to get their business up to speed to make determinations on their business structure, their strategies, where they're going, what their career looks like, who they employ, what their premise looks like.

The regulator needs to be, I think, stronger on what the responsibilities with FAP are.

Because if we think about it with FAP, yes, full FAP doesn't occur until 2022, so that's plenty of time. Until you realise that the full weight of the liability of FAP actually starts on June 29 next year, not 2022. That's a very narrow window to get things done.

Look, a lot of people in that risk thing, a lot of people who are setting up FAPs are worried about where the risk is going to lie and how they're going to manage that. I wonder if there's going to be a lot of groups out there which aren't sufficiently capitalised to actually be FAPs.

Yes. Good point. Well, one of the ones we know is a DIMS provider. We have DIMS providers above $100 million of FUM who have to publish their accounts with the Companies Office, all freely available to the public.

We know that that is not yet a requirement, or isn't a requirement proposed for FAP. But you'd wonder in time, because if you're going to entrust your capital to a business of a FAP, you would want to know that they have the fiscal wherewithal to actually run the organisation and the structure. You would wonder where that will get to.

What do you think would be the outcome at transitional licensing? That there'll be thousands and thousands of FAPs, or will it be smaller?

I think at the transitional phase there will be thousands, because we've been told how easy it is. It's like completing the census. It's all automated. There's very little human oversight on that. There's just some AI screening. And the liability to get a transitional licence, there's very, very little. The bar has been set very, very low.

But I think once the FAP guidance notes come out and people start to understand that and understand what it is like to live with liability as a FAP director, I think some people will say, look, perhaps this is not what I signed up for. I just like helping people with advice. I don't actually want to run a full advice engine and entity.

All right, look, it's going to be fascinating to see where it goes. Look, thank you very much for your time. It's great to have you on here. We'll have to catch up again to find out how it's going.

Look forward to it.

Cheers. Thank you.

Tags: Finzo GRTV

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