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The cost of running a one-person FAP revealed

It’s been estimated it might cost $10,000 to become licensed as a small adviser business, and then $10,000 a year to operate – but there’s a warning that’s the wrong way to look at it.

Tuesday, February 18th 2020, 9:21PM 5 Comments

Katrina Shanks

Compliance firm Strategi said it was likely that it might cost about $10,000 to establish a FAP with one to three advisers, and then another $10,000 a year to operate.

That includes adviser time at a rate of $200 per hour.

Larger FAPs would be more expensive to set up, at about $15,000 to $18,000, it said.

Businesses would need to think about the size of their business, the service offering they wanted to give clients, their plans for growth, how they would handle the branding of advisers within their FAP and the structure.

But Financial Advice NZ chief executive Katrina Shanks said thinking about it in dollar terms was the wrong approach.

She said the new regime would require a new level of professionalism from advisers and their businesses.

"As a business owner you have to make choices about what your business looks like in the future."

How much needed to change could vary a lot from one business to the next, she said.

"For every business it will be different."

She said some would already be focused on customer outcomes with clear governance structures and processes in place.

For them, there might be relatively little change to meet the new requirements.

Others who had not implemented much governance previously might face a bigger shift.

Strategi's calculation was based on about 40 hours' work a year on the business, she said, and that was not much.

"Good businesses and good financial advisers should be investing continually in themselves and their businesses. It shouldn't be about what is it going to cost me to meet the regulation but what do I need to invest to get the best outcome for my clients? The discussion is much bigger than the dollar figure."

She said many advisers would find it particularly difficult to work out a system to show that their clients understood their advice.

Simpy signing a statement of advice would not be enough.

Tags: compliance FAP Financial Advice New Zealand licensing Strategi

« 300 FAP applications – FMA 'not worried'Active comes out on top in FMA debate »

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Comments from our readers

On 19 February 2020 at 9:15 am John Milner said:
Reading the figures quoted I assume an adviser business would be starting from scratch. This of course is not the case for a large proportion of AFA’s who have many of the systems in place. Comparing to other countries we are probably getting off light.
As for demonstrating a clients understanding of advice received, the FSC recent session provided an excellent example of how to do so within your processes. Just took most of the day to get there.
On 19 February 2020 at 6:47 pm globug said:
John, it would be interesting for you or Good Returns to let the rest of us who were unable to make the Getting in Shape sessions, how to demonstrate the clients understanding of advice..... thanks in advance.
On 19 February 2020 at 11:36 pm John Milner said:
@globug your association would be able to assist you there. The comment section is far from an ideal platform for an appropriate answer to your question. However and in short, they provided a very good check list to attach to each client file with the headings: Policies, Procedures, Controls and Evidence for this client by: client files and advice. Under each would be a list of your actions.
You will need to discuss this with someone in greater detail to understand the context. Would be happy to help. Text the word invest to 223 for my VCard and contact details.
On 20 February 2020 at 6:42 am Murray Weatherston said:
It would be interesting to see the composition of the $10,000 cost for a 1-3 member FAP; also the $15-18,000 cost of a larger FAP.
On 20 February 2020 at 7:47 am MPT Heretic said:
How is paying yourself as an adviser $200 an hour a cost to the FA? This is a cost to the investor. If the regulators want us to shuffle paper rather than provide advice for $200 an hour who are we to argue. Sounds like a diversified business model to me

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Last updated: 21 September 2020 10:48am

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