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FSLAA overachievers 'could be collateral damage'

A delayed start for the Financial Services Legislation Amendment Act regime is the right thing to do – but it could be a problem for proactive advice providers who had already started to move their businesses towards licensing, one financial services law expert says.

Thursday, April 2nd 2020, 10:19PM 7 Comments

The Government has announced that the regime will now not take effect until at least March, giving advisers another nine months to complete their transitional licence application.

David Ireland, a partner at Dentons, said the delay would mean people applying for a financial advice provider (FAP) licence would have time to revisit their plans and make sure all was in order.

“While most will welcome the delay, those who had prepared themselves to go early may need to unwind things.”

He said there were a number of ways that businesses might now feel they had jumped too soon.

“Delaying FSLAA is the right thing to do but there is collateral damage at two or three different levels.”

He said some current RFAs might have decided that the new regime was one regulatory reform too many.

“They might have decided they don’t want to work in the FSLAA world and [will] exit the business, sold their client base because they are getting out, committed to getting out this quarter.

“Now they find actually they could have operated under the old model and have generated income for another nine months. Given what’s happened, having trail commission coming in for nine months would have been quite good as opposed to offloading that now.”

Some advisers might have already “hitched their wagon to a particular provider train,” planning to come under their FAP because of the time pressure, he said, when they might have made a different decision with a bit more breathing room.

Many providers may also have sunk a lot of time and cost into getting systems set up that were intended to meet new requirements but would now have to be adjusted, he said.

Some had designed new platforms and processes, working on the basis that disclosure regulations would look like the drafts circulated – but it was likely that those would change between now and March as the Government had more time to finesse its requirements and consider feedback, he said.

“Organisations were starting to make decisions based on best guesses at the disclosure framework.”

Many had had to adjust their systems or build new ones that could automate some of those requirements and the investment could end up having been wasted, he said.

“Organisations in that position had to be going hell for leather to ensure they were able to comply with the new environment on June 29. They will now not be the best build to support FSLAA when it comes in at the earliest in March next year.

“People who made decisions with the best of intentions could end up with some wasted expenditure and wasted anxiety and effort.”

He said it would be important that people did not lose momentum through this period. Adviser business should not wait until the end of the year to think about progressing their licence applications, he said.

Full licensing will now not take effect until 2023.

Tags: David Ireland FSLAA licensing regulation

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Comments from our readers

On 6 April 2020 at 12:40 pm All hat no cattle said:
Got my TL about 3 days before the lockdown was announced.
But I don't feel like "collateral damage" though - rather feel like that's one less thing to worry about. And there will be plenty else to worry about for the rest of this year. Kind of relieved that the rest, including Full Licencing (FL) is on a longer time frame.

We have had too much, too fast, for too long.

But it bothers me a bit that I am still very much in the majority. So few licences have been issued that many must be finding this extra time to be a relief. That is very unfortunate - it simply should not be such a relief - this is your livelihood - it should be sorted by now.

I anticipate that, whatever the new date is, it will be a hard date. Expect the FMA will accept zero excuses, extensions, or offer any tolerance for laggards.

And I disagree with Mr Ireland on all three of his points:
1 - Some who have hastened to sell will regret exiting. Good riddance. TL is basically BAU - no CKS until (FL), no big decisions on FAPs and DGs unil FL. Just pay the money and carry on. So be grateful you got out when there were still willing (and capitlised) buyers. If FSLAA was too much, then see ya later aligator.

2 - You may have hitched to the wrong train. Fine - just hop off at the next station. Besides, TL started in November, and Lockdown started at the end of March. You should have known what you were doing, how, and with whom by then. Seriously, if you thought you needed more breathing room, you must be on a waiting list for a ventillator right now.

3 - Providers and DGs have sunk cost into preparing for TL then FL. Good. Then they will be ready for it when it happens. But if complying with FSLAA etc is the only benefit (now with a longer wait for RoI) that you expected, you have done it wrong. You should now have better systems, docs, procedures and probably a better business. Maybe more compliant, resilient, and profitable.
Gee, what a waste.
On 6 April 2020 at 3:35 pm Murray Weatherston said:

Can I question you on your statement "TL is basically BAU - no CKS until (FL), no big decisions on FAPs and DGs until FL. Just pay the money and carry on."

Yes there is a CKS exemption for existing advisers when the gun finally goes off.

But don't all the other requirements of FSLAA become effective the day the gun goes off - you know, all the duties that will be in FMCA, all the FMCA regulations made and to be made (e.g. in the latter camp disclosure), all the requirements under the standard conditions of a TL, the CC& E requirements of the new Code, all the guidance notes that FMA will inevitably make, and in time the adviser obligations under CoFI law.
Are you sure all that is BAU?

PS I hope readers are up-to-speed on all the acronyms. I didn't want to run the risk of being accused of mansplaining!
On 7 April 2020 at 1:13 pm All hat no cattle said:
anyone operating to a relatively normal level of professionalism doing pretty much the right thing by their clients (IE the vast majority of us) will notice the conduct standards, discosure requirements, and all the other stuff, looks a lot like normal day to day life pre FSLAA etc. Still have to make calls, meet clients, give advice, do the paperwork. Not exactly the same as the usual, but pretty much Business As Usual.
On 7 April 2020 at 3:39 pm Tash said:
All hat no cattle I agree in the main, BAU, except for Code Standard 4 of the new Code which I was alerted to at a training session on conduct recently. It says very unambiguously I must ensure the client understands my advice, not take reasonable steps,I must ENSURE. I can take reasonable steps but how do I "ensure"?
On 8 April 2020 at 8:25 am Murray Weatherston said:
@All hat no cattle and Tash
I recognise your optimism.
I hope you're right.
And if you are right, I will have to question even more what all the regulatory reform has been about - my guess is that would be FAPs and financial advisers have spent over $100 million up front and could spend another $100m p.a. on compliance. All for a problem that didn't exist!
There is only one person who will ultimately pay this cost - the consumer.
Back of the envelope calculation: 2,000 FAPs at $10K and 20,000 financial advisers at $5k gets over $100 million.
On 8 April 2020 at 9:24 am w k said:
good morning murray. that's what i call creative job creation - promote a "problem", complicate it & justify the fee / salary.

On 8 April 2020 at 4:39 pm All hat no cattle said:
You and I have not agreed on some things, but on these we tend to:
1 - Whatever the $ spent; it is paid to those who have something to sell, and who promote those things they sell by stirring up angst such as the above comment - how DO you ENSURE the client understands? Indeed.
And by that same logic: how does anyone measure that you were deficient on that? Could it be that a simple tweak to existing docs that are usually being used in your business would be sufficent to withstand scrutiny?
Pretty much.

2 - Indeed: what is the problem this is meant to solve? Did it?
Last I checked it was something about trust and confidence, participation, and cowboys. Not in that order. Well we got Ross and few others around the time of FAA and since. Now we have Kloogh around the time of FSLAA. So the question still stands. But dont be coy about the fact that you already know the answer. And BTW that question has been central to many of your thoughts and comments to date.
Keep it up.

In fact, one recent example of an institution ensuring mere lay-persons "understand" is the COVID-19 wage subsidy payment application, where the applicatng MUST check that "*I confirm that I have read and understood and agree to this declaration" to complete the process.

Clearly it seems you can ensure the client understands the advice/agreement/EULA/declaration, simply by requiring them to say they understand your advice before they are allowed to follow your advice.
You know, pretty much like it is now, just recorded as such somehow.
Or, you could invest in a system and hire a professional to ensure you ensure the client's assurances are recorded.
I'm sure someone will be around to sell it to you.

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