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Time is running out for 2000 unregistered advisers

The FMA warned that the clock is ticking for advisers who had not yet gained transitional license for the new financial advice regime.

Tuesday, September 22nd 2020, 6:00AM 15 Comments

by Daniel Smith

The new financial advice regime will come into action on March 15, 2021. That is also the date by which financial advisers will need to have completed the application for their transitional licenses.

Speaking to this week's Financial NZ conference attendees, representatives of the FMA said that more than 2000 advisers were still deciding their futures and had yet to begin applying for their transitional license.

FMA director of market engagements, John Botica, had this advice for adviser. “Be proactive. There isn’t a lot of time to make decisions. It is time to be courageous in new business structures.”

The cut-off date is five months away, but the FMA is recommending that “advisers should have a plan in place by the end of the year”.

Applications are being processed by the FMA at a rate of around 10 business days. Over half of the licensees so far awarded have been to single adviser businesses.

The application is processed fully online and will be asking advisers to provide details of business governance, client obligations and digital systems. Botica states that “if [advisers] are acting with their clients' best interests then they are already there."

The FMA has asked anyone with questions to get in contact sooner rather than later. “Now is the time to take control and make decisions with their way you run your business”.

Tags: FMA

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Comments from our readers

On 22 September 2020 at 4:37 pm John Milner said:
I suspect there will be some advisers who have assumed they will be welcomed by FAPS with open arms, only to be disappointed well after the close off date in March.If I was looking for a FAP home, I would be getting written confirmation now of acceptance, rather than waiting with my head firmly planted in the ground.
On 25 September 2020 at 5:31 pm JPHale said:
As one comment this week outlined to me, it’s like turning up to the World Cup Final as a spectator and everybody is seated, the anthems have played and you’ve just arrived in the car park expecting to buy a ticket at the gate.

This is the largest change most of us are going to see I'm our industry, yet a couple of thousand advisers think it's ok to wait and see. If this is you, you're a bloody numpty.

Let me paint a picture; you think you’re going to be under someone’s FAP so you haven’t applied for a transitional license but you have this verbally and it is not in writing. You can’t link yourself to a FAP until after March 15.

So you are putting yourself in a position where you have no safety net. Yes you have 90 days after March 15 to connect to a FAP. However, that assumes that you are able to connect to a FAP.

If you can’t connect to a FAP you are toast. you are now past the point where you can apply for a transitional license you now have to apply for a full license and it will likely come with the education requirements outlined in the code as well.

Now the bit that astounds me is the majority of these people are risk Advisors yet they’re not doing the simplest thing possible by buying an insurance policy in the form of a transitional license to stick in the back pocket in case plan a doesn’t work.

With the announcement today that Newpark is not going to be taking on all and sundry under their license it should be a clear sign that Advisors need to move right now.
On 26 September 2020 at 9:54 am w k said:
that's assuming that every advisers, including the 2000 advisers who have not applied for their TL, are going to continue in the business come march 2021.

what if (assuming only) the remaining 2000 advisers have decided to quit?
- will it be harder for consumers to gain access for financial advice?
- did the regulators anticipate dropouts in their expectation of the fees to be collected? (remember, they are 83% self-funded). if not, will fee increase?
- how will the decrease in number of advisers affect to better customer / consumer outcome?

my guess is that not all the 2000 remaining advisers will want to continue after march next year. and in 3-5 years' time, there will be a drop in the number of independent advisers and recruitment will be tough (costs and compliance being the main factors). tied-agency will make a comeback. who knows, maybe i'm wrong?
On 26 September 2020 at 5:40 pm LNF said:
w k - you have got it in one. I know many who are to exit - me being one. The loser will be the underinsured public
On 27 September 2020 at 3:33 pm dcwhyte said:
- w k - a fair summary. With 8000 Nom Reps under licensees now, the emergence of de facto tied agents has been facilitated by the legislative and regulatory impost. Those under contract to product providers are an integral factor in the vertically integrated organisations that fell foul of the Australian Royal Commission. What I struggle with is the inherent conflict of interest in the VIO structure and how that reconciles with prioritising client interests.
There are bound to be some of the 2000 who exit the industry and others who will wait until their transitional license expires, then exit. In addition, there will be those who discover that they cannot sustain a full license of their own and seek a safe haven under somebody else’s license. The end result is a reduction in the number of licensees under FMA supervision with the advice market polarised into Nom Reps (tied agents) acting on behalf of their licensees and Financial Advisers acting on behalf of their clients. A long journey to get back to the 1990’s!!
On 27 September 2020 at 7:05 pm w k said:
thank you dcwhyte. if you recalled, i mention to you the comeback of tied-agency 2 years ago. maybe we're going back to the future afterall? with advisers leaving, do anticipate thousands (assuming 100 advisers leaving and each avg 200 clients = 20,000 policy holders) of infant policy holders in the years to come - a better customer outcome, eh?

@LNF: it's sad to hear that you and many experienced advisers will be leaving the industry. i had contemplated that route too, but decided to hang on for as long as it remain viable for me due to my relationship with my clients, and i choose my clients. a "good customer outcome" can only happen when the adviser and client develop a bond, and this CANNOT be legislated. i can only wish you and the retiring advisers all the best. wish we all can get together and explore how we are able to help each other out. if you want to get the ball rolling, count me in.

on recruitment, my son is always interested in finance and sales, and did a 2nd degree in business. he's a goal getter and wanted to join me in the life business. i told him the pros and cons, and he's now successfully selling cars.
On 28 September 2020 at 8:43 am All hat no cattle said:
@JP - the final, just arrived, Kick off is imminent.
Except the stands are only half full. You know you can get a seat. It's just that the lone guy checking bags at the gate is dispassionately doing his job, is not himself allowed in, is working quite slowly, and even though the game is starting shortly and the queue is building, he's going to be taking a lengthy smoko.

@WK the regulators assured that they designed their fees and levys on a cost recovery basis. That means in theory that fewer than expected advisers (IE less "cost"), combined with the govt allocation should mean the ratio creeps downward - IE the levy should be adequate.
Yeah right.

@DC THERE IS NO SAFE HAVEN! The key difference under this tied 2.0 theory is bunk. Even if this large group umbrella FAP comes to pass (E.G. Newpark's news is further proof that this very idea is harder than many would have assumed), all it can do is take responsibility for the FA's advice. All it can do is supervise that the FA is following procedure, maintaining the correct records, doing, saying, acting, recording the right things. IE the adviser still has to DO all the same work, and carries all the same if not more risks. I say more risk, because in a large group, under the relentless gaze of regulators, it may be necessary to set the bar well above the minimums, and the threshold for eviction well below - for the good of the group.
There is no safe harbour. The FA cannot hide/shirk/abdicate they way QFE people did.

Also @WK - I'm sure you mean 'orphan' clients. But that probably says more about the threat to the value of all our client bases. see JP's story about BOLR agreements. The reality is there is little concern in the minds of the policy advisers at MBIE that the clients will have access to advice. They have been assured that someone, somewhere, or a robot, will be available to help them. They probably believe that a NR in a call centre is required to operate to the same outcomes as anyone else.
On 28 September 2020 at 11:05 am w k said:
@AHNC: thank you for the correction, yes i meant "orphan".

the 20,000 orphan clients is only a conservative figure. i anticipate it to easily reach the 6-figure mark.

re the cost recovery, calculation may be correct if based purely on variable costs. but there is also such a thing call fixed cost.
On 30 September 2020 at 2:56 pm w k said:
can anyone confirm if one of the largest insurance group will no longer provide PI cover for financial advisers from june next year in view of the new regulation? if so, that means PI premium will ..... ???

just curious, does anyone know how lawyers are there at fma's auckland office?

On 30 September 2020 at 10:15 pm dcwhyte said:
@ All hat no cattle - apologies I didn't intend to imply the meaning of safe haven as used in the current regulatory/legislative context. I meant to suggest that there will be a flight to perceived safety under somebody else's license, rather than be exposed to the burden of compliance costs by retaining their own license.
On 1 October 2020 at 10:15 am All hat no cattle said:
@DC fair enough
interested to read your thoughts on these questions, though;
1- is there any actual 'safety' under someone else's licence?
2- is there less 'burden of cost' under someone else's licence?

Personally, I'm a loud and clear NAY for both.
On 1 October 2020 at 5:12 pm dcwhyte said:
All hat - agree with you for Financial Advisers as defined in the new regime. But those who find the license too difficult to retain may be tempted to join a VIO and become a Nom Rep.

Someone else carries the compliance cost.

The 'safety' = loss of independence = de facto tied agent = Back to the Future!
On 2 October 2020 at 10:07 am JPHale said:
Agree, their is no safe haven in the new regime where an adviser can carry on as they are and not have someone breathing down their neck about change.

There isn’t safety under someone else’s licence as a FA, as the FA and the FAP are jointly responsible, the FAP being ultimately responsible.

The only way for an individual not to be responsible is to be an NR, but that also means no ownership or asset value.

At worst a precarious commission agent or an employee salary. But not the autonomy presently enjoyed sitting on a book of clients collecting renewals and only working when needing to...
On 2 October 2020 at 11:15 am All hat no cattle said:
@DC interesting
I wasn't even thinking of NRs - that's a quantum leap for an FA.
What about the same 2 questions, from the POV of an FA trying to decide whether to set up FAP, or attach to someone else's FAP?
On 3 October 2020 at 8:16 am dcwhyte said:
@All hat - to your two questions I’m a resounding NAY also. While some are applauding the current number of ‘smaller entity’ transitional licensees, I suspect that there will be a different reality in the not too distant future. The cost/benefit analysis of one/two person licensees may not be too flash as additional remuneration provided to assist with initial compliance expenses comes under review. The new agency agreement terms are worth close examination also. Vesting rights on renewal commission? Upward pressure on costs, potential downward pressure on earnings and valuations may cause some to re-think license retention. Very happy to be proved wrong.

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