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The death of the single adviser FAP

Consultant Tony Vidler says we might be seeing the death of the single adviser FAP.

Thursday, May 6th 2021, 6:47AM 17 Comments

by Daniel Smith

Tony Vidler

Vidler is concerned the current numbers of transitional licences the industry has seen from the FMA do not reflect the true health of the industry.

He believes the New Zealand financial advice industry is about to go through a serious rough patch, which could see the loss of a large percentage of single adviser FAPs.

One of the key drivers of this, according to Vidler, is “a large proportion of advisers who have their transitional licence who still have little idea what getting a full licence actually involves.”

“I would suggest that advisers in this boat are a quarter or a third of people who have transitional licences.”

Vidler pulls no punches with this sector of the market.

"There is a level of ignorance which is stunning. Also arrogance in some parts, and it is an unhealthy proportion of the market.

“Certainly the majority of advisers have made legitimate and serious investment to become compliant.

“The ones who are still short of the mark, are not short on the ethical or moral standpoint, it is more getting their business ready for commercial development.”

For those advisers who remain unwilling to raise their businesses to the standard of a full licence, Vidler sees two solutions.

One is for advisers to ditch their single adviser FAPs for the safety of a large aggregate.

“It is probably the right thing to do for hundreds of advisers to go under the umbrella of a large company like NZFSG and be told how to do it. That would probably be better from a market point of view.”

The other solution sees a multitude of micro-mergers – single FAPs coming together to form small multi-adviser shops.

“This will be significant. There are a lot of one man bands who have applied for their transitional without any real comprehension of what the costs are.

“Costs are not just licensing and levies, it is infrastructure, staffing, these one man bands are in danger of losing client facing time.”

Vidler says this will be an option particularly taken up in rural areas.

“When you get out of Auckland and Wellington, advice is fundamentally a provincial business. The advisers around the country are rooted in their local communities and they have to be generalists.

“I think that what will come is a lot of micro-mergers of one or two man bands coming together to form three or four man bands. I think this will probably be a very successful model.”

Despite the rocky settling in period that Vidler predicts, he does have high hopes for the future of advice.

“For those businesses that come through this period, I think they will be very robust, and very well placed over the long term. Some may fail, but most won’t. They are a pretty hardy bunch, these advisers.

“I think in two to three years’ time, the independently owned advice businesses are going to be in a good place.”

Tags: compliance FAP licensing single adviser FAP Tony Vidler

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Comments from our readers

On 6 May 2021 at 9:16 am Elephant1 said:
I totally agree with Tony, there will be a period in 2022, where the knowledge of the changes in the financial advice becomes clear, and there will be many advisers depart.
On 6 May 2021 at 9:53 am dcwhyte said:
Since the release of transitional license statistics earlier, I've expressed the view on various platforms that the number of small business licensees will reduce -particularly at the dawn of the full licensing era.

In addition to the direct expenses Tony cites, the time spent on meeting obligations, thereby reducing client-facing time, will ultimately render these small adviser entities economically unviable.

With expenses rising and income falling, full licensing will become a bridge too far for many.

Add in the potential for CoFi to increase the regulatory burden on advisers by duplicating conduct obligations, then the single adviser FAP has a bleak future.

Statements about how appropriate entity licensing is as a regulatory model in financial services are, in my view, premature.

If the Austraian experience is any yardstick, it's far from appropriate - ask Don Trapnell at Synchron.

FAP consolidation is inevitable as economies of scale will dictate the survival of the most adaptable business models - the least adaptable is the single adviser FAP.
On 6 May 2021 at 12:01 pm Pragmatic said:
Rubbish.

Financial advice is (& will always be) a cottage industry. Whilst the industry is currently buckling under the weight of new regulations, these demands/distractions will pass, & enhanced systems & processes will make the dispensing of advice even more efficient than it is. That may see the growth of co-ops/dealer groups/collaborative arrangements, but the sole practitioner will live on.
On 6 May 2021 at 2:58 pm JPHale said:
I don't see anything of this or commented wholly wrong.

There are plenty of advisers that I have talked to that have said that have a TL but they intend to join a FAP once the dust settles. It was the insurance policy I have talked about for 2 years.

There are significant challenges coming once the realisation of what is needed comes to bear, and some are already struggling. That is and was expected. These people will move and align where they see fit.

The provincial piece is one that I see massive change, Yes, I'm in Auckland, but I grew up on a farm and lived in the Waikato for 3 1/2 decades so I get provincial too. I live in a city by choice ;) Yes, I am crazy you know that already!

The provincial piece is likely to go in a completely different direction than expected. Some 60% of my clients are outside Auckland and they have come to me by reputation and experience. Additionally, they have been quite satisfied to work via video and remote tools.

In fact, they prefer it to having to get the house tidy for visitors, it's much less stressful on mum and I get more reviews done both in numbers and percentage of uptake.

So I see the provincial adviser doing a couple of things unexpected.

1. If they don't adapt people like me will end up looking after people in their patch and they have no idea it's going on, or they get with the program and develop a business that is more local.

2. Where they have remote tools to service both local and more widely geographically based clients they will grow their businesses and make them more resilient to local events.

The idea of the generalist sounds good, but not the reality with the new rules.

We're more likely to become specialists and bring in the specialties we don't cover, either from local people we know or more likely with people remote that have the skills needed, which is what I do now.

For those not navel-gazing and reading the tea leaves, this is an exciting time with massive opportunity for those that want to grab it.
On 6 May 2021 at 3:14 pm w k said:
well said, tony and dcwhyte.
yup, the arrogance, ignorance .... and tunnel vision "experts" couldn't see the elephant in the room.
On 6 May 2021 at 3:51 pm All hat no cattle said:
devil's advocate here
The headline implies it to be a bad or intimidating eventuality.

So, is the "death" of CERTAIN 1-man FAPs a bad thing? It mostly the ones who can't or won't cope. We recently had an example of such, who missed the boat on TL and make a hash of applying for a Full.
The ones that 'die' (find a new home?) will be the kind that was late and reluctant to engage with making changes.
The kind that are more likely to be trying to find ways to "comply" without changing much (prefer Business as Usual, perhaps in denial about accepting a new normal).
The kind that relies on the providers to provide them every form of "adviser support".
The kind that were never really a Business in the first place. No proper systems, processes and record keeping.
The kind that the PI providers have been signalling they don't want to cover.
The kind that may find, there is not much "safety" in that "large aggregate" either.
On 6 May 2021 at 4:26 pm LNF said:
I am reading the comments and article with interest. Doesn't affect me after 50 years in the industry. Driven by bureaucrats and their like
Let me ask. How is the public benefitting from all this. Are they getting better advice and service. Do they have better security. Don't think so.
On 6 May 2021 at 6:53 pm w k said:
change for the better is good, all for it. but change for the sake of changing is bad.
should "consultants / experts" be recommending wholesale changes, ie. more work = more fees earned, or recommend changes to what is necessary, ie. probably lesser work = lower fees earned? conflict of interest?
On 7 May 2021 at 9:02 am Backstage said:
The article reads like Tony just realised... if you couldnt see this happening 5 years ago where were you? I am amazed myself talking to some advisers recently who have only just relised, this is and was real. If they had spent the same energy they spent moaning and denying they would have been in shape perhaps. I still see websites asking clients to download their free disclosure statement...
On 8 May 2021 at 9:44 am JPHale said:
@backstage, only 5 years? :D
On 10 May 2021 at 10:31 am Matron said:
Adviser businesses that have not applied and obtained a full FAP licence by the end of 2021 are unlikely to obtain one by March 2023.

And don't expect fully licensed FAPs to pick up the remaining flotsam and jetsam looking for a home either.
On 11 May 2021 at 8:51 am valkyrie6 said:
I am wondering if Mr Vidler is already a paid consultant of NZFSG or maybe he does not actually understand the adviser market in New Zealand, having one or two large groups hold the only FAP’s licenses would be devastating for the NZ consumer and a complete mockery of the FMA’s focus to regulate the adviser market.
It would give a group like the G complete power to charge advisers whatever they liked, and they would have a compete monopoly over the New Zealand Mortgage market, being Australian own and having a cloud-based CRM based overseas they would also own all the NZ customers client data also stored overseas as their advisers become nothing more than G employees.
With the G and Loan Market being owned by Ray White real estate I do wonder if data mining across these platforms could be happening as competition for real estate sales and listing heats up.
Then there is the basic disclosure part, what is being disclosed to the NZ consumer in regard to where their personal banking data is being stored and whom has ownership of it?
I have a sneaking feeling there is currently a massive lack of basic disclosure in the industry, more so in larger groups as the not so adequate advisers will certainly hide behind a large group FAP as to them this will be the easier road to take , and even though the 15th of March has come and gone you only need to check a large group advisers current disclosure statement to see they are not even compliant in a basic sense already in breach of the new regulations.
On 14 May 2021 at 8:18 am Tony Vidler said:
lol...I assure you I am not a paid or unpaid consultant to NZFSG or any other entity intent on capturing distribution. For the record, I have never done any work with NZFSG and have no conflict whatsoever. All of my work with advisers is with those intent on independent ownership of their own businesses and who are committed to building the best professional practices that they can - and ensuring they keep them until they are ready to exit.

I don't think I'm blowing my own trumptet too much to say that I do indeed understand the adviser market...and better than the vast majority of the adviser market does I'd venture to suggest @valkyrie6

This article was one piece of a wider ranging conversation covering a lot of ground. It is not an article I wrote, though what it certainly covered some things I said.

I'll expand on a couple of points though which appear confusing to the @valkyrie6's of the world:
* while I believe independently owned advice businesses are the optimal model for consumer engagement and delivering professional choice, they are not the only viable distribution model - nor is it even the right one for many.
* institutional or corporate control and support for some advisers is exactly the right thing for both those advisers and their clients. Quality control, compliance, process add safety margins and deliver better outcomes than those advisers would otherwise deliver
* equally; advice is not always necessary for consumers to have an excellent financial services outcome. I believe in the hybrid model where innovative businesses blend simple transactional delivery, robo-offerings and complex planning services to the same consumer at different points in their life journey - or as required given different needs at different times by the consumer.

In plain English: I believe there is room for a wide variety of models and offerings, and a wide variety of methods of engaging with consumers. We do not live in a one-size-fits-all-world.

I just happen to focus my work on a particular niche of the advisory world, but that doesn't mean I do not appreciate what other sectors can add to the industry.
On 15 May 2021 at 12:43 pm JPHale said:
Agree Tony V, and this is what I have seen and experienced with our discussions.

The reality is we have a large number of advisers that didn't get TL and are still expressing surprise about the new rules. Demonstrating what we have discussed here and elsewhere for over two years for a sector of the industry.

If you missed and didn’t engage with what’s been going on you’re an idiot and deserve to be where you are without blaming anyone else. There was more than enough communication on this from every provider.

Frankly, good adviser or not, probably not, what the regulator intended is what has happened. Those that can’t manage TL aren't suited to run a FAP. And many that have TL will make the decision to not get a Full License
On 17 May 2021 at 4:51 am Tony Vidler said:
JPHale makes a key point well: I too believe that there is a fair proportion of advisers who have a Transitional Licence who either do not intend to apply for a Full Licence or who do not know what a Full FAP Licence involves. What proportion of TL holders that is remains a guess of course, but I am not going to be surprised to find in another 18 months that perhaps as many as 50% of the TL holders from the outset did not translate into Full licences of their own accord.

And to be blunt about it, why should we be surprised if that is the case when applying for a TL was a "buy time to be allowed to continue trading" strategy for so many? It is to be expected surely? And of course the majority of those TL's that do not progress to their own Full licence will be single advisers who were still weighing up options at the time of transition, and not all FAP or alignment options for them were actually clear. They needed the TL to have time to make sensible decisions about their business structures and futures.
On 19 May 2021 at 6:00 pm JPHale said:
Well said Tony. Exactly.
Change is here. It's not for the sake of change either.
On 22 May 2021 at 11:03 am JPHale said:
And plenty will disagree with my comment on change.

We also need to remember that the rules applied to us have been applied to us by the government because they felt Kiwis we're not getting a fair deal.

The government has done this with consultation which is better than some of the things they have done.

The very harsh reality is we have new rules, and it's becoming a “suck it up princess” kinda response.

Yes, you have to pay to play, you have to do a bunch of things that are new and uncomfortable, and you're going to have to lift the game on continuing education. That's just how it's going to be...

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