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The FSPR is moving in directions we haven’t discussed

The industry has been watching the ups and downs of the Financial Service Providers Register (FSPR) like a hawk, and it seems we are finding the data somewhat less helpful than we anticipated.

Tuesday, July 20th 2021, 12:24PM

by Jon-Paul Hale

Talking with the various stakeholders around the industry, the FSPR seems to be growing, not shrinking, as we anticipated.

However, this doesn't necessarily mean the naysayers were wrong - I've been vocal about the possible attrition of advisers too.

More to the point, we have seen and heard about many people leaving, we have providers closing and cleaning up agencies. Even Financial Advice NZ has said they have had member movement with downward pressure on existing members and many new members applying to Financial Advice NZ.

To an extent, we would expect this with people retiring but the new rules have seen more advisers retiring than normal.

However, looking at the numbers I have seen, around 9,100 advisers were registered in March 2020 against the 9,200-ish in March 2021, and the 9,900 reported on 15 June. This suggests we have had an influx of people alongside the losses we expected.

That influx has been one of the things that haven't been talked about, and to be fair, I should have said something about it, as the 2010 regulation changes were part of why I felt it was time to get started as an adviser.

Before I get into more of the growth, let's talk about the movements we know of.

Katrina Shanks had commented about the Financial Advice NZ membership increasing with more applications for members than exits - my tally is running 2 to 1 in favour of growth with FANZ.

The numbers I talked about in a comment on Good Returns recently had new vs leaving on the FSPR as +700 and -400, which is good to see for the industry.

The number from the FSPR on notices to deregister post 16 June was 550 advisers, so we are still to see the initial loss from the new licensing flow through.

All this aside, as it's academic and all about getting advisers onto the new playing field. I would say the transition from the old to the new has been very successful. With nearly 10,000 financial advisers on the field, I feel that we will continue to see a vibrant independent adviser industry.

We're still not out of the woods on that one as we are still to settle into what this all means and what running a FAP actually looks like, with my comments around PI from a previous article consolidating into a more than doubling of the premium for my business over 2020-2021. And there is still more to come.

The real test of this will be what happens in the next couple of years as full licensing is worked through and those planning on hanging around until 2023 depart.

The predictions about 15-30% of advisers at 15 March 2021 not being here at 15 March 2023 are still possible however, with the upswing in people joining the industry it will likely be a moot point with net growth.

If we look at the numbers, loosely, we have about 5.5 million people with an average of about 2.3 people per household (individual entities, not flatmates), which translates to about 5,000 advisers needed to manage this with client bases at 500 households.

Now that will get a "hang on a minute", 5,000 advisers needed and 9,900 registered, don't we have too many already? No.

When you break it down further, those households will need a range of advisers, though not every type of adviser at the same time.

In basic terms a general insurance adviser, a life insurance adviser, mortgage adviser, KiwiSaver adviser and an investment adviser, with other disciplines in banking, consumer credit, foreign exchange etc, on top from time to time.

I expect we will become more specialised as advisers, so while we may be delivering a range of services, one or two disciplines will be advice passed on rather than doing it ourselves.

Or the client is referred to an area specialist, which I have discussed previously.

Sure, the typical life adviser will be doing some fire and general covers and basics around KiwiSaver just as another will refer them on to other advisers.

So a typical household will have 3-4 advisers involved, maybe a direct general insurer, life adviser and mortgage adviser. If they have reasonable assets, then an investment adviser too.

Which would be 3-4 FAs on the register, and by my numbers we need 20-25,000 FAs, so we're far short on that measure.

But hold up, what about NRs? Yup, those that work for FAPs like banks and direct insurers. By this measure, with what we understood from the prior regime, we have the bodies already in the industry - it's just a case of distribution.

We know financial products are becoming more complex, and as a result, the advice requirements have increased too.

Specialisation will likely also generate the fee discussion with particular clients and sectors where we still have commissions paid because costs of doing business have increased, and addressing the gap results in fees for clients.

I'm still resisting base fees on clients. I think it is a barrier to advice. However, I hear reports that baseline advice fees in insurance have a reasonable level of uptake.

Sure this is in the higher net worth area of the market where the need is more advice than commission from new business because of existing conditions and covers precluding moving to a better product mix.

But that's also the point - this sector can pay fees, where typical Kiwi households don't have the budget or focus on the value and worth of advice. Something that is often not appreciated until after the fact, as many of us know and have experienced.

What is the market going to look like in two years, I’m not sure.

But I am confident that good professional advisers will have a place if they put the work in.

Tags: Financial advice Financial Advice New Zealand fund liquidity Jon-Paul Hale Opinion

« Complaints and the problem with professional indemnity insuranceIncome protection: Why taxable losses are not the right advice »

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