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The reason why advisers are delaying FAP applications

Concern is growing that many advisers have not started the process towards full licensing and will not be able to continue in business. Eric Frykberg looks at why advisers are taking their time.

Wednesday, July 27th 2022, 4:50PM 10 Comments

by Eric Frykberg

Indecision on whether to join up with large adviser groups or remain independent is being given as a reason for slow progress towards full licensing in the mortgage industry.

Other reasons are lack of awareness of the rules and the intention of some older advisers to use the new obligations as a cue for retirement.

These explanations have come as the clock ticks towards formal exclusion of unlicensed advisers from next March.

To make sure that that does not happen, advisers are being asked to get their applications filed by September 30th.

The Financial Markets Authority (FMA) says it cannot guarantee applications that arrive later will be processed in time.

Yet as at July 18, only 663 licences had been approved or were in train.

That amounted to just 36% of all Financial Advice Providers.

So why are so many advisers delaying this action when their livelihoods are at stake?

For many, the answer is uncertainty or indecision, according to a Tauranga adviser, Rupert Gough, of The Mortgage Lab.

Like many advisers, Gough got full licensing a year ago. But he said for some people the answer was not that simple.

“I have a suspicion that some of the larger groups are probably still organising their ABs,” he said.

“There are probably five or six FAPs that represent well over a thousand advisers, and I think that fact is skewing the statistics a bit.”

He said getting all these people into line was a big task.

“You have got to have your AB complaint and if you have 100 or 200 ABs, that takes time.”

For smaller outfits, the problem was uncertainty about which way the individual adviser should go.

“It is a mix of just not understanding the process, or being unsure about whether they will stay in the industry or go into someone else's FAP,” Gough said.

Tony Vidler is a consultant to the industry, an “adviser to the advisers”, as he puts it. He shares Gough's view that uncertainty is one of the reasons for the delays in getting a full licence.

“A portion of advisers are still trying to determine what structure they want to go down, whether they should join a dealer group, or whether they should stand alone and apply for their own licence,” he said.

“Then there is a portion of adviserland that are effectively working up to the transition date and they then intend to exit the industry. There are advisers who are effectively doing that, they don't intend to transition into a full licence at all.”

Vidler added there was a third sector of the adviser industry that was “fundamentally ignorant.

“They don't know what they have to do, which is bizarre, but there you have it.”

Other reasons have been put forward for the delays in seeking full licensing. Among them is regulation fatigue, especially in a post-CCCFA world. Another theory is that some advisers find that a heavy workload is taking up all the hours in the day, so licensing tends to get put off til tomorrow.

Whatever the reason for the delays, the FMA is seriously concerned about the impact of the problem. It has intensified its efforts to reach the entire adviser community.
From the brokers in the High St offices, meanwhile, there are a variety of views on full licensing, ranging from “more red tape” to “it's actually not that hard.”

Tags: FAP

« Secondary loan market set up by peer to peer companyComplaints of fear mongering by financial educators rejected »

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Comments from our readers

On 27 July 2022 at 5:08 pm Jonny Good Guy said:
why does it take the silly FMA 6 months to complete a deadline so the deadline for March should be March
How long it takes crap government companies is not our problem it is theirs
We have to act in 48 hours of a complaint but the FMA can't do their job for 6 months !!!
They need to be as good as we are not worse
On 27 July 2022 at 5:21 pm JeffQV said:
Like Rupert I got my licence many moons ago and it's not a hard or difficult process. The main questions any Adviser must ask themselves is a) am I going to stay in the industry and b) if so, on what basis. These need answering and acting on soon, no excuses accepted by the FMA come the due date.
On 28 July 2022 at 8:32 am valkyrie6 said:
I think there are other factors at play here also and these steam from the commercial aspect of regulation and licensing.
There is a huge amount of scare mongering going on in the industry, some is coming from training providers (one in particular) that inundate advisers with so many “’ courses they must take “’(otherwise the FMA will shut them down scenario ) that the costs involved with these “courses “is putting adviser off having their own FAP.

Then there is the dealer group pressure (one group in particular) where its completely in the group’s financial interest for advisers to go under their FAP license, so they have complete control over no ceiling membership fees, commission splits, dealer override commissions, and self-generated insurance schemes like PI covers and group heath insurance and dealer group owned Kiwi saver schemes.

These dealer group models are solely based on making money for offshore owners and have no interest in adviser welfare.

Unfortunately, the banks enforce dealer group membership so it’s a monopoly for an aging model.
What would be fantastic for the industry would be to see banks and Insurers deal directly with FAP license holders as FAP is a FAP is a FAP.
On 29 July 2022 at 11:39 am Andy the adviser said:
No theories here - the exact reasons I know of (after speaking with many advisers) are:
* Over regulation of the Mortgage advice sector
*Legislation overload (CCCFA, FSLAA, AML, etc)
*Far too much repetition of information provided to banks (some banks require the same information re-written on 3-4 different forms, even AFTER that information was already provided in the first application submitted)
*Inconsistencies in bank requirements despite them all being under the same legislation.
*Double the work for no increase in payment
*Commission clawbacks of up to 27 months
*Large percentages of our incomes now have to go to dealer groups
*Dealer groups have unfair and unregulated power over advisers, degrading any trail commission
*Huge grey area over client ownership, responsibility and obligations
*PI insurance demands by banks and dealer groups.
*Longer than necessary loan assessment and approval times
*increased paperwork means less time to see and review clients.

I love helping people, but I also need to feed my family and pay the bills.
On 29 July 2022 at 12:22 pm two cents said:
The third reason no one has addressed above is that it is difficult to compare the options: What are the costs involved with managing the compliance for your own FAP versus being an AB under a group FAP?

No one has answered that question because the time and cost of compliance, group fee structures and maintaining the regulatory records required are evolving.

Our hours have doubled on the average case file yet not a single bank has offered to increase our commissions for the extra work they are requiring of us. In addition to the increased licensing and training fees we are witnessing skyrocketing professional indemnity insurances claiming higher risk.

How does higher regulatory oversight equate to higher risk?

Nobody will answer that one! The estimates of doing business are currently being worked out on the back of an envelope. It’s ridiculous.
Advisers have been put in an impossible situation.

Just look at the list of questions we are asked which are intended to predict whether a client will default years from now. How are we supposed to know the future? It’s grim.
On 29 July 2022 at 4:03 pm Andy the adviser said:
No theories here - the exact reasons I know of (after speaking with many advisers) are:
* Over regulation of the Mortgage advice sector
*Legislation overload (CCCFA, FSLAA, AML, etc)
*Far too much repetition of information provided to banks (some banks require the same information re-written on 3-4 different forms, even AFTER that information was already provided in the first application submitted)
*Inconsistencies in bank requirements despite them all being under the same legislation.
*Double the work for no increase in payment
*Commission clawbacks of up to 27 months
*Large percentages of our incomes now have to go to dealer groups
*Dealer groups have unfair and unregulated power over advisers, degrading any trail commission
*Huge grey area over client ownership, responsibility and obligations
*PI insurance demands by banks and dealer groups.
*Longer than necessary loan assessment and approval times
*increased paperwork means less time to see and review clients.

I love helping people, but I also need to feed my family and pay the bills.
On 31 July 2022 at 8:03 pm Amused said:
@ Andy the adviser - Hear hear!
On 1 August 2022 at 9:44 am valkyrie6 said:
Courses relating to one adviser under one FAP license from the training provider that are a “’must do “’ before applying for your license.
Level five
Gore strand $ 1,739 + GST
Residential mortgages $ 1,335 + GST
Insurance $ 1,330 + GST
Close the caps course $ 400 + GST
Governance course $ 2,350 + GST 14 weeks
FAP compliance officer course $ 2,350 + GST
Quality assurance assessment $ 2,800+ GST
Total cost $ 12,304 + GST = $ 14,150
Quality assurance assessment after you get a FAP $ 6,000 + GST
The challenge for one adviser running a self-employed business also contending with other FMA requirements and on top off that new relation from banks and insurance companies as well , plus dealer groups breathing down their necks with increasing membership costs and dealer group regulation requirements ( group FAPS) , the poor old adviser who just wants to give great independent advice and look after their clients is getting hit from all sides.
Yes plenty of time to get everything done, or maybe no I’ll just default to a group FAP or leave the industry .

On 1 August 2022 at 10:14 am valkyrie6 said:
The FMA needs to investigate the PI insurance schemes, in three years the cost for one adviser that say only gives advice on retail products only (mortgages, insurance) went from $ 1,200 to $ 1,700 to $ 2,875 , there is no perceived new risk at all as with the additional over regulation you would think this would only strengthen an industry that already has very few complaints made against it.
Someone is profiting big time from these group PI cover schemes and the FMA needs find out who is getting the kickbacks, it might surprise them.

On 1 August 2022 at 12:06 pm w k said:
looking at the numbers valkyrie6 has provided (you're not very far off), and the way the financial advisory industry has been led to head, it looks there's no room for advisers who are happy to manage a small client portfolio.

some may say only the "successful" ones should be in this business, but it may ultimately turn into a richboy's club. just saying.

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AIA 6.35 5.25 5.45 5.99
ANZ 6.34 ▼5.59 6.05 ▼6.29
ANZ Blueprint to Build - - - -
ANZ Special - ▼4.99 5.45 ▼5.69
ASB Bank 6.35 5.25 5.45 ▼5.69
Avanti Finance 6.65 - - -
Basecorp Finance 7.25 - - -
Bluestone 6.89 - - -
BNZ - Classic - ▼4.95 5.39 ▼5.69
BNZ - Mortgage One 6.39 - - -
BNZ - Rapid Repay 6.39 - - -
Lender Flt 1yr 2yr 3yr
BNZ - Std, FlyBuys 6.39 ▼5.55 5.99 ▼6.29
BNZ - TotalMoney 6.39 - - -
CFML Loans 7.25 - - -
China Construction Bank - 5.35 5.80 5.99
China Construction Bank Special - - - -
Co-operative Bank - First Home Special - ▼4.89 - -
Co-operative Bank - Owner Occ 6.25 ▼4.99 5.39 5.89
Co-operative Bank - Standard 6.25 ▼5.49 5.89 6.39
Credit Union Auckland 5.95 - - -
First Credit Union Special 5.85 5.35 5.85 -
Heartland Bank - Online 4.60 4.90 5.29 5.39
Lender Flt 1yr 2yr 3yr
Heretaunga Building Society 6.50 5.60 6.00 -
HSBC Premier 6.34 5.09 5.34 5.59
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
ICBC 6.00 4.99 5.15 5.89
Kainga Ora 5.85 5.31 5.58 5.97
Kainga Ora - First Home Buyer Special - - - -
Kiwibank 6.00 ▼5.95 ▼6.45 6.79
Kiwibank - Offset 6.00 - - -
Kiwibank Special - ▼4.95 ▼5.45 5.89
Liberty 4.84 - - -
Lender Flt 1yr 2yr 3yr
Nelson Building Society 6.45 5.55 6.15 -
Pepper Money 5.29 - - -
Resimac 5.59 6.54 6.44 6.98
SBS Bank 6.29 5.65 5.89 5.99
SBS Bank Special - 5.15 5.39 5.49
Select Home Loans 6.89 - - -
TSB Bank 7.05 ▼5.65 6.09 ▼6.39
TSB Special 6.25 ▼4.85 5.29 ▼5.59
Unity 5.65 4.95 5.55 -
Wairarapa Building Society 6.49 5.55 6.15 -
Westpac 6.39 ▼5.55 6.05 ▼6.29
Lender Flt 1yr 2yr 3yr
Westpac - Offset 6.39 - - -
Westpac Special - ▼4.95 5.45 ▼5.69
Median 6.34 5.28 5.58 5.93

Last updated: 8 August 2022 8:14am

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