They could see the value of their businesses shrink or even be extinguished in the lead up to next year's March deadline.
The comments come from an industry veteran, Andrew Scott, who cut his teeth at Sovereign before working for Newpark and The Lending People.
He says this problem is developing as the Financial Markets Authority enters the last lap of its race to get all advisers fully licensed.
From March 16 next year, anyone who does not have a full licence will not be able to practise, and advisers were urged to get their applications in by the end of last month to make sure they could be processed in time.
As of Sept 30, 66% of financial advice providers were operating under, or had applied for, a full licence. A further 20% had taken a preliminary step and enrolled on the Financial Service Providers Register but had not yet formally applied to the FMA for a licence.
Based on those numbers, 14% and possibly more of all advisers are not planning to continue in the business after the cutoff date. Instead, they will be seeking to sell their businesses and quit the industry in favour of retirement or another job.
But Scott thinks their plans might be harder to achieve than they think.
“If there is an influx of (loan) books for sale on the market, at one time, that will drive the price down.” he said.
“So advisers who are hoping to realise the asset value of their lifetime's work will be a bit disappointed.”
In other words, if one in seven – or more – businesses go up for sale, the sheer volume of products on the block could drive down the price, hampering the long term plans of the departing advisers.
And Scott pointed to another problem: the risk of advisers not being able to work at all and so not even having assets to sell, if they risk being struck off as the deadline approaches.
“The new regime requires that advisers are proactively servicing their client base,” Scott said.
“It's generally accepted that simply sending customers an email once a year is not sufficient to be seen as serving your customer base.”
Scott's argument is that advisers have to carefully monitor customers' products to make sure they are fit for purpose. This requires constantly engaging with customers. If they don’t, they will not be meeting the standards of the current Code of Practice. Sitting
back and waiting for March 16 to arrive could constitute a breach of the code.
“If advisers are not actively servicing that (loan) book, the supplier companies, such as the bank or other lender can say, 'You are not actively servicing your customer, we don't feel comfortable, so we are going to terminate your agency'.”
Scott said an end to trail commission and other earnings could reduce or even extinguish the value of the business.
The bankers association is not commenting on what it says is an operational matter for particular banks to deal with. But the brokers' lobby group Financial Advice NZ is sceptical of Scott's claims.
“There is an element of scaremongering in there,” the organisation's s CEO Katrina Shanks said.
“I do not believe those figures will reflect who will be getting a full licence and who will not. We have still got five months to go until March, when people can still obtain a full licence.
“So, I believe there will be a peak of people who come through in the last couple of months to get their licence, as we did through transitional licensing.
“There is no evidence at the moment of a significant number of books being put on the market, and I believe that (in the end) we will see a significant number of advisers get the full licence.”
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