The NZ financial advice sector has entered the full-licensing phase in much more condensed and slightly leaner state after a grueling two-year transition period, new regulatory data reveals.
Figures released by the Financial Markets Authority (FMA) last week show the overall adviser population has declined by about 2,200 since the transitionary regime began two years ago while the market structure has changed significantly.
According to the latest FMA data, the full-licensing era kicked off with 20,795 individuals under regulation, comprising 8,838 advisers and 11,957 nominated representatives: the comparative statistics stood at 23,000 individuals, 10,750 advisers and 12,246 nominated representatives at the start of the Financial Services Legislation Amendment Act transition in April 2021.
But along with an individual attrition rate of almost 10 per cent, the shift to full-licence rules has seen the number of financial advice providers (FAPs) – the main unit of regulatory currency – fall from almost 1,820 two years prior to just 1,360 last week, suggesting a reasonable amount of business consolidation and adviser exits or status readjustments.
The latest FMA figures show just 451 single-adviser, or Class 1, FAPs have gained a full licence with a further 855 entities approved as Class 2 providers (holding one or more adviser but no nominated representatives). As of last week, the regulator has licensed 54 Class 3 FAPs, which can include unlimited numbers of advisers or nominated reps.
Furthermore, the full-licence launch data counts 1,140 ‘authorised bodies’ – or entities that will fall under the responsibility of other FAPs – compared to 1,200 as at April 2021.
While the general industry shrinkage undoubtedly reflects some adviser exits, some ancillary industry businesses with transition credentials have let their FAPs lapse ahead of the full-licensing regime.
For example, Australian research house, Morningstar, will no longer service retail clients in NZ following the advice licensing upgrade.
“Morningstar Australasia will continue to provide research to NZ wholesale clients, however due to changes in NZ financial advice laws, Morningstar.com.au and Morningstar Investor our retail facing products will no longer be intended for NZ retail clients from 16 March 2023. The terms and conditions of these websites will be updated, and individual clients based in NZ have also been advised of the changes,” a spokesperson for the company said.
“If we have information indicating that they are NZ residents, they will no longer have access to the Morningstar.com.au and Morningstar Investor subscription. Their subscription will be refunded unless they confirm to Morningstar that they are no longer residents or are wholesale clients. This will happen on March 16.”
Michael Hewes, the newly promoted FMA deposit-taking, insurance and advice director, said the final adviser tally could rise as the last administrative duties are completed.
“The total number of advisers covered by those full licences will be known in June, once their details have been linked to each licence-holders’ registration on the Financial Service Providers Register,” Hewes said in a statement.
“Our focus on advice will now turn to monitoring and supervising the licensed advice providers, having finalised the questions for regulatory returns that licensees must file every year, the first due in September 2024.”