Over 200 financial advice providers (FAPs) have been cleared for take-off ahead of the June 29 advisory regime change with a long queue forming behind, according to Financial Markets Authority principal consultant, Derek Grantham.
Grantham told a packed-to-capacity Financial Services Council (FSC) advice summit at the Sky Stadium in Wellington last week that the transitional FAP count had clocked above 200 since opening for licensing last November.
“And there’s many more to come on the FSPR [Financial Services Providers Register],” he said.
Adviser businesses must first register on the FSPR before applying for a transitional FAP licence.
Currently, just over 1,400 entities are registered on the FSPR as employers of financial advisers. About 9,350 individuals are listed as advisers on the FSPR, including almost 2,000 lumped under the soon-to-be-discontinued authorised financial adviser (AFA) designation.
From June 29, all advisers caught under the Financial Services Legislation Amendment Act (FSLAA) must operate through a FAP licence. Financial advisers can either form their own FAP or act as an employee of another licensed entity. The law also creates the ‘nominated representative’ (NR) category: FAPs can employ NRs, who may not have to meet the same competency standards as full-blooded ‘financial advisers’.
The Ministry of Business, Innovation and Employment (MBIE) estimates FSLAA will rule over about 21,500 NRs and 8,000 ‘financial advisers’ (mostly comprising AFAs and transitioning ‘registered financial advisers’).
Grantham told the FSC crowd that the biggest snag to date in FAP licensing – a largely automated process – has centred around faulty NR reporting.
He said some FAP licences have been held up because sole trader advisers ticked the box as an employer of NRs.
“Mistakes like that slow down the process,” Grantham said. “So take care with the application.”
Aside from those minor stumbles, Sharon Corbett, MBIE manager financial markets, told the FSC ‘Get in Shape’ half-day symposium that most common late-stage FSLAA concerns hinged on disclosure and funding.
The government has yet to sign off on the FSLAA disclosure regulations after tabling draft rules last October. Corbett said there were a few lingering “niggles and concerns” about disclosure in “simple advice scenarios”, record-keeping processes and the short deadline to prepare compliant materials.
She said the final disclosure regs should be in place by March with potential to grant some transitional relief past June 29.
Meanwhile, the advice industry is also set to face higher levies as the government moves to boost FMA funding by as much as 40 per cent over the next few years. MBIE is reviewing FMA funding proposals that could bring in $26 million extra each year (above the current $36 million) to the regulator.
Industry funds about 75 per cent of the FMA budget via a series of levies, product lodgment charges and other channels.
“There will be an increase in the [adviser] levy,” Corbett said. “But we don’t want the levies to be a barrier to entry.”
During the FSC show, which also toured Auckland and Christchurch to sell-out audiences, Angus Dale-Jones, Code Committee chair, noted that the investment adviser competency standards remained a grey area for now.
Dale-Jones said the committee had deliberately “parked” the investment advice competency standards as Level 5 until the FSLAA regime beds in.
Originally, the committee proposed university degree level standards for investment advisers before settling on a lower interim educational benchmark.
“We know the investment competency standard is highly contentious – it is in Australia too,” Dale-Jones said. “We also know it will require more work based on the divergent feedback we received during consultation.”
He said the adviser code would “evolve” as needed.