More than 200 financial advisers remain missing-in-action just weeks before the full licensing regime goes live.
Financial Markets Authority (FMA) chief, Samantha Barrass, told a parliamentary committee earlier this month that 440 advice firms operating under the current transitional rules had yet to apply for a full licence.
She told the committee that perhaps 200 of those stragglers have confirmed to the FMA they would either leave the industry or move to another financial advice provider (FAP) licence before the March 17 regime change date.
“About half of these—so about 200—we haven’t heard from and we are actively pursuing them,” Barrass said. “We are engaging with the providers to make sure that they are taking responsibility for advisers who are advising of their products so that we don’t have what we call the orphan clients, as a result of March ticking over and financial advisers no longer being licensed and therefore unable to provide advice.”
As at mid-February, she said approximately 2,500 advisory firms had already shifted to a full licence,
“About 1,300 are operating under their own licence and about 1,100 are operating under someone else’s licence,” Barrass said.
And another piece of the FAP regulatory puzzle fell into place after the FMA released details of the annual adviser business information return process.
As per the templates published last week, advisory firms may have to answer almost 30 questions in yearly regulatory returns required by the FMA.
Following industry consultation in 2021, the FMA toned down earlier FAP regulatory return proposals for the final version.
In a regulatory impact statement, the FMA says it opted for a “scaled-back set of questions that balances compliance cost with provision of information that will give us the ability to effectively monitor the licensed population”.
The weight of regulatory return compliance will vary according to the advice business class system (that defines firms across a 1 to 3 scale spanning sole practices to conglomerates employing ‘nominated representatives) and the products or services offered.
FAPs will have to report to the FMA every year on “factual business information, such as business volumes and service types, numbers of customers, complaints information and arrangements as a licensed FAP, which may have changed since a licence was granted”, the regulatory impact statement says.
“This will help us to understand the profile of a FAP’s business and to focus our resources appropriately.”
The FMA has finalised the regulatory return rules ahead of the full licensing FAP regime that kicks off on March 17 this year.
However, the annual returns (to be completed online) will cover the 12-month periods to the end of June each year with the inaugural reports due for completion by September 30 next year.
While providing regulatory returns are likely the least of FAP licensing concerns, the prospect of having to gather complex business data each year did alarm some industry participants on both cost and privacy grounds.
“It was noted that some FAPs would be likely to incur significant costs in relation to gathering the data to complete the annual regulatory returns,” the FMA statement says. “These costs include monetary costs in establishing systems to collect the information and the time required to collate the information and complete the returns.”
But the regulator says the annual information returns will be necessary for an effective “risk-based” policing of the advice sector.
“Information collected on the profile and business activities of licensed FAPs allow us to understand the risks to these statutory objectives and improves our ability to reduce harm, adapt and respond quickly, and ensure effective and efficient use of our resources,” the FMA says.
The regulator plans to publicly release some of the FAP annual data in aggregated form.
Lachlan Maddock is editor Investor Strategy News (Australia)