Over 900 advisers will leave the industry once the Financial Services Legislation Amendment Act (FSLAA) comes into force, according to government estimates.
The Ministry of Business, Innovation and Employment (MBIE) figures – just published in its transitional licence fee impact statement – forecast an FSLAA-era ‘financial adviser’ force of almost 8,200, comprising the remnant authorised financial adviser (AFA) and registered financial adviser (RFA) populations of the existing regime.
Currently, MBIE counts almost 9,100 financial advisers split between 1,995 AFAs and 7,100 RFAs.
Under FSLAA, the two groups – roughly divided between investment-focused AFAs and insurance-leaning RFAs – will share the single ‘financial adviser’ designation.
However, MBIE estimates all of the current qualifying financial entity (QFE) advisory force will survive the FSLAA cut. The existing batch of 57 QFEs employ 21,500 quasi-advisers with MBIE picking exactly the same number to emerge as ‘nominated representatives’ when FSLAA kicks off next June.
In total, MBIE has forecast almost 2,300 ‘financial advice providers’ – the fundamental FSLAA legal unit – will set up shop once the new law comes into force.
The FSLAA licensing fee system (which combines various flat fees and hourly-rate charges for complex cases) announced last week would keep the Financial Markets Authority (FMA) annual industry-funded ‘cost recovery’ levy at the current level of $3.6 million but distributed over a larger base of entities and individuals.
MBIE has put the cost of FSLAA transition about just over $2 million, which will be recovered from the industry via licensing fees.
Also last week, the FMA reported a record increase in AFA numbers in its final annual stocktake of the population. Overall, the AFA population increased by 50 during the 12 months to June 30, 2018, the regulatory report reveals, as 140 new entrants outweighed the 90 exits: in the previous annual period the FMA recorded a net decrease of 30 AFAs.
As reported here in March, AFA numbers have surged since June last year as advisers rush to lock-in FSLAA-proof credentials. Advisers with AFA status will meet the educational standards under FSLAA.
But the FMA issued a hurry-up notice to advisers planning to enter through the AFA door.
“While advisers can apply to be an AFA anytime up to the start of the new regime, we suggest they apply as early as possible to allow us time to complete their application – particularly if their application is received during the period we are assessing transitional licences,” the regulator says in a release.
Most AFA metrics captured by the FMA review remained static over the 12 months to June 30 last year, aside from a slight decline in the proportion employed by QFEs. Just 30 per cent of AFAs reside in QFEs, the FMA report shows, down from 33 per cent in 2016.
An almost equal proportion of AFAs were employed in a non-QFE business as at last June, compared to 24 per cent two years ago. Almost a quarter (23 per cent of AFAs) work in share-broking firms, up 2 per cent compared to 2016, according to the FMA figures, while sole adviser businesses have remained steady at about 15 per cent of the AFA population over the three years to the end of last June.
In a release, Commerce Minister Kris Faafoi said the FSLAA and other government reforms would help New Zealanders “access good quality financial advice”.
“Businesses and individuals providing financial advice now have a year to prepare to meet the requirements that will apply in the new regime,” Faafoi said in the statement. “We have several thousand financial advisers operating in New Zealand. Not only will this new regime level the playing field so they are all subject to the same rules and oversight it will increase the standard of financial advice across the board.”
The final component of the FSLAA reforms, adviser disclosure requirements, was due for consultation this month.