Many mid-tier discretionary investment management service (DIMS) providers will exit the market if the threshold for full financial reporting exemption is not raised, according to Nick Stewart, director of Hastings-based advisory firm Stewart Group.
In a submission to the Financial Market Authority (FMA) consultation on DIMS financial reporting for “small to medium providers”, Stewart says the exemption cut-off levels in the proposed three-tier system are set too low.
DIMS providers with funds under management (FUM) of less than $5 million, between $5-10 million and between $10-20 million would be granted financial reporting relief on a sliding scale.
“Having three tiers is fine but they are so low in relation to FUM[funds under management] that most single operator businesses will be larger than a level three DIMS provider and therefore be captured by the full financial reporting requirements of the Financial Markets Conduct Act,” the submission says
Stewart said any DIMS provider with $20 million or more would be obliged to adopt full IFRS audit and reporting standards (including making financial reports public) at an annual cost of at least $40,000.
He said the Stewart Group would exit the DIMS market based on those parameters with many other advisory firms facing a similar challenge.
A spokesman for the FMA said the regulator had only received a “handful” of submissions on the DIMS exemption proposals by the close-off date of April 2.
“But there’s been lots of dialogue with the industry and the overwhelming response has been positive,” the spokesman said.
He said over the next eight weeks, financial advisers and other providers would have to decide whether they want to offer contigency, class or personalised DIMS.