Just over 40 discretionary investment management service (DIMS) licences had been granted by the Financial Markets Authority (FMA) as of last week with only a handful left to be processed in time for the December 1 regime change date.
In June the regulator said it had received only 44 DIMS licence applications by the May 31 deadline. After that date the FMA may not process any DIMS licensing paperwork in readiness for the December 1 cut-off point.
Under the Financial Markets Conduct Act (FMC), all providers who want to offer retail ‘class DIMS’ – essentially model portfolios – must have a licence and other supporting documents in place by December 1.
Nick Stewart, director of Hastings-based advisory firm Stewart Group, said of the 41 DIMS licences granted to date, about 20 were handed to independently-owned financial planning businesses.
Stewart, whose own firm earned its DIMS stripes at the end of October, said after stripping out multiple licences award to related entities, 18 independently-owned advisory businesses were now licensed to operate in the field.
He said of the remaining DIMS licensees, there were nine fund managers or trustee firms, six banks (including related funds management businesses), and two stockbrokers.
According to Stewart, the DIMS rules could catch out some financial advisers who give investment advice to trusts or charities, for example.
“Some of them may not be aware they need to be licensed,” he said.
The Stewart Group currently provides back-office services – including DIMS-related services – to five other financial planning firms around the country via the Boutique Advisers Alliance. However, Stewart said advisory firms can’t outsource their DIMS licence.
“Every financial planning business that wants to offer class DIMS has to have their own licence,” he said.
According the FMA website, authorised financial advisers (AFAs) “may act as agents for a licensee who has been authorised to provide DIMS to investors”.
“A licensee cannot sublicense or otherwise allow an AFA to use their licence to act as a principal in the DIMS offer,” the FMA website says. “To be a principal, an AFA needs to get their own licence (if the AFA needs to use other parties’ resources to do this, those arrangements are assessed as outsourcing and custody arrangements under the FMA’s assessment process).”
AFAs who wish to offer ‘personalised DIMS’ – individually-tailored investments regulated under the Financial Advisers Act (FAA) – were required to update their adviser business statements (ABS) earlier this year.
According to a Treasury analysis published last year, 1,228 AFAs were permitted to offer DIMS under their authorisation conditions, although FMA research indicated only about 560 actually provided the service.
The DIMS regulations were partly aimed at reducing the number of AFAs offering the service and clearly identifying those who wanted to remain in the game.
“After 1 December 2015, we will ask AFAs connected with licensees and are authorised to provide DIMS to provide us with their updated ABS,” the FMA website says.
In its explanatory class DIMS documents, the FMA says other entities including research firms and wrap providers may have to be licensed.
Those offering DIMS to wholesale clients only, however, will be exempted from the regime.
The Treasury analysis says DIMS reform was an important component in cleaning up New Zealand’s financial sector.
“Progress in improving investor confidence has been tarnished by incidents of DIMS providers being involved in misconduct that caused significant losses to investors,” the report says. “In particular, the Ross Asset Management fraud has highlighted the need to progress the reforms in the FMC Act and to strengthen how DIMS and custody are provided under the FA [Financial Advisers] Act.”