Financial advisers should be in planning not panic mode ahead of an imminent law change set to transform the industry, according to compliance specialist, Steven Burgess.
Burgess, founder of the recently-launched Compliance Refinery, said while the impact of the in-post-production Financial Services Legislation Amendment Bill (FSLAB) would likely be “bigger than many people think”, advisory businesses had some time to prepare.
“At this point I don’t think advisers need to be in a hurry,” Burgess said. “They don’t need to make any rash decisions.”
But he said financial advisers should use the pre-FSLAB period to review their current businesses and make five-year plans.
“Advisers have time to ask where they would like their businesses to be in five years’ time,” Burgess said. “Some of the questions to consider are ‘do I want to be a director of a FAP [financial advice provider]’ and ‘do I want to be responsible for overseeing a governance framework’.
“These will be important decisions to make.”
If advisers don’t want to take on the FAP obligations under FSLAB, they could be scoping out suitable alliance partners, he said.
“If advisers do the foundational work now then at least they will be prepared when FSLAB comes in,” Burgess said.
The reworked FSLAB, due for a second reading in parliament some time next month, should pass into law before year’s end with a transitional period to follow in 2019.
Burgess, who witnessed a similar financial advice regulatory revolution in his native Canada some 15 years ago, said FSLAB has many positive features – such as removing complex adviser designation and product categories – but the new law would change the industry structure.
He said under the proposed entity-licensing system advisers would be incentivised to spread operational expenses across “as many people as possible” to compete with institutions.
“It will make sense for advisers to share costs such as technology, compliance, marketing and other back-office services,” Burgess said.
While smaller groups – even one-person practices – would still exist under FSLAB “they might not have access to the same business services” as larger entities, he said.
For example, advisers who operate alone would have to meet tougher operational standards under FSLAB requiring them to be “business managers and compliance experts” in addition to advising clients.
“You’ll have to be an adviser, business manager and compliance expert,” Burgess said. “Can you be all of those?”
He said post-FSLAB the NZ advice industry would likely consolidate, citing the Canadian experience as an example.
“[After regulation] smaller advice firms slowly formed into medium-sized businesses that in turn amalgamated into larger groups, which were then bought by institutions,” Burgess said.
Today, he said the Canadian advice landscape is divided between those large, institutionally-owned groups and high-end boutiques.
Prior to forming Compliance Refinery this February Burgess spent five years working in NZ as an advice business specialist for KPMG, the Financial Markets Authority and AMP. He also spent 12 years working in compliance with financial advisory firms in Canada.