Business structure will matter more in the long term than regulatory box-ticking ahead of the looming new financial advisory regime, according to compliance specialist, Steven Burgess.
Burgess, Compliance Refinery founder, said while the Financial Services Legislation Amendment Act (FSLAA) transitional licensing process – due to start in just over a month – appeared relatively simple, advisers should look beyond the short-term regulatory hurdle.
FSLAA requires all ‘financial advisers’ and ‘nominated representatives’ to operate under a Financial Advice Provider (FAP) licence. The Financial Markets Authority (FMA) has laid out five different business models under FSLAA based on the number and type of advisers the FAP contains.
Each model has different obligations and licensing costs.
The two-year transitional licensing window might allow advisers to postpone major business restructures but Burgess said it would be better to prepare for more than one business option now.
“Advisers should clearly understand where their current business lifestage is,” he said. “For example, if you’re in the last couple of years of your career it probably doesn’t make sense to take on the challenges and additional risks of running a FAP.”
And those that do opt for FAP status – either in transitional phase or full-throttle FSLAA mode – must consider the entire range of responsibilities that entails.
“Becoming a FAP is not about earning a licensing rubber stamp,” Burgess said. “There’s a whole range of ongoing obligations that FAP licensees have to get right from day one. Small adviser business that are struggling with the current compliance burden might want to have good options going into June 2020.”
He said transitional licensing might offer an easy route into the FSLAA regime but the road ahead will require adviser businesses to navigate that regime..
The FMA won’t be requiring significant documentation upfront during transitional licensing, however, Burgess said the regulator may ask prospective licensees for further paperwork once the application is lodged – or when they apply for a full FAP licence.
“FAP licensees have to be prepared and to be able to show they meet the new legal standards,” he said. “For instance, the FMA has made it clear that FAPs have to prove their client assurance programs are in place and meet the requirements.”
Burgess said despite the impending regulatory upheaval, many advisers have yet to address the fundamental business questions thrown up by FSLAA.
“Some advisers and advisory groups are well-prepared for the changes,” he said. “But there are many others that are waiting longer than they probably should consider the impacts of the coming regime.”
Admittedly, there is still some pieces missing from the FSLAA puzzle, such as the well-overdue final disclosure regulations still pending government approval (and a last round of consultation).
However, Burgess said the overall shape of the disclosure rules most probably won’t deviate much from the draft version published earlier this year.
“Advisers shouldn’t use the delay on disclosure rules as an excuse for holding back on tough decisions,” he said. “FSLAA and the imminent regulatory changes are going to have a significant impact on all levels of NZ’s financial advisory industry: advisers need to working out now how they intend to operate their businesses in the new regime.”