FMA wants advisers to apply for DIMS licences

The FMA’s new guidance note on DIMS has been designed to make it easier for advisers to offer these services to clients.

Thursday, June 19th 2014, 6:00AM 4 Comments

FMA Senior Adviser, Compliance Colin Magee acknowledges that the earlier consultation paper on DIMS was seen as benefitting larger firms and potentially driving independent financial advisers into corporate firms or out of the industry totally.

The new guidelines released yesterday are designed to be flexible and to allow IFAs to operate in this space, FMA director of compliance Elaine Campbell says.

“This space is not reserved for the big end of town,” she told goodreturns.co.nz.

“We don’t want an outcome where people capable of providing this business don’t do it because of some concern around licensing criteria.”

Magee says under the new guidelines “more small businesses may apply than might have been expected.”

Under the guidelines there are two types of DIMS. One is a licence issued under the Financial Markets Conducts Act (FMC) which is for class DIMS. The other option is that an AFA can seek authorisation under the Financial Advises Act (FAA) to offer personalised DIMS.

Applications will be treated under one process however FMA has added some flexibility authorise personal DIMS, based on its view of the applicant’s risk profile.

All applications will be subject to an “objective statutory test,” she says.

Campbell says the FMA’s view is that most AFAs who currently provide DIMS services to clients are doing so under a class advice model, mainly because they are using model portfolios for their clients.

Magee says under the new guidelines it may actually be easier for an AFA to get a DIMS licence under the Financial Markets Conduct Act, as opposed to the Financial Advisers Act.

He says because an AFA is using model portfolios it may be “a less complex service.”

It appears that an AFA with only an FAA personalised DIMS authorisation would be unable to use model portfolios, even if it was the correct investment strategy for the client. This is because the use of model portfolios is considered class DIMS.

Although the FMA has good knowledge of the AFA community through its engagement with the sector and monitoring programme the number of AFAs who had the skills and ability to design bespoke investment strategies was an “unknown quantum”, Campbell said.

She said the FMA was trying to apply the law in a “right-sized way.”

“We think IFAs are important,” she says. “Access to advice is one of the ways we can restore confidence in the market.”

AFAs who currently are authorised to provide DIMS services under their FSPR registration will lose that authorisation once the new regulations come into effect.

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Comments from our readers

On 19 June 2014 at 9:11 am Ally said:

This comment from Elaine Campbell is odd: "The number of AFAs who had the skills and ability to design bespoke investment strategies was an unknown quantum". But this is what all AFAs do all the time....... Whether they decide on and implement the investment strategies themselves or recommend the same to their clients, the outcome is the same (because most clients go along with the advice they are given). So why all this fuss about DIMS.....

On 19 June 2014 at 11:03 am Alan Clarke said:

A simple 10 question survey before all this DIMS stuff would have been smart

A show of hands at recent conferences revealed a lot e.g.

- who uses platforms

- who buys and sells individual shares for clients

Of course if the FMA wants us to complete yet another form, make it simple

and put all of us who complete it into a draw to win a case of wine

i.e. simple with incentive

On 20 June 2014 at 1:58 pm Jim Dowsett said:

I think that the consequences of this and other changes (unintended or otherwise) is accelerating the move away from small individual investment practices to larger groups and Banks. Probably something similar to Australia?
Easier for the FMA to manage but not good for the customer.

On 21 June 2014 at 2:02 pm John Milner said:

Ally, you're missing the point with the key words "skills and ability". Many AFA's may well put together bespoke portfolios but that doesn't mean they have the appropriate "skills and ability" to do so at an acceptable level. I recently questioned a veteran AFA on whether she really could put together a bespoke portfolio at a lower risk with greater diversification and equal or greater long term performance. The answer was no but she continues to work this way as she felt uncomfortable charging 1%pa investing within a Balanced fund. Far too common in the industry where advisers are prepared to add additional risk to their clients portfolios because they have doubts about the value of their service offering. And you wonder why we now have DIMS legislation?

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