Fees have potential to discourage independence
The cost of providing financial advice under the new regulatory regime is beginning to take shape, with fears already surfacing that the charges will discourage the provision of independent advice.
Wednesday, October 21st 2009, 3:59PM 
6 Comments
by Sonia Speedy
The Financial Service Providers Act 2008 and Financial Advisers Act 2008 Fees Regulations Discussion Document proposes that financial service providers and advisers should pay a one-off $350 charge to be registered, followed by an ongoing annual charge of $60.
Advisers looking to be registered and authorised will pay $1,385 upfront, with $410 ongoing, while registered Qualifying Financial Entities (QFEs) will pay $4,630, followed by $1,140 per annum. All fees are inclusive of Goods and Services Tax (GST).
Additional costs include $35 per person for criminal history checks and/or a $30 contribution to the administration costs of the dispute resolution scheme, depending on the make-up of the provider.
Between 10,000 and 12,000 financial service providers - including around 7,200 advisers - are expected to pay the fees which will cover the cost of an electronic Register of Financial Service Providers; a Ministry of Consumer Affairs run consumer dispute resolution regime; and Securities Commission supervision and authorisation of individual advisers and QFEs.
Treasury and Auditor General guidelines state the proposed fees are to be no more than is necessary to recover the costs incurred by the government.
On top of these costs advisers will need to belong to a dispute resolution service. Good Returns reported last week that Financial Services Complaints Limited is launching just such a scheme with standard price based around a one-off $500 joining fee charge, an annual fee of $500 and $1,000 for each complaint.
Institute of Financial Advisers president Lyn McMorran described the government proposed fees as confusing and believes they will dissuade independent advice, with QFEs looking a more cost-effective option.
"I'm certainly struck by how expensive it is to be an Authorised Financial Adviser. I'm concerned that there's not going to be that many to be honest," she says.
Murray Weatherston, head of the Society of Independent Financial Advisers, says advisers are price takers in the regulation process and therefore have to accept such charges as a cost of doing business. However, he is concerned about what other costs are to come, such as around competency requirements.
Submissions on the discussion document close on November 13.
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Comments from our readers
Murray's comments are spot on: in that the financial advisory community will have little (if any) discretion around what fees they require to pay - in other words: you either pay to play, or find something else to do with your time. In following this logic through, the obvious victim from this proposed regime will be industry bodies who are also touting for industry fees. As margins continually come under pressure, financial advisory participants will begin to question value for money in joining various industry entities, with many expected to pay nothing more that their regulatory obligations.
Is this the right outcome? Probably not - although to be fair, the financial services industry has had many years to develop a cohesive and collaborative approach to impress regulators that self-policing is the way forward. In the absence of success, the rule-makers are now stepping up to take control.
Murray's comments are spot on: in that the financial advisory community will have little (if any) discretion around what fees they require to pay - in other words: you either pay to play, or find something else to do with your time. In following this logic through, the obvious victim from this proposed regime will be industry bodies who are also touting for industry fees. As margins continually come under pressure, financial advisory participants will begin to question value for money in joining various industry entities, with many expected to pay nothing more that their regulatory obligations.
Is this the right outcome? Probably not - although to be fair, the financial services industry has had many years to develop a cohesive and collaborative approach to impress regulators that self-policing is the way forward. In the absence of success, the rule-makers are now stepping up to take control.
Many QFE employees will be expected to meet unrealistic sales targets, as happens presently within the banking insurance sector. Such demands will most likely result in more breaches and subsequent fines, therefore negating the need for higher upfront fees.
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I would want to see a break down of the justification of these type of costs.
Surely to be registered only requires a database, a bit of stationary and a $0.50 stamp each year/per adviser, plus the salary for a part-time admin person, maybe $15,000 - $20,000 p.a.
I'm sure there are many sole operator financial advisers who currently monitor a datbase with 1,200 or more clients, and do it at a cost significantly less than $60/year/client. More like $6/year or less/client!
As a member of the IFA who already have a robust professional disciplinary process, I woudl expect the IFA to take on this role and little or no need for my IFA fees to increase to cover a 'service' they already provide.
Of course we can all just join a QFE, take in significantly less individual repsonsibility and pay nothing, while offering our clients with far less consumer choice - was that the whole reason behind regulating the industry?