Tate slams FAA levy
Institute of Financial Advisers (IFA) president Nigel Tate has hit out against some of the proposed Financial Markets Authority (FMA) funding proposals, criticising the “huge amounts they’re wanting to levy.”
Wednesday, June 15th 2011, 8:01AM 
11 Comments
by Benn Bathgate
Tate said some of the proposed funding structures outlined in the Ministry of Economic Development (MED) discussion paper – which could see AFAs face annual levies of as much as $1,715 – are “inherently imbalanced” against advisers as the 797 AFAs (to date) are “the smallest group that would benefit.”
The MED’s favoured option is for a combined FMA/FAA levy that would see AFAs operating through a limited liability company charged $1,715, RFA sole traders $1,140 and QFEs $69,435.
Tate said the IFAs favoured option in the MED paper was option four, a $40 levy on “all companies, limited partnerships, building societies, credit unions, industrial and provident societies, friendly societies and contributory mortgage brokers.”
He said the IFA would make an official submission and he expected there to be “thousands of submissions” from AFAs and RFAs concerned about the significantly higher levy options.
Tate said he believed the cost of funding the FMA should be spread evenly across all financial market participants as the market as a whole is set to benefit from the mooted increase in investor confidence the FMA is to usher in.
The MED paper also highlights the wider spread of costs a combined FMA/FAA levy would result in.
“The main advantage of a combined levy is that it would dramatically reduce the amount payable by each FAA entity or individual.”
However, the MED also outlined why the combined levy was not its preferred option - an argument that flies in the face of Tate’s main point that if regulation is to benefit the whole market, all participants should fund it.
“Although its is administratively simple, distributing the costs of FAA regulation across a broader group does not reflect the objective that: those benefitting from regulatory functions provided, or contributing to risks that warrant a regulatory response, should bear the costs of those regulatory function.”
Ultimately Tate said higher regulatory costs could also force more advisers out of the market.
“I don’t see how that’s going to encourage confidence,” he said.
Benn Bathgate is a business reporter for ASSET and Good Returns, email story ideas to benn@goodreturns.co.nz
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Comments from our readers
IFA and its members can promote an opinion, just like you can, without fear of someone taking pot shots.
I receive a tremendous amount of value from my IFA membership especially in the area of CPD.
So 'getover it'AFA's, the Government have offered you a huge marketing advantage on a 'plate'. It's up to you now to capitalise on it!
I don’t see a problem with spreading the cost of funding the FMA evenly across all financial market participants.
There will not be any harsh reality of AFA's requiring more supervision, audit (and investigation?) than RFA's. The only reality is, AFA’s have a far more prescriptive and demonstrable higher standard than RFA have to adhere to, therefore if RFA’s have more wriggle room they have more opportunity for sneakiness.
AFA's will soon be the only people able to give investment advice and there are only 797 of you at the moment (whereas there used to be 5-10000+ advisors giving investment advice.
While it may take a year or two before the public regain confidence in the industry, the govt and your profesional associations marketing programmes (+ the public being able to complain about you easier) should mean that investors will want to deal with an AFA. I understand this has happened in Australia post their own regulation.
Finally, you should easily be able to justify increasing your fees to your clients to cover this increased cost.
I believe this presents a huge marketing opportunity for AFA's if you view it positively rather than just focussing on this one fee!
For example a mortgage broker who is in a nation-wide group QFE selling KiwiSaver to a client. These guys are able to offer the same product as any AFA but will they have demonstrated suitable practices, competence and qualifications to do so?
Perhaps AFA's should be prepared to pay to be able to have that point of difference but it is still hard to accept so high a levy on such an uneven playing field.
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You get to pay for that
I think the real squeal is that many adviser will look at their IFA renewal and decide to pass on that. The only reall card you have to play is the FPA trademark and while that might be important to you and your advisers. The average consumer doesn't give a rats.