FMA changes tack on AFA reporting requirements

In a new consultation paper the FMA has changed the proposed requirement for AFA annual reports after criticism from the industry.

Monday, March 24th 2014, 6:00AM 5 Comments

by Susan Edmunds

The FMA is planning to make it compulsory for all AFAs to produce an annual report, called an Information Return, each year.

However, its first draft received strong criticism from AFAs and institutions such as banks.

A number of AFAs took exception to the requirement to provide the FMA information about how much they earned from their business each year, arguing it was not the FMA’s business to ask about this when the purpose ot the report was to help it with regulatory monitoring.

Organisations which run QFEs, such as ANZ, argued their AFA members should be exempted from producing individual annual reports.

Another theme which came through in the responses to the first draft of the paper was that there was an overlap between what was required in the return and in an ABS.

As could be expected there was concern expressed about the amount of time it would take an AFA to complete the form. The FMA suggested it would be three hours, however some respondents said it would take much longer and Craigs Investment Partners said it would require significant system changes within its business.

In response the FMA has drafted a shorter return which, it says, would be more efficient.

“Detailed questions that focused on such areas as income and remuneration, discretionary investment Management Services (DIMS), portfolio quality and continuous personal development hours have either been removed or significantly scaled back in the information return.”

Among the other changes are that advisers who do not advise clients, or who work for QFEs, or who only provide certain services, will only have to answer questions that are relevant to their businesses.

The FMA said it had removed, where possible, questions that overlapped or duplicated information contained in ABS documents.

The FMA now wants the guide to come into effect on June 26. Submissions on the second consultation paper are due on April 9.

AFAs would have to complete the first return relating to their business as at June 30 by September 30. After that, they will have to submit a return each year.

The FMA said it wanted feedback including whether there would be any significant costs as a result of the information return, whether advisers had concerns about the timing and whether there were any questions advisers would not be able to answer.

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Comments from our readers

On 24 March 2014 at 12:15 pm Steve said:

If the FMA want to drive non aligned advisers out of business or into the arms of the banks they are on the right track.

On 24 March 2014 at 5:45 pm Brent sheather said:

That's a matter of opinion but probably right.what is fact however is that the minister responsible for the fma us ex credit Suisse,the chief exec is ex merrill lynch and most of the senior execs of the fma either have worked for the banks or intend to sooner or later.ok that last bit I made up.

On 25 March 2014 at 9:27 am Regan said:

Thanks Brent for yet another valuable and insightful contribution....

Back on track now: The whole premise of the "return" question is flawed. Instead of asking how it is to be done, we should be looking at why they are creating a whole new process. Why not just enhance the ABS requirements?

On 25 March 2014 at 11:57 am Gavin Austin ABCompliance said:

Hi- the ABS is a regulatory tool used by FMA. However the FMA resources don't allow the time and effort to go through every ABS and gather the market intel that the Regulatory reporting will do. The annual report will give FMA a valuable data set to assist them to evaluate "risk" areas and trends in the market place that the ABS will never be able to do. Use the opportunity to lesson the load that Regulatory reporting will bring about by making submissions. If enough AFAs and industry bodies express similar concerns there may well be a better outcome for all. Steve I don't see that the so called "non-Aligned Adviser" has to feel the need to get out of business or rush to join a big corporate but what compliance will do is make advisers think about their business in a different way. My prediction is that more advisers will "band" together in a way that preserves their individuality but gives them support in areas they have difficulty doing on their own.

On 25 March 2014 at 9:31 pm Murray Weatherston said:

The ABS guide has 2 sorts of information (1) expected and (2) suggested. "Expected" can be thought of as mandatory; "suggested" is voluntary.

So as a matter of principle, shouldn't the Annual Report questions be limited only to matters that are "expected".

Otherwise the FMA is extending the ABS guide by its reporting requirements.

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