DIMS 'continuum' may prove frustrating
The release of the rest of the Financial Markets Conduct Act regulations hasn’t answered some advisers’ questions about the provision of discretionary investment management services (DIMS) under the new rules.
Wednesday, November 12th 2014, 6:00AM 
1 Comment
by Susan Edmunds
The second tranche of the act’s regulations was released last week.
The FMCA requires advisers who operate class DIMS to apply for a licence from the FMA. Only those who offer a service personalised to each client and their goals and financial situation will be able to continue to operate DIMS under the FAA.
FMA director of compliance Elaine Campbell has said that most AFAs currently providing DIMS are doing so under a class model, mostly because they are using model portfolios. That situation is expressly excluded from personalised DIMS under the legislation, which says personalised advice cannot be advice customised from an investment strategy that applied to a class of clients.
Steps were being taken to make the application process easier for those offering “simple DIMS” such as model portfolios.
But adviser Wayne Ross said there was still uncertainty for AFAs about which side of the line their strategy would fall under.
"We are reviewing whether we will apply for a licence under the FMC. We understand there has only been one application lodged so far and given there will presumably be a variety of different firms (size, client profiles, investment process) it is still largely unknown how the FMA will view the different applications," he said.
"As far as I can till there is still no clear information on what constitutes a personalised DIMS. They have clarified requirements about reporting but still no clarity on how you can actually deliver this type of solution."
Jeremy Muir, of Minter Ellison Rudd Watts said the type of service many advisers would like to provide was more likely to fall within “class” than “personalised” DIMS. “They would generally use some kind of pre-generated asset allocation framework and customise it for the client, rather than starting with the proverbial blank sheet of paper. This implies that you need a DIMS licence.”
He said the legislation and the FAQs provided by the FMA did not provide a defined line on where advisers would be counted as being within the AFA realm for DIMS. “It’s a continuum.”
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The legislation imposes a boundary between personalised and class - one side is personalised and the other side is class.
Boundaries have to be clearcut - imagine if we all took a "continuum view" about where the boundary is between our house and our neighbour's.
The speed limit is a clear boundary - although police can take a flexible approach to enforcement of breaches. That doesn't mean the boundary is not clear though.
Entities and non-AFAs have no option if they want to do DIMS but to get a FMC licence. That much is crystal clear.
But as I read the regulations that were passed last week, an AFA who is currently authorised to provide DIMS doesn't have to apply for further permission to continue to do personalised DIMS. They've already got it. [For completeness, those AFAs will not be able to offer class DIMS after 1 June 2015 unless they have applied for a licence, nor after 1 December 2015 unless they have been granted a licence.]
There are some rules around what currently DIMS authorised AFAs have to do to comply when they do personalised DIMS after 1 Jun 2015 - a bit less for DIMS clients they have onboarded before 30 November 2015 (this year is not a mistake) if they have provided an updated ABS to FMA by 31 May 2015, but the full monty of the new compliance from 1 June 2015 if they haven't.
Again as I read the new regulations, FMA has no powers (presumably absent a disciplinary breach) to de-authorise an AFA with an existing DIMS authorisation whether or not the AFA actually offers a personalised DIMS.
I don't think that we are yet required actually to offer to do something we are permitted to do. e.g. if I have a truck licence, I don't have to actually drive trucks or lose the licence.
Perhaps I am up the boo-aye in these latter comments. Being brutally honest I've written them to have those in the know to do the necessary research for me to confirm whether I am right or wrong - however that might be another continuum!.
Disclosure: once again I confirm I do not do DIMS, and at this point in time, have no intention to do so.