DIMS conditions clarified
The FMA has clarified the additional standard conditions that it proposes will be imposed on AFAs who offer personalised DIMS.
Friday, January 30th 2015, 6:00AM 
6 Comments
by Susan Edmunds
It consulted on the minimum standards for personalised DIMS in November. That paper included additional standard conditions for AFAs relating to outsourcing and financial resources.
The FMA yesterday clarified and re-issued the standard conditions and has asked for more feedback. Submissions close February 27.
The outsourcing standard requires that any AFA who outsources processes or systems a part of their DIMS must be satisfied the provider is capable of performing the service to the standard required to meet the AFA’s authorisation obligations.
The AFA must have a legally binding agreement with the provider and ensure the records pertaining to DIMS are available for inspection at the FMA’s request.
The FMA said the condition only covered outsource arrangements where the AFA relied on them to meet authorisation obligations.
It said AFAs should consider the outsource provider’s experience, any complaints about them, their operating jurisdiction and any protections and controls imposed there. They should regularly review the arrangement and its performance.
The financial resources standard requires AFAs to calculate their net tangible assets at least monthly and notify the FMA if they have a negative result.
Adviser Simon Hassan said there were unlikely to be big problems with either of the conditions – advisers who outsourced functions of looking after client money should have good systems to ensure the people working with it were appropriate.
He said it also made sense that advisers’ books be kept in the black. “If I was insolvent there’s a bigger threat or moral hazard that I could find some way to deal with my problems by dipping into what people give me to look after.”
But Hassan said he had decided not to continue to offer DIMS.
“It seems there are so many – and multiplying – areas of red tape and veiled threats, such as the FMA saying ‘in our opinion only a handful of advisers are capable of offering personalised DIMS’.”
He said his business was hiring another adviser, who was not authorised for DIMS. “We would have to go through all the hoops and with all the complexity it would create we thought let’s just ditch it.”
Now, instead of writing to clients to tell them that changes to their portfolio would be made unless they objected, Hassan’s firm would write and tell clients what they recommended and ask them to approve or reject the idea.
“It will annoy some clients who like the idea that we take care of it. There’s no difference in the safety and security of client money,” he said.
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Comments from our readers
Perhaps it is time for the playing field to be levelled, with all dispensers of financial advice adhering to the same rules. That would require those who are currently shielded by regulations (such as accountants & lawyers) having to operate under the same requirements
I agree with MPT Heretic's questioning of the importance of NTA when the client or the custodian holds the assets.
And I agree with both his/her and Pragmatic's views about making lawyers and accountants subject to the same rules as AFAS when they are dispensing investment advice.
But I have a more fundamental issue about personalised DIMS processes. The AFA who is authorised to provide personalised DIMS must be an individual.
How many individuals do you know anywhere who calculate their personal NTA on a monthly basis? And of them how many have an auditor verify their calculations?
Surely there has to be a relevance test, and a cost benefit analysis before a new regulation is introduced?
Can somebody tell me what the policy implications of an individual having a positive NTA as measured vs the same individual having a negative NTA really are?
Or is it just a guess that if the AFA has negative net worth s/he is x times more likely to steal his clients assets (i.e. commit a crime) than if he had positive NTA...
Maybe someone believes David Ross had negative net worth (even after banking millions of $ of fees...) and that's what caused him to do what he was convicted for.
Or maybe there is a simpler explanation - there is no will to grant anyone a personalised DIMS authority, and the more hurdles there are to jump, the more AFAs (like Simon) will remove themselves from this particular game voluntarily.
Couldn't this result be obtained quicker and easier by simply banning anyone from offering any DIMS unless they had a FMC DIMS licence?
Does the consumer win out of all this? - I very much doubt it.
My question goes to the broader state of affairs where individuals qualified in a specific profession are permitted to practice in areas outside their recognised expertise?
Why should lawyers or accountants be permitted to 'dabble' in the pursuit of a secondary source of income?
Does the converse apply? Financial Planners offering audits or family law advice on the side?
"Not unless they're qualified" would be an appropriate response.
So why doesn't everyone who seeks to offer financial/investment advice have to qualify at the same minimum level?
No exemptions due to 'other professional duties', no 'cross-credits', no exceptions!!
Most of the advisers would be placing investments through platforms and the investments would be held in the name of the custodian. That makes it very difficult for an adviser to go rogue and fleece his/her clients investments. That's a different scenario to what occurred with RAMA and the Bradley's.
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By this logic, the FMA will presumably now require ALL advisers to report NTA whether they offer DIMS or not, including those like Mr Hassan who are intending to offer only non-discretionary services.
The FMA will also presumably require accountants and lawyers who provide financial advice in the normal course of their business to report their NTA.