How small is a small DIMS business?

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FMA has its criteria wrong for the classification of small and medium-sized DIMS providers, industry players suggest.

Wednesday, March 18th 2015, 6:00AM 2 Comments

by Susan Edmunds

DIMS providers who have a class licence under the Financial Markets Conduct Act must prepare financial statements that comply with generally accepted accounting practice (GAAP), have them auited by a licensed auditor and lodge them with the Registrar.

This will not be a problem for large-scale providers, such as banks, who already follow these systems. But it will be a big imposition for small adviser businesses.

The FMA said it was aware the cost of requiring small and medium-sized licensed DIMS providers to produce audited financial statements might outweigh the limited benefit to clients.

It is considering a class exemption for small and medium-sized DIMS licensees. “Our proposal is to put in place an exemption that will gradually introduce reporting and auditing requirements based on the size of the DIMS provider.”

It says a level one DIMS provider would be a sole trader with 20 retail clients or fewer and less than $5 million in FUM. Level two providers would have up to 100 clients and $10 million FUM. Level three providers would be those who were bigger.

Level one and two providers would be exempt from the requirements to keep GAAP-compliant records, have them audited and lodge the statements, among other exemptions.

Some level three providers would be exempt from having their financial statements audited and being required to lodge them.

Adviser Wayne Ross, of Newton Ross, said his firm would offer a submission asking the FMA to reconsider its view of what constituted a smaller business.

He said a practice with less than $5 million in FUM was likely too small to bother with a DIMS licence.

“I’m not sure they’ve got their criteria right. You would think most people in that space wouldn’t bother applying for a licence given the hassle and cost," he said.

"Even up to 100 clients with $10 million in FUM there doesn’t seem to be any point in applying for DIMS. Their criteria for small and medium-sized providers seems really high. If you’re going to go through the process of getting the licence and all that entails, the ongoing requirements, you’ve got to be a business that’s sustainable. What you earn off $5 million isn’t going to sustain anyone.”

He said a small operation with one or two advisers could have $20 million under management and still find having to have a GAAP audit too onerous. “In effect, it’s giving an advantage to the large institutions.”

Submissions on the proposal close April 2.

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