Compliance costs difficult under new regime: Shanks

Compliance costs may make it difficult for advisers to have their own FAP under the new financial advice regime, according to Financial Advice NZ CEO Katrina Shanks.

Friday, July 5th 2019, 2:45PM 4 Comments

Shanks fears the design of the new regulation could prevent smaller businesses from operating under their own FAP license.

She told TMM: "The intent of the legislation was New Zealanders could access a range of financial advice and advisers. We are concerned there are excellent non-qualified advisers who provide outstanding service to their clients and it maybe more difficult for them to operate their own FAP due to compliance costs.

"If they have their own FAP they will need to have processes and controls and competency to that of a Level 5 qualification if they do not choose to obtain the Level 5 qualification," she added.

Shanks fears advisers will face a real challenge "to absorb the additional costs for the processes and controls and competencies which will need to be shown". She added: "Consideration will be needed to understand the implications of compliance cost on small operators," she added.

The new regime will come into force over the next year, but many groups and advisers are uncertain about their setup and designation.

New Zealand's biggest group NZFSG, will become a FAP, with many members expected to become FAs underneath.

Brendon Smith, CEO of NZFSG, told TMM this week the new regime represents a chance for the sector to professionalise and will allow head groups to take a more central role with back office functions and compliance.

Smith said the group was happy to take on the compliance burden for members.

“We always felt taking a leadership role in terms of regulation and compliance was important to us,” Smith said. “That’s what we’d been trying to move towards anyway, and taking a license was a no-brainer and adds value to our members. It’s right for us and our members.”

NZFSG won't force its members to become FAs under the NZFSG FAP, Smith said.

Tags: Financial Advice New Zealand

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Comments from our readers

On 8 July 2019 at 10:07 am valkyrie6 said:

yes its going to be an interesting next 12 months , if we only had all the main groups as FAP's, and a lot of these are Australian owned anyway, Im not sure how that is a good representation of the New Zealand Mortgage adviser industry to the New Zealand consumer with most of these Auzzie owned groups having their client CRM's backed up in Australia with New Zealanders banking and real estate information being owned by overseas companies.

On 8 July 2019 at 3:57 pm Amused said:

The Code of Professional Conduct for Financial Advice Services as approved now by the Minister states that as part of the code standard Part 1 “Ethical behaviour, conduct, and client care” an adviser must protect a client’s information.

Advisers who are currently using a group operated CRM will be required to inform their clients of the third party/group/FAP who is in receipt of their personal and financial information when they make an application to a lender or insurer on their behalf. The client must consent to the third party holding their information however advisers should already be doing all of this under their current obligations within the Privacy Act.

I’m yet to meet a client who would be happy been told that his or her personal & financial information was currently been held by a third party in Australia without their consent.

On 8 July 2019 at 4:29 pm Tash said:

What on Earth does "If they have their own FAP they will need to have processes and controls and competency to that of a Level 5 qualification if they do not choose to obtain the Level 5 qualification," mean??? I thought it was only nominated representatives don't need level 5. Don't FAs need it even if they are not FAPs?

I assume Bendon was misquoted, his members will all have to be FAs with level 5 or is he saying they can somehow be 'nominated reps'?

I am currently grappling with the new requirments. Yes getting level 5 has some cost in terms of time and money but on an ongoing basis I cannot see how compliance with be so onerous it is impossible for small advisers businesses. Too much scare mongering out there. Just get on and do it already!

On 15 July 2019 at 11:59 am two cents said:

Evolve or die. The good people always do.

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