Dealer groups warn of rising costs under new regime

Speaking at the TMM Better Business Conference in Auckland this week, most groups in attendance said the demands of the regime would require extra costs to cover audit and compliance. Groups gave varying estimates of the potential impact.

Andrew Scott of Newpark Home Loans said Newpark had conducted “financial modelling” to assess the cost for advisers working under a group FAP. Scott claimed the new regime would cost advisers an additional $21,000 per year under a group FAP.

Scott said: “That’s a conservative estimate, and not to make a profit, but just to break even. If you come under someone else’s licence, it will cost you about $21,000 per annum per adviser. That’s consistent with what’s happening in Australia.”

Newpark wants individual businesses to take their own FAP and their own legal and compliance responsibility.

Brian Greer, CEO of Loan Market in NZ, rejected the Newpark estimate. “We will be a long way away from that. I don’t know where you got your numbers.”

Greer said Loan Market and NZFSG would introduce a separate audit and compliance fee rather than changing its existing membership flat fee or commission model.

Greer said: “The Loan Market model is a variable price model, a percentage of commission, and the NZFSG model is a flat fee or hybrid. Those fees structures won’t change at all, but we will have to introduce an audit and compliance fee. We’re working through what that is going to look like. I can’t give a firm number, but there's going to be additional costs. There’s no hiding from that.”

Greer added: “Audit and compliance is the glue that holds the whole thing together. If you’re running that under your own FAP you are going to have to build that, or outsource it, which will be costly, in our belief. That’s where economies of scale will win through.”

Rupert Gough, of Kepa, would “not commit to a number” on the expected additional costs, but agreed with Greer that “economies of scale”, and operating under a group FAP licence, would benefit advisers.

Gough said: “If you come under our licence, using the CRM we recommend, it will be a nice smooth process, with economies of scale coming in. We have a set price model, and that will increase per month, that’s obvious. We are doing the reviews in-house. There’s nothing you should be worried about.”

Q Advisor Group’s Geoff Bawden said there were currently “no plans to move the level” of its fixed-price fee model, but added: “Having said that, it is priced reasonably finely. One thing we know is that compliance is likely to push the costs up for all of us, and if it does, we will need to share the cost.”

Mortgage Link’s Josh Bronkhorst gave a clear estimate of the additional costs, but said it would be cheaper than advisers handling audit and compliance under their own FAP.

He added: “We have communicated to our members that we believe to come under our FAP you’re looking at an annual cost of between $3,000 and $6,000. Some might look at that and think it’s quite heavy, but we maintain if we can save you some money and give you back time, you have to consider what that time is going to cost you.

Bronkhorst added: “We’re looking at a way to ensure the cost being part of our FAP is less than the cost of setting up your own licence. The time you would need to spend maintaining your own FAP would be given back to you with the efficiencies we create at group level.”

Sarah Johnston, of Astute Financial Management, said the group had set out its fee structure when it first came to market, and it had not changed. She said the group’s CRM would allow it to efficiently monitor audit and compliance.

Johnston added: “We’re also fortunate that we are supported by our shareholder companies that represent 500 advisers in the Australian market, so we already have scale. We are a fee share model, and we charge $100 per adviser per month for the compliance part of the business. That’s dictated by the fact they are using our CRM, which is non-negotiable. That allows us to do remote checking on a bulk number of our advisers. A minimum of 5% of their work will be vetted.”

Comments from our readers

On 15 November 2019 at 12:20 pm valkyrie6 said:

Yes this is a prime time for dealer groups to sell there CRM systems and create more reliance on them for their members.
Advisers need to be very aware of what this actually means for them and their clients, most of these dealer group CRM's are based and owned in Australia which most of the time means they also own the client data , a lot of groups say they will give you that data if you were to ever leave the group but I have heard from a lot of advisers this is not the case and the New Zealand consumers personal data is sitting on a cloud base CRM In Australia with out the NZ customers knowledge as its unlikely any of the NZFSG brokers disclose to the NZ consumers their personal banking information is loaded onto a data base in Australia owned by a real estate company, this is a basic requirement under privacy laws which is not even being met in most cases.Banks that also promote or back this type of non disclosure (BNZ making it compulsory for all NZFSG brokers to summit all applications via the group CRM) without BNZ customers knowledge is a fundamental preach of their privacy, FMA needs to take notice. The NZ consumer needs to understand where their personal data is going and what third parties are in receipt of this ,period. I cannot find a broker disclosure statement that confirms all parties that are in receipt of the personal data so I think its a time bomb waiting to go off. Feels like a lot of groups are trying really hard to cement members so that it just becomes to hard to change especially if the group owns your client data and controls your compliance, your stuck.The banks do not seem to care to much as they seem happy to run with the least amount of worked need on their part so it makes you wonder if one large dealer group controlling all brokers would be ideal for them,( on sorry that's a monopoly which is e legal ) and I hope there is no collusion going on behind the scenes in Australia between large banks and Aussie owned dealer groups.

On 15 November 2019 at 4:36 pm Andy the adviser said:

Brilliant - just what we wanted to hear. And HOW is this helping our clients? HOW will this benefit anyone, other than the FMA and other lawmakers?

Well done. I am so happy to be in this industry, governed by a Mickey Mouse outfit.

On 18 November 2019 at 10:04 am Andrew Scott, GM Newpark said:

Making available group buying deals for different services, such as compliance, is the easy part. As opposed to picking a number out of thin air we've actually done the numbers. I've yet to see any other robust modelling that contradicts that.

The only way to keep costs under your control as an Adviser is to be fully self-licenced and not under the control of some other FAP licence.

Otherwise you're just along for the ride and that is how you end up paying for the corporate infrastructure as well as every other Adviser in the group.

Better to be the one controlling the shots when it comes to your monitoring and oversight.

On 18 November 2019 at 4:51 pm Amused said:

Licensing of the financial services industry was never designed with dealer groups in mind. Why would it have been? A dealer group does NOT give advice to a customer and a dealer group does not own an adviser’s customers. Licensing is all about holding to account the actual individual giving the advice. The adviser is the one who gives the advice to the customer and they own the customer.

For a dealer group to have a FAP licence they will have to become responsible for the advice that all their members give to customers. This means that an adviser operating under a group’s licence will for all intents and purposes become an employee of that group. Guess who owns the customer then... As Andrew Scott from Newpark correctly points out this arrangement is simply not in the commercial best interests of any adviser or their business.

The additional disclosure requirements now been put in place by the banks to ensure the protection of their customer’s data will mean any adviser operating under a group FAP licence will be at a disadvantage going forward when dealing with customers. Dealer groups like NZFSG, Astute and Mortgage Link are making use of their CRM systems now “mandatory” for advisers to operate under their group FAP licence. As valkyrie6 mentions advisers MUST disclose to their customers all third parties who are in receipt of their personal and financial information. The average Millennial consumer will not be happy learning that their personal and financial information is been held by a dealer group who has nothing to do with the advice process. Especially when they discover that some of these dealer groups are now overseas owned, some of whom are real estate companies. Such customers will be off down the road ASAP to deal with a self-licenced adviser who can then guarantee that their data is only going to the bank or insurer been approached.

If advisers think that the Millennial generation of clients don't rank the security of their personal and financial information been very important go work under a group FAP licence and see how that works out for you when ANZ etc. start making you change the wording of your current disclosure statement.

As one of the insurance BDMs said to me a couple of weeks ago as an adviser under licensing you would be crazy to operate now under a group FAP licence.

Dealer groups warn of rising costs under new regime

Dealer groups say the cost of membership is likely to rise under the new regulatory regime, with estimates ranging from $3,000 to $21,000 extra per year.

Friday, November 15th 2019, 8:43AM 4 Comments

Comments from our readers

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