Budget delivers for stricken advisers, FMA

This year’s Budget will provide a boost for struggling financial advisers, Financial Advice New Zealand says – and should shore up confidence in the sector with funding for the Financial Markets Authority.

Thursday, May 14th 2020, 6:11PM 2 Comments

The Government revealed the Budget on Thursday, including a $50 billion fund to tackle the impact of Covid-19 on the country’s economy.

Just under $16 billion was immediately allocated, including $3.2 billion to extend the wage subsidy for another eight weeks.

The subsidy will continue at the same rate as the existing scheme but will only apply to businesses who can show a 50% drop in revenue, compared to 30% for the first round of the scheme.

Financial Advice New Zealand chief executive Katrina Shanks said that should benefit some financial adviser businesses.

“I think there will be a range of advisers who qualify with a 50% drop in revenue. Whether that falls within the period of time they can apply will depend on their business.”

The structure of adviser businesses meant they would experience a decline in revenue later than some other industries, she said. Some insurance and mortgage advisers would not feel the impact until things such as holidays and suspensions ran out and clients reassessed what they could afford. By that point, the original wage subsidy scheme would have finished.

But she said the 50% drop was a “high bar” to get across.

Adviser Murray Weatherston said he would be surprised if many adviser businesses suffered enough of an income reduction to qualify. He said most should now be entering a period where business would start to pick up again. “Fifty per cent down is a pretty horrendous outcome.”

FMA funding up

It also boosts funding for the Financial Markets Authority, both to help it keep up with the workload of the new financial advice regime and the conduct and culture work under way, and through its litigation fund.

The Budget increases the Crown’s contribution to the FMA’s operational funding appropriation by $1.304 million a year on an ongoing basis; and $3 million per year on an ongoing basis to its litigation fund.

But a bigger boost for the regulator will come from the sector itself.

The Crown will supply 21% of FMA funding in 2020/2021. The rest will come from industry levies.

In total, in the 2020/2021 year the regulator will get an increase in funding of $12.5 million, followed by $17.5 million the year after and $24.8 million in the next. The increase is being introduced over three years rather than two, reflecting the stress the sector may be under because of Covid-19.

It takes the FMA's total appropriation to $60.8 million by 2022/2023. At that point just 17% of funding will be from the Crown.

Authorised financial advisers will pay a levy of $380 this financial year. Work continues on setting the levies for the next two years.

Shanks supported the extra funding but said there should be more clarification about how that split was decided. “It’s good to see the FMA being better funded. A strong regulator means a strong sector to build public confidence and trust.”

An FMA spokesman said it welcomed the increase in its appropriation.

“Covid-19 has increased market stress, which means increased conduct risks.

“The need for an appropriately resourced conduct regulator at this time is clear. The increase will enable the FMA to continue its work and prepare for the new financial advice regime. No funding was previously allocated to enable the FMA to prepare for the new financial advice regime.

“The largest number of submitters in the consultation on the FMA’s funding and levies earlier this year supported the option with the highest level of funding for the FMA. In general, industry was supportive of an appropriately resourced and competent regulator, with no doubt that the FMA needed more funding to fulfil its objectives and expanded remit.”

He said the decision to bring in the increase in funding over three years rather than two would reduce the impact on the industry.

“The FMA also welcomes the permanent increase in its litigation fund from $2 million a year to $5 million. This will enable the FMA to respond appropriately to misconduct and serious breaches of the law.”

Shanks said it was disappointing the Government had not introduced any measures to subsidise financial advice.

“It would make such a difference to New Zealanders’ health, wealth and wellbeing when they’re thinking about it, concerned about it – it’s a great time to encourage those in financial stress to reach out and get advice easily.”

Tags: Budget Covid-19 Financial Advice New Zealand financial advisers FMA Katrina Shanks

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Comments from our readers

On 15 May 2020 at 12:41 pm Fair deal said:

Hopefully, some of the additional funding will not only be used for policing the industry but also advertising to the consumer to ensure awareness of the financial services sector and how they are regulated. Their role is to create consumer confidence in the financial services sector. Regulation and Legislation is one way, the other is to speak in simple language to consumers who are confused with the "jargon" and who are asking for clarity. Consumers lack confidence - because they don't always understand the role we all play in their lives and how this role helps them.

On 20 May 2020 at 3:55 pm regant said:

I'm peeved. Brace for much much higher levies.

From my own submission:

2. Which of the FMA funding options do you consider to be most appropriate and why?
In short; none of them. Whilst I support and prefer the third option, the ‘enhanced case’, I do not support either of the two increased funding options put forward.
After enquiry I remain concerned that the existing 75% / 25% split has no analytical reason for being. It is baseless and arbitrary, and I am surprised to see the only two options put forward essentially perpetuating it.

4. Do you think that the proposed additional funding for the FMA should be wholly levy recovered or should the Crown contribute towards the increase? Why?
The work of the FMA as Regulator is an important matter of public policy and public interest. I think the description in the discussion document of who benefits from high-performing and well-regulated financial markets is not balanced. Yet this concept of who benefits and in what proportions is the sole justification for the 75% / 25% split in Crown / levy funding recovery. While it is true that the industry benefits from increased confidence brought about by sound regulation, the real beneficiaries are the public and the economy itself. These matters affect every New Zealand taxpayer and attract many more (and their capital) from overseas.
Until 2016/17 the Crown contribution was around 30%. In 2016 the $9.816 million increase in annual appropriation was entirely funded by levy payers, and reduced the Crown contribution to its current level of 25%. At the time the implementation of the FMC Act was a major piece of the FMA’s work. Did levy payers derive 100% of the benefits from the implementation of the FMC Act?
Not only should the Crown determine the appropriation to FMA, it should provide the majority of it.

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