FAP or Fiction - Five Clues

Former Newpark chief executive, and adviser advocate, Melanie Purdey says there are five questions advisers should ask when deciding to join someone else's FAP.

Wednesday, June 17th 2020, 1:23PM

by Melanie Purdey

Many of us are trying to decide whether we go it on our own as a Financial Advice Provider (FAP), or succumb to the many appeals to join someone else’s FAP. And naturally, that activity has increased since some providers in New Zealand have indicated that income may go to the FAP entity that takes responsibility for your advice. This has meant dealer groups and large agencies are working hard to ensure their traditional income is sustained by going after as many Advisers as they can to come under their FAP. Which makes perfect sense, but can they deliver?

It's potentially a good idea to come under another’s FAP so they can do they hard work of governance and accountability, and you can get on with just looking after your clients.

For some that will be a welcome reprieve. But before you make that call, there are some considerations:

Firstly, if you are writing say $100,000 API your FAP/Dealer Group will get as much as $30,000 from a provider: Are you getting $30,000 worth of value from that FAP, or can you apply those funds under your own licence to secure what you need independently?
Secondly, does that group have the culture, controls and gravitas to protect you from another adviser business’ breaches? If the overall FAP is shut down because a renegade adviser is not following the rules, and the FAP doesn’t have the mechanisms in place to both position and manage the conduct of the FAP adherents, you will need to stop trading along with the others under that FAP.

So be certain you have done your own due diligence on a proposed FAP relationship before jumping in by considering these 5 things:

Culture

Does this FAP have the leadership and legacy of looking out for clients’ best interests and putting them in priority?

Have they modelled a culture committed to attracting advisers with integrity or have numbers been the main driver for recruitment? Have they demonstrated leadership in dealing with renegade advisers who have committed breaches in the past?

o their core values align with yours? Is this your “tribe.”

Controls

What governance will they put in place to regularly audit adviser conduct?

Do they have the means to do this?

Do they offer or invest in CRMs that are fit for purpose in this new regulatory environment? Your data is invaluable – what steps have they taken regularly to perform penetration tests and report issues and fixes with transparency?

What are the criteria for exiting non-complying advisers and are they clear and consistent? Do they have the means to be clear and consistent, in terms of knowledge, awareness and leadership?

How robust is the "knowledge" and "skill" offering - can they teach and empower you appropriately? Do they have a Learning Management System and CPD trackers or will you have to invest in this yourself?

Is their business governance up to standard under the new regime and are they prepared to be transparent about their readiness?

Communication

How regularly does this group communicate important industry and regulatory information?

How have they done it in a way that all advisers – regardless of age, ethnicity or education – can easily understand. What do they celebrate in terms of values and heroes and are those aligned with your own? How innovative has the group been in finding new best practices, tools and ideas to help me cope in a post-Covid-19 world?

Capability

Does this group have the people with the right skills to understand care, diligence and skill? Do they have a background in compliance and regulatory controls?

Are they risk fluent and open about their initiatives? How well do they understand your advice genre specifically, or are they experts in another area of advice other than your own? (Risk, investments or lending, for instance.)

Conflict

Ask yourself, “What’s in it for them?” Have they disclosed all of this to you?

Do major shareholders or influencers have a vested stake in any of the providers or businesses they support? Would they tell you if they did?

Have they been transparent about their own complaints register and what remediation they’ve taken to improve the business governance?

As we come out of a period of lockdown, many of us have had a chance to reflect on our way forward. It’s fair to say that with recent announcements about FAP remuneration, the balance of power has shifted.

Stay in control of your future by conducting your due diligence on any group – including your own – that you align with going forward. You want to ensure you are getting value for money and your livelihood is well protected from those more cavalier operators or “contagion risk” as I’ve heard experts recently dub it.

And remember two of my favourite dictums – “Culture eats strategy for breakfast.” And “advice trumps product.”

Melanie Purdey is the former CEO of Newpark Financial Services. She now describes herself as an advisers' advocate.

Tags: FAP Melanie Purdey Newpark