SME FAP challenges can be overcome
One of the main challenges facing small and medium FAPs in New Zealand is adapting to the changing regulatory compliance requirements.
Friday, January 12th 2024, 6:45AM 
6 Comments
by Sally Lindsay
Advisers must ensure they meet the competence, knowledge and skill standards set by the new Code of Conduct for Financial Advice Services, posing significant barriers to sustaining business operations and expansion for small and medium FAPs.
According to the FMA, 82% of FAPs have fewer than 10 financial advisers spread across the country.
These FAPs can have limited resources and capacity to invest in training, technology and systems to comply with the new regime, say Australia-based Guild Solutions president and chief executive Engelbert Nolasco and New Zealand-based Smart Adviser founder Sam Kodi.
They may also face increased competition from larger FAPs that have more economies of scale and scope.
Nolasco and Kodi say another challenge facing small and medium FAPs is keeping up with the latest trends in automation and other technological innovations that are reshaping the financial advice landscape.
“Technology can offer many benefits for FAPs, such as enhancing efficiency, reducing costs, improving customer experience and expanding market reach,” Kodi says.
“However, technology can also pose risks such as cyberattacks, data breaches, ethical dilemmas and regulatory uncertainty. FAPs need to balance the opportunities and threats of technology and ensure that they use it in a way that is consistent with their fiduciary duties and client interests.”
One possible strategy, according to Nolasco and Kodi, is for small and medium FAPs to form an aggregate or join a network of FAPs that share common goals, values and standards.
“Aggregation can offer many advantages for FAPs such as collective bargaining power, economies of scale and scope, shared services and support, enhanced professional development and better brand recognition and reputation.
“Aggregation can also entail costs such as loss of autonomy, increased complexity and coordination, potential conflicts of interest and liability issues. FAPs need to weigh the pros and cons of aggregation and choose a model that suits their business objectives and culture.”
Another alternative for small and medium FAPs is offshoring or outsourcing some of their functions or activities to third-party providers based in other countries.
Nolasco and Kodi say offshoring can offer benefits such as reducing operational costs, increasing flexibility and scalability, accessing global talent and expertise and diversifying risk exposure. “It can help FAPs leverage their strengths, address their weaknesses, exploit opportunities and mitigate threats,” Kodi says.
“Offshoring can also pose challenges, such as quality control, communication barriers, cultural differences, legal compliance and reputational risk. FAPs need to carefully select their offshore partners and ensure that they adhere to the same standards of professionalism, ethics and quality as they do.”
The success of these strategies depends on how well they align with the FAPs' vision, mission and values, he says.
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Comments from our readers
For those mortgage advisers who backed themselves to have & run their own FAP licence the aggregation model no longer has any value to us now besides having the “privilege” of being able to submit loan applications for our clients to the banks. It’s only a matter of time before mortgage advisers with their own FAP licence are dealing directly with the lenders just like insurance advisers already do currently with the life insurers. The banks have previously communicated to the industry they would deal with anyone licensed by the FMA to provide advice so It’s time the banks followed through on this pledge now & stopped allowing the aggregators to continue their stranglehold over the industry.
For 20 years aggregators have been telling mortgage advisers about the collective bargaining power of membership but we have never seen any proof of this with the banks around things like commission or clawbacks. To be blunt some of the aggregators have acted in their own best interests instead of members around things like group PI schemes etc. As for brand recognition any experienced mortgage adviser knows that he or she is the brand that clients seek out and not the aggregator they are currently being forced to belong to.
Aggregation might add value to new advisers to the industry but not those of us who have been providing mortgage advice for over 20+ years now.
What ever happened to striving to be the very best. So what if you have a degree in engineering or was once patrolling the thin blue line in another life.
As reg’s and costs go, we have it pretty damn good here in NZ. If you want to be regarded as a professional, start acting like one and start thinking outside the box, as in this article. Thank God the All Blacks don’t settle for minimum standards and just want to attend the World Cup. They pay a heavy price to be the best and strive to win.
Oh, and Andy, I have no idea where you fit in our industry, but know for sure mortgages and subsequent insurance to cover lending is somewhat larger than it was 20 years ago, ergo significantly higher commissions.
Home loan Commission is still the same level as it was 20 years ago, yet our costs have increased significantly. As I have mentioned before, our commission is now split between the government, FMA, PI insurers, compliance requirements and aggregators. We are now getting a much smaller slice of the pie, yet still have to meet increasing office, admin, and living costs.
I stand by my stance: Sole advisers are getting pushed out of the market.
@ John Milner - The article above was about aggregators. Perhaps you're not aware John but mortgage advisers who hold their own FAP licence now are still being forced to belong to another FAP (aka an aggregator) just to be able to send loan applications to the banks for our clients. We are not authorised bodies, we have our own FAP licence issued by the FMA.
I would imagine if investment advisers and financial planners were still being forced to belong to another FAP just to deal with the providers you work with John you would be as equally annoyed and frustrated as Andy and I am.
I know we are not alone. Personally John I see those advisers who challenge regulation when it's excessive, increasingly costly for sole advisers and disadvantages clients from accessing financial advice now as the real professionals operating within the industry because we actually give a damn. If that's what you define as "complaining" though so be it.
The NZ consumer has clearly not been the key beneficary of regulation whereas assocations, aggregators, compliance companies and education providers have all benefited very nicely thank you.
Mortgage advisers don't handle client funds so the fact that we even have to do half of what is required now by the FMA just to run and operate a mortgage advisory business is total overkill.
The amount of roadblocks that have also now been put in front of clients wanting to secure life and loss of income cover through an insurance adviser is deeply concerning based on examples I am seeing and hearing about weekly. The regulatory changes that have been introduced to the financial services industry are disadvantaging the NZ consumer. We have made the same mistakes here that they did across the Tasman. Surprise, surprise!
Thank god that we have had a change of Government and a shift away from ideological driven policy. I suspect the new Minister of Regulation David Seymour will be making some changes to financial services in 2024 to return some common sense back to the advice industry.
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With all the other industry costs and levies increasing significantly, yet commission/remuneration not having changed in over 20 years, it is increasingly harder for the sole adviser or small FAP to stay liquid.