It is becoming clearer what it will cost to take out a license to provide financial advice under the new legislative regime.
Anyone giving advice under the new rules must work for a licensed financial advice provider. That could be a big firm with many advisers working for it, or a one-person financial advice business.
The Ministry of Business, Innovation and Employment released a discussion paper at the end of 2018 on what advisers would have to pay.
It is predicted that about 2240 financial advice providers would apply to be licensed, covering 8000 financial advisers and 21,500 nominated representatives – likely to be those who are QFE advisers in the existing structure.
The first step for licensing will be transitional licenses, which will last for two years. MBIE expects these will be $363 for all financial advice providers, no matter their size.
Then, in 2021, full licensing will begin and the cost will depend on the scale of the business.
A financial advice provider that was a single adviser business or only giving advice on its own account would pay $575 plus $155 per hour if the processing time was more than two hours, under the MBIE plans.
A FAP that engaged multiple financial advisers but no nominated representatives would pay $730 plus $155 per hour if the processing time was more than three hours.
A FAP with nominated representatives would pay $885 plus $155 per hour if the processing time was more than four hours.
There would be additional fees for extra authorised bodies named in the application and any application to vary conditions.
MBIE said there would be no renewal fee - providers would pay that same full licence fee each time they had to renew their licence. It has not yet given details of how long a licence could last.
"We think it is appropriate that these fees are charged to the financial advice provider who receives the benefit of holding a licence by being able to operate in the regulatory environment established under the bill. Without recovering these costs from licence applicants, the FMA would be required to subsidise the cost of licensing from other revenue streams,” MBIE said.
That compares to, at present, a single adviser business paying anything from $0 (if it was an RFA) to $996 in authorisation fees for AFAs. Under the new regime, that will be standardised at $575. AFAs currently pay $498 for each renewal.
An advice firm with five advisers would pay $4980 in authorisation fees under the existing rules but that would come down to $730. One with 10 nominated representatives would currently pay $4249 in licence fees but that would drop to $885.
MBIE also flagged changes to the FMA levy.
"At this time, we are not reviewing the FMA’s overall funding, the design of the levy model as a whole, or trying to account for the full costs of the new regulatory regime. However, some existing levy classes need adjustments and some new levies need to be set to collect funding from financial advisers and financial advice providers. In setting these new levies we are aiming to collect the same amount as is currently collected from the financial advice industry."
It is proposing FAPs or financial advisers pay $460 at initial registration, then $230 for FAPs each year, $179 per nominated representative and $1106 if the FAP gave advice on its own account.
"To avoid over recovery of the levy, it is proposed that financial advisers will be required to pay the levy (rather than through a financial advice provider) as they may be engaged by multiple financial advice providers (e.g. if they have multiple part-time jobs). However, we are conscious that this may impose administrative costs on financial advisers and financial advice providers and would like feedback on whether these levies should be paid by financial advice providers rather than financial advisers."
Submissions closed February 22.
Commerce Minister Kris Faafoi said it was inevitable that regulation would impose some financial cost on advice businesses.
"However, it is crucial that compliance costs are fair and reasonable so that financial advice providers can operate efficiently and consumers can continue to access financial advice.
“I have heard concerns about how the costs of the regime will affect smaller advice practices. Those practices are a hugely important part of the ecosystem and I want to ensure that compliance costs are appropriate for those practices,” he said.
