Compliance and consulting services company Strategi has published its take of the FMA’s proposed FAP licencing regime and says the cost of an adviser obtaining their own licence may not be too different from joining someone else’s.
In its Analysis and Implications document the company writes that the criteria for obtaining a full FAP licence is more comprehensive than for a transitional licence, saying the approach is similar to what other FMCA licensed entities have had to go through since 2013.
The report says: “The FMA will assess a FAP applicant business against set criteria and the level of assessment will depend upon the scope of financial advice service of each FAP as well as the licence class applied for.”
This, says the report, means that one or two-adviser businesses advising on a single type of financial product will not be assessed to the same degree, and will not have to provide the same sophistication of documents and processes, as a business with 20-plus advisers providing advice on investment, insurance, mortgages etc.
The FMA is consulting on three classes of FAP licencing.
- Class A will likely be for sole adviser practices
- Class B will be for business which can engage financial advisers and have authorised bodies working for it
- Class C is for larger businesses that can employ financial advisers
In reviewing the FMA’s consultation paper, Strategi says the three classes of licence enable businesses of all sizes to hold a FAP licence as the proposed licencing regime does not preclude single adviser business from becoming a FAP.
The Stategi report says: “Think of a Class A licensed FAP as being similar to a single AFA business, but with slightly more documentation and obligations.
“Compliance and well-documented processes is part of operating any good business and one should not shy away from becoming a FAP just because of increased costs.
“Having your own FAP full licence enables you to be the master of your own destiny and potentially increases your sale value.
“However, for a small operator, being a FAP will take more time and does come with more regulatory risk.
The report says deciding to join a FAP as an independent contractor or authorised body comes at a cost as you will have to pay the FAP for the compliance and for taking on the regulatory risk.
“The cost difference between being your own FAP verses joining a FAP may not be dramatically different,” says the report.
Strategi recommends advisers read the FMA’s consultation paper to understand the details of what is proposed.