GUEST COLUMNIST – KATRINA SHANKS
The release of the full FAP licence standard conditions by the FMA is the last piece of the puzzle in the lead-up to the start of the new regulatory regime on 15 March, writes Financial Advice NZ’s CEO Katrina Shanks.
Everyone can now see what full licensing entails thanks to the FAP licence conditions from the FMA. To ensure that New Zealand advisers are prepared for the application process it has also published a full-licensing application guide.
The regulator officially launched its guide on 17 November in Christchurch at a mixed live/online event. The FMA’s John Botica, Derek Grantham and Michael Hewes shared an overview of what advisers can expect from the application process, and answered questions from attendees. If you missed the event, you can still watch it here.
All-in-all, there were plenty of insights for the advice sector to take away. Here’s a snapshot of the key things to know.
What’s in the final standard conditions
In short, there are seven final standard conditions for a full FAP licence – including record-keeping, internal complaints process and outsourcing (just to name a few).
Importantly, after much sector consulting, the FMA removed professional indemnity insurance from the final conditions – a welcome decision that, as Financial Advice NZ, we strongly advocated for as part of our submission process.
We still strongly believe professional indemnity insurance is vitally important, but due to the changing market we believe should not form a part of the licencing conditions.
Three classes of advice
The FMA has also confirmed three classes of financial advice service – 1, 2 and 3 – a key difference from the transitional licence which has no classes.
As John Botica and Michael Hewes clarified during our joint event, the full licence classes are not related to the type of advice provided, but rather to the size of the advice business.
In a nutshell, all single-adviser businesses belong to Class 1, regardless of whether they only specialise in one type of advice (e.g. insurance) or a mix of different advice areas. Multiple-adviser business may belong to either Class 2 or, if they engage nominated representatives, Class 3.
Now that the standard conditions for a full licence have been released, time is of the essence…
It’s important that advisers think carefully about their business structure moving forward, and apply to obtain the full FAP licence that’s best suited to their needs.
As John Botica pointed out, unlike the transitional licence, the full licence has no fixed term – it remains in place for as long as the advice business is ‘in business’.
If you ever need to switch to a different licence, you’ll likely need to go through the application process again, so it’s important to select the correct one from the get-go.
Having said, the FMA’s representatives reiterated their availability to assist advisers at every step of the process, to ensure the process runs as smoothly as possible for them.
In acknowledging the advisers’ key role in improving Kiwis’ quality of life, John Botica highlighted that the raft of changes soon coming into force will bring benefits across the board, in terms of trust and professionalism.
Importantly, the new regime focuses on best-practice principles, structured in a language that clients can grasp. Plus, clients can rely on the fact that advisers have been through a thorough licensing process, are qualified and competent, and are continually monitored and supervised by the regulator.
Applying for a full FAP licence
John Botica also shared three simple rules to make your licensing process as smooth as possible:
- Keep it simple – if possible, avoid stacking licences on top of each other; not only would this make things complicated in terms of compliance, but fees and levies are likely to add up quickly
- Due diligence – if you’re planning to work under someone else’s FAP, make sure you do your due diligence before committing
- Use the transitional period as a test run – feel free to use the transitional period to fine-tune your structure and processes, before the full licence becomes effective
Now that the standard conditions for a full licence have been released, time is of the essence. The FMA clarified, once again, that providing advice without a licence won’t be possible after the cut-off date of 15 March 2021 – with no exceptions or exemptions to this rule.
The FMA will track every adviser on their journey and take enforcement actions if needed.
So here are some important steps to follow, to get ready on time:
- If you don’t have a transitional licence yet, make sure you get that underway before the holiday break
- Use the tools and resources available, including the new full-licensing application guide. The guide contains the questions you’ll be asked as part of your application, so it’s a good idea to create a checklist and think about how you’ll document each step
- Don’t be afraid to ask for help. FMA has made themselves available to help advisers with any questions they may have, so if you’re stuck, feel free to contact them at all times either via email or phone
There are many changes happening at once, and advisers need to get across all of those quickly. Visit financialadvice.nz to access our ever-growing library of tools and resources, packaged for advisers’ convenience.
From 27 January 2021 every week until the middle of March we will be running a one hour webinar every week on Wednesday at 10am to ensure you understand the duties and obligations you have under the new legislation.
If you attend this series you will understand what you have to change and have in place to ensure you are compliant from 15 March.