The FMA’s John Botica and Michael Hewes joined Principle Consultant Derek Grantham to share an update on Financial Advice Provider (FAP) full licensing at the FSC’s Future Ready Advice Summit in Queenstown on June 14, 2022. These abridged excerpts are based on their speaking notes and may differ slightly from their actual presentation.
Caption for image: FMA’s Director of Market Engagement John Botica speaking at the FSC’s Future Ready Advice Summit in Queenstown on June 14, 2022. Sharing the stage is Principle Consultant Derek Grantham (centre) and Michael Hewes, FMA Head of Financial Advice.
John, as Director of Market Engagement and Acting Director of Regulation, can you perhaps start by sharing a snapshot of where the market is at with the transition to full licensing currently?
John: Thanks Derek. Yes, we currently have nine months left before all financial advice providers (FAPs) must have a full licence.
At the moment, we’re about halfway there: 30 per cent of financial advice providers with a transitional licence now either have, or are in the process of applying for, a full licence. Another 20 per cent have taken the first step and gone on to the FSPR and registered for the FAP full licence service but are yet to apply for their full licence with the FMA. That leaves around 50 per cent still to take action.
Interestingly, what we’re not seeing is any material change in the total number of financial advisers represented by those FAPs as we move through the transition period – there are still around 9000 advisers registered on the FSPR.
The FMA has been out talking to a lot of financial advice firms over the past few months. What are you hearing about how they’re going?
John: Well of course we’ve been hearing a lot about what’s happening economically, and the increase in client care that advisers are putting in as a result. And we understand that along with the regulatory changes, that is adding up to quite a bit of stress.
I think the big question now is what we can do to help – particularly for that 50 per cent that are still to apply for their full licence. And when I say “we” I mean all of us collectively – as an industry. Because, of course, that date of 15 March 2023 is hardcoded. If you don’t have a FAP full licence by then you cannot provide advice.
From everything we have heard from the other speakers this morning, licensing brings with it the opportunity to build even better businesses that focus even more strongly on clients, and our speakers have provided plenty of examples of the benefits that come with that.
So, what I really want to say to those advisers with a transitional licence who are still sitting on the fence is: back yourself.
We are doing what we can to help. Our team has rung every one of those providers who have indicated that they intend to apply for a full licence, to ask what they might need and how we can help. But of course, the information that we provide only takes you part way on the journey.
The business changes that you may need to make – that comes down to you. It comes down to talking to your product providers, your professional bodies, and most importantly, it comes down to talking to other financial advisers who have already gone through the licensing process – they are an amazing source of information and advice.
Yes – that is certainly a theme that has come through from our discussions with advisers over the last few months; that value of talking to your peers.
John: An example I can think of from one of the seminars we attended three or four weeks ago, was when one adviser had the courage to stand up and speak from the heart about the challenges he has been going through. He talked about the fact that finding the time to get licence ready is difficult in this current environment.
And the great thing was that others in the room said yes, that happened to me too, and this is how I did it: I found someone else to help me write up those processes that I had been putting off. Another said, I put aside one or two hours every Wednesday when I took the phone off the hook and just focused on getting on with it; and before I knew it, some of those things I didn’t think I had the time to do, I had got on and completed. And that gave me the confidence to keep going.
That’s right and it is worth finding the time because these policies and processes that you must have in place to apply for a full licence are absolutely foundational to running a successful business.
On that note, Michael I know another thing that has been on advisers’ minds is what they can expect from the FMA as regulator when it comes to checking how these policies and processes are embedded in their business. As the Head of Financial Advice within the Supervision Team, can you talk us through what FAPs can expect from you and the team at FMA when you do a monitoring visit?
Michael: Well, the first thing of course is that these policies and procedures must come from your pen. It is your mahi and that’s what we’ll want to see when we come for a visit.
Don’t worry, we won’t just knock on your door – we will make an appointment at a time that’s right for you and your people and your business. But one of the things that we will ask is for you to talk us through your policies and procedures, so it is critical you know what’s in them.
And please, if you have attested and signed through your full licensing application that you have a policy or process in place, then please make sure you actually have it there.
What else can FAPs expect in terms of monitoring and support from you and the Financial Advice team going forward?
Michael: We will continue to spend a lot of time at events such as this – as well as individual meetings. And we’ll continue to offer support, for example a few weeks ago we published an information sheet to help providers with our expectations around record keeping. That is Standard Condition number one for those who have a licence – and it’s an area that we’ve seen a lot of challenge around, so please have a look at it.
In terms of what you can expect from us when we come and conduct a monitoring visit, well those visits can either be reactive – that’s as a result of a complaint being lodged – or more thematic, whereby we just want to understand what is happening across the industry, and so we visit a sample of providers to help us understand that.
The visits themselves can take anything from half a day to three days – but as I said earlier, we won’t just arrive on your doorstep; we will make an appointment at a time that suits you.
The other thing you can expect is that before we leave your office, we will have a debrief with you. Then, within 7 - 10 days you will receive a letter from us with an outline of what we have found; whether we have found any gaps, and where you might need to improve a few things.
Is there anything FAPs can do to make sure a visit goes well?
Michael: Yes, be there on the day – we want to see you. Be transparent and honest.
Typically, there will be four or so of us who turn up from the team, and we will want to talk to you and your support team. It is really about just having conversations with you to understand that you are meeting those licensing requirements. And, as I say, we will always send a follow up letter to let you know where there are any gaps or opportunities we’re seeing. The main thing is to be there on the day; be present and collaborative.