Search
Generic filters
Exact matches only
Search in title
Search in content
Search in excerpt
Filter by Custom Post Type
Search in pages
Team
Search in posts
Specialties
Fields

Financial advice provider licence classes – certainty in uncertain times

June 22, 2020

Print Friendly, PDF & Email

On 17 June 2020 the Financial Markets Authority released a consultation paper outlining its proposed arrangements for full licensing under the new financial advice regime.

 

FMA propose a three tiered licensing system, creatively labelled as Class A, Class B, and Class C. The idea is that those wanting to be licensed in Class A or B will not be subject to the full enquiry that those applying under Class C will, making it easier for smaller providers to obtain a full licence, provided they are happy to limit the ways that advise (and, in particular, not engage nominated representatives).

 

The three licence classes, and what they will allow

 

Class A licences are aimed at single adviser businesses (including sole traders). These providers will be able to give advice directly to retail clients or through a sole financial adviser who is also the director (or one of two directors), but won’t be able to have more than one adviser. They also won’t be able to engage nominated representatives, have authorised bodies under their licence, or engage any other entities to give advice.

 

This is the most basic type of licence and would suit those advisers who are out on their own and don’t want to join an adviser group in order to provide advice, or to give advice on behalf of another FAP. However, someone applying for a Class A licence would need to be confident they won’t engage another financial adviser in the future, as that would trigger a need to apply for a new licence class (and pay another fee).

 

Class B licences are aimed at smaller adviser businesses. With these licences, providers can provide advice directly to clients or engage multiple advisers to give advice on their behalf. Class B licensed providers won’t be able to engage nominated representatives or entities to give advice, and they will only be able to use an interposed person arrangement with FMA approval, which FMA says will be given on a case-by-case basis. Authorised bodies will be permitted under a licence.

 

This class seems suited for smaller advice firms where each person is a financial adviser, or for dealer groups that act as the financial advice provider for multiple independent advisers.

 

Class B is the middle ground and, in a way, that makes it the hardest to conceptualise. The class will permit a broad range of business structures, but those who want to operate with a Class B licence will need to take the time to understand the limitations and how they fit with their business.

 

Class C licences are for everyone else. They provide the most flexibility in how advice can be provided and allow the use of nominated representatives. Class C will also allow entities to be engaged to provide advice, and the use of interposed persons, but not as of right: engaging an entity will require a licence condition, and interposed persons will require FMA approval (the same as Class B).

 

This class is for the big players: banks, insurers, and other providers who are currently QFEs. It will be the most involved full licence application and FMA will inevitably expect more maturity in processes than for the other classes.

 

Summary

 

Class A

 

The licensee can

  • Give advice directly
  • Give advice though one financial adviser (who must be a director)

 

The licensee can’t

  • Have more than one financial adviser
  • Give advice through nominated representatives
  • Have authorised bodies
  • Engage entities to give advice
  • Engage through interposed persons

 

Class B

 

The licensee can

  • Give advice directly
  • Give advice through financial advisers
  • Have authorised bodies
  • Engage through interposed persons (if FMA allows)

 

The licensee can’t

  • Give advice through nominated representatives
  • Engage entities to give advice

 

Class C

 

The licensee can

  • Give advice directly
  • Give advice through financial advisers
  • Give advice through nominated representatives
  • Have authorised bodies
  • Engage through interposed persons (if FMA allows)
  • Engage entities (if the licence allows)

 

None of the licence classes limit the type of advice that can be given. This is because the Code’s competence requirements address the type of advice that can be given in any situation. This means that someone with a Class A licence will still be able to provide complicated advice on complex products, provided they meet the competency requirements of the Code.

 

While the proposal isn’t perfect, and we have questions about some aspects of the detail, we think the use of three classes strikes the right balance. It allows smaller advisers to go through an easier, more streamlined application process than the larger advice providers, and should mean FMA’s resources are focused on those larger providers.

 

Now is the time to consider your options

 

FMA is seeking submissions on the draft licence classes until Friday 7 August 2020. More information about making submissions is on the FMA website.

 

If you are currently providing financial advice, have already received a transitional licence, or will be applying for a transitional licence, you should reflect on these licence classes and how they might fit your business. If you think that they won’t work – for your business or others – then you should make sure your view is heard by FMA.

 

FMA’s consultation also covers eight proposed standard licence conditions. We’ll have more to say on that topic over the next few days.

 

Get in touch!

 

Anthony Harper has extensive experience in licensing issues and regulatory reform, and are actively supporting clients across the sector on financial advice reform. If you have any questions, or need assistance in your business, please get in touch: nick.summerfield@ah.co.nz | 09 984 4234 | 021 242 7686.

  • Update: The new Privacy Act 2020
    July 2, 2020
    The new Privacy Bill, now the Privacy Act 2020 was passed into law on 30 June and comes into force on 1 December 2020. In...
  • The new Employment Relations (Triangular Employment) Amendme...
    June 30, 2020
    The Employment Relations (Triangular Employment) Amendment Act 2019 (the Act) came into force on 27 June 2020.   What is the scope of this Act?...
  • Standard financial advice provider licence conditions out fo...
    June 25, 2020
    On 17 June 2020 the Financial Markets Authority released a consultation paper outlining the proposed standard licence conditions for full licences under the new financial...