MBIE seeks submissions on financial adviser levy reform - Legalwise Seminars

MinterEllisonRuddWatts Partner Lloyd Kavanagh and Senior Associate Andrew Suggate discuss the Ministry of Business, Innovation and Employment’s planned fees and levies for financial advice providers and financial advisers under the new financial advice regime, among other expected changes. MBIE invites submissions on the discussion paper until 18 February. 

The Ministry of Business, Innovation and Employment (MBIE) has released a discussion paper on the intended fees and levies for financial advice providers and financial advisers under the new regime, as well as changes to the way levies are charged to authorised bodies of market-service licensees.

The discussion paper is available here.

Who needs to read it? Why?

All persons intending to be financial advice providers or financial advisers under the new financial advice regime, and existing authorised bodies under a market services licence. The Financial Services Legislation Amendment Bill (FSLAB) creates a new regulatory regime for financial advice and includes a requirement that anyone giving financial advice to a retail client operate under a financial advice provider that is licensed by the Financial Markets Authority (FMA). This builds on the existing licensing regime for market services licences and authorised bodies under the current Financial Markets Conduct Act 2013 (FMCA).

What does it cover?

The discussion paper sets out MBIE’s proposed licensing fees for financial advice providers and amendments on how the FMA levy is collected. All amounts exclude GST.

Transitional licence fees:

• • Transitional licensing is expected to be straight forward and similar for all licence applicants. MBIE are therefore proposing the following fees:
  • Financial advice providers will pay a $363 application fee.
  • There will be additional fees of $39 per authorised body named in the application and $100 for any application to vary licence conditions or to add or remove an authorised body (plus $155 for every hour or part-hour pro rata, of work carried out).

Full licence fees:

• • The cost to apply for a full licence will scale to the size of the business applying to reflect the costs associated with the extra complexity and time of the licensing process.
  • A financial advice provider that is a single adviser business or only giving advice on its own account will pay $575 plus $155 per hour if the processing time exceeds 2 hours.
  • A financial advice provider that engages multiple financial advisers but no nominated representatives will pay $730 plus $155 per hour if the processing time exceeds 3 hours.
  • A financial advice provider that engages nominated representatives would pay $885 plus $155 per hour if the processing time exceeds 4 hours.
  • There will be additional fees of $155 per authorised body named in the application and $100 for any application to vary licence conditions (plus $155 for every hour or part-hour pro rata, of work carried out).

FMA levies:

• • Unlike licensing fees, levies are not set at a cost recovery basis, but reflect the relative benefits that each participant receives from operating in a well-regulated environment. The levy will generally be proportionate to the size of the business.
  • MBIE proposes that financial advice providers or financial advisers pay $460 at initial registration.
  • For each annual confirmation financial advice providers will pay $230 plus $179 per nominated representative and $1,106 if the financial advice provider gives advice on its own account.
  • For financial advisers the levy at each annual confirmation will be $267.
  • Financial advice providers will not be required to pay more than a cap of $80,000.

Authorised bodies:

• • The discussion paper also proposes changes to how authorised bodies, and market services licensees under the FMCA, are levied.
  • Currently different levies are charged depending on the financial services provided by the authorised body. The discussion paper proposes to change this so all authorised bodies will pay a levy of $460, regardless of the financial service that they provide.
  • Financial service providers that pay a levy under the tiered classes (e.g. fund managers, DIMS providers) will pay a levy based on the total funds or assets under management of both the main licensee and any authorised bodies covered by the licence. The total levy payable will be calculated under the current class in Schedule 2 of the Financial markets Authority (Levies) Regulations 2012.
  • Financial advice providers would pay the levy for the total number of nominated representatives engaged by the financial advice provider and any authorised bodies covered by the licence. Each authorised body would pay $460.

Our view

Fees and levies are an important piece of the puzzle for businesses considering the impact of the new regime, and it will be helpful for planning to see these proposed costs. If you have concerns about the proposed costs, you should consider writing a submission.

Financial advisers may wish to consider whether improvements could be made in relation to the additional hourly fees component of an application fee. For example, what controls are in place to ensure work is undertaken efficiently.

What next

MBIE is now seeking written submissions on the issues raised by the discussion paper. The deadline for submissions is Monday 18 February 2019 at 9am.

Currently, FSLAB is expected to pass by early 2019 and come into force in the second quarter of 2020. Once enacted, existing financial advice providers may be able to apply for a transitional licence, while new participants will require a full licence.

Transitional licences will expire 2 years after the end of the transitional licensing application period, at which point all financial advice providers must be fully licenced.

Please contact the authors if you have any questions about this article.

Partner Lloyd Kavanagh is ranked Band 1 for Investment Funds by Chambers Asia Pacific, and is a highly regarded opinion-leader on financial services and an expert in corporate governance. Lloyd is acclaimed by commentators and clients in international research publications. In recognition for his work on financial markets law reform, Lloyd was made a Fellow of the Institute of Finance Professionals New Zealand Inc. (INFINZ), the first lawyer to receive the accolade. His expertise is proven by being the co-author of Morison’s Company and Securities Law and MinterEllisonRuddWatts’ Corporate Governance White Paper. Lloyd is also a former member of the New Zealand Securities Commission. Lloyd advises institutions and boutiques on investment funds, equity and debt offerings, and managed investment schemes of all types, specialising in public offers, M&A, and restructuring projects. He advises on securities regulation including Financial Markets Conduct Act, Financial Advisers Act, AML/CFT, and directors’ duties. Contact Lloyd at lloyd.kavanagh@minterellison.co.nz or connect via LinkedIn.

Senior Associate Andrew Suggate is in the Banking and Financial Services Team. Andrew is a financial services specialist and has broad experience in all areas of New Zealand’s capital markets, with a particular expertise in financial services regulation, funds management, private capital raisings, stock exchange rules and listed financial products. Andrew has worked with many of New Zealand’s major financial institutions assisting with reviewing and drafting offer documents, trust deeds, investment management agreements and other capital markets documentation as well as advising on a range of issues related to offering securities and operating financial services or financial advisory businesses in New Zealand. Andrew has previously worked in‑house at NZX in New Zealand and the London Stock Exchange. Contact Andrew at andrew.suggate@minterellison.co.nz or connect via LinkedIn.

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