The figures below have been produced to help put the additional costs of doing business in 2010 under a regulated environment into perspective. The costs shown are indicative and will vary from one adviser practice to another:
Fee regulations
minimum $1,385 + GST (direct cost)
Compliance Reviews
$2,700 + GST (direct cost)
Compliance implementation & disruption
up to $10,000 + GST (indirect cost)
Qualifications
up to $6,000 + GST (direct cost)
Lost revenue generation due to study & course time
up to $14,000 + GST (indirect cost)
Plus associated costs:
IT, staff training, administration.
Fee Regulations
The Ministry of Economic Development (MED) has released a discussion document on fee regulations in relation to the legislative requirements of the Financial Service Providers (Registration and Dispute Resolution) Act 2008 and Financial Advisers Act 2008. The MED is proposing the following initial registration and application fees:
Financial Service Provider application for registration: $350
Criminal check on each name in application for registration: $35 per person
Administration costs associate with the dispute resolution regime: $30
Initial Authorised Financial Adviser (AFA) application fee: $750
Base minimum annual supervision fee: $250
Total initial fees to Government agencies: $1,385 + GST
There will be additional ongoing annual fees that have not yet been struck. These are still under development and will include:
- The levy payable by members of the reserve dispute resolution scheme
- An operational levy payable to the Securities Commission to cover the costs arising from the performance of any or all of the Securities Commission’s functions and duties under the Financial Advisers Act.
For further information regarding these fees plus information on how to make a submission in response, download a copy of the discussion document.
Compliance Reviews
The compliance reviews are not compulsory for an AFA authorised with the Securities Commission. However, Strategi believes it is prudent for an AFA to have an external review of their compliance process undertaken each year to ensure a company and its advisers are meeting all of the requirements of the various regulations and the Code. Furthermore, compliance reviews will ensure your business systems and processes are operating as efficiently as they possibly can in order to maximise the profitability of your business. Strategi is currently expanding in-order to provide this service to a wider range of advisers than what it currently does.
The compliance reviews include:
- Two detailed onsite visits each year.
- Quarterly electronic spot checks of adviser files and processes.
- Working with advisers throughout the year to ensure they rectify all compliance issues.
- Issuing a Best Practice Compliance Certificate each year (assuming the adviser meets the standard).
- Strategi believes that an adviser who has obtained external compliance certification significantly increases the probability of meeting the requirements/guidelines of the Securities Commission.
Compliance Implementation and Disruption Cost
The compliance implementation disruption cost is an indirect cost all adviser practices inevitably encounter. This is the cost associated with:
- Staff training
- Altering IT systems
- Implementing new processes
- Completing new forms with clients
- Getting each client file up to a ‘compliant’ state.
The price will vary depending upon the size of the practice and how compliant they are before they start the process.
Qualifications
The $6,000 plus GST is a ballpark figure for all associated costs in obtaining the Level 5 National Certificate in Financial Services (assuming the adviser is not able to obtain any cross credits for past learning or experience). The price will vary depending upon the skill and experience of the adviser. The estimated fee for an adviser with a Diploma plus a CFP or CLU is likely to be under $1000 plus GST.
Lost revenue generation due to study and course time
The lost revenue generation cost of $14,000 plus GST is an indirect cost and will vary from adviser to adviser, depending upon how long it takes them to do the Level 5 courses and whether they do the pre and post course work in business hours or outside of business hours. The amount of $14,000 assumes 9 days of course time plus 5 days of pre-course work and post course work (all done in business hours) and a lost revenue amount of $1,000 per day.
Depending upon the organisation and the individual adviser, Strategi estimates the total cost to become fully compliant to AFA status could be anywhere between $2,500-$34,000 over a 12-18 month period. The huge cost variance is determined by:
- What sort of group discount an adviser can obtain for training and compliance services.
- For those advisers who decide to operate under a QFE, whether the QFE utilises in-house staff to do the compliance or else contracts it out to a third party such as Strategi.
- Whether AFAs choose to have an external annual compliance review undertaken.
- How advanced each adviser is currently with systems, processes, CRM/reporting software and staff competencies.
- What level of skill/experience the adviser currently has and whether they can complete Level 5 National Certificate via a series of challenge tests, fast track modules or the full range of two day courses. Each unit standard has significant pre and post course work that in many instances will take as long to complete as the actual training courses.
Strategi recommends that advisers avoid focusing too much on the costs associated with regulation, which they are unlikely to find much reduction to or discount in, if at all. Instead, advisers should accept the costs of regulation as normal operating costs in the new reality of our industry and focus on revenue generating activities to compensate and offset the increased costs.
Strategi offers education, compliance, systems training plus a range of revenue generating services to assist you and your business succeed under a regulated environment. Contact Strategi for further information.
