Speaking at the TMM Better Business Conference in Auckland this week, most groups in attendance said the demands of the regime would require extra costs to cover audit and compliance. Groups gave varying estimates of the potential impact.
Andrew Scott of Newpark Home Loans said Newpark had conducted “financial modelling” to assess the cost for advisers working under a group FAP. Scott claimed the new regime would cost advisers an additional $21,000 per year under a group FAP.
Scott said: “That’s a conservative estimate, and not to make a profit, but just to break even. If you come under someone else’s licence, it will cost you about $21,000 per annum per adviser. That’s consistent with what’s happening in Australia.”
Newpark wants individual businesses to take their own FAP and their own legal and compliance responsibility.
Other groups in attendance dismissed Newpark's prediction.
Brian Greer, CEO of Loan Market in NZ, rejected the Newpark estimate. “We will be a long way away from that. I don’t know where you got your numbers.”
Greer said Loan Market and NZFSG would introduce a separate audit and compliance fee rather than changing its existing membership flat fee or commission model.
Greer said: “The Loan Market model is a variable price model, a percentage of commission, and the NZFSG model is a flat fee or hybrid. Those fees structures won’t change at all, but we will have to introduce an audit and compliance fee. We’re working through what that is going to look like. I can’t give a firm number, but there's going to be additional costs. There’s no hiding from that.”
Greer added: “Audit and compliance is the glue that holds the whole thing together. If you’re running that under your own FAP you are going to have to build that, or outsource it, which will be costly, in our belief. That’s where economies of scale will win through.”
Rupert Gough, of Kepa, would “not commit to a number” on the expected additional costs, but agreed with Greer that “economies of scale”, and operating under a group FAP licence, would benefit advisers.
Gough said: “If you come under our licence, using the CRM we recommend, it will be a nice smooth process, with economies of scale coming in. We have a set price model, and that will increase per month, that’s obvious. We are doing the reviews in-house. There’s nothing you should be worried about.”
Q Advisor Group’s Geoff Bawden said there were currently “no plans to move the level” of its fixed-price fee model, but added: “Having said that, it is priced reasonably finely. One thing we know is that compliance is likely to push the costs up for all of us, and if it does, we will need to share the cost.”
Mortgage Link’s Josh Bronkhorst gave a clear estimate of the additional costs, but said it would be cheaper than advisers handling audit and compliance under their own FAP.
He added: “We have communicated to our members that we believe to come under our FAP you’re looking at an annual cost of between $3,000 and $6,000. Some might look at that and think it’s quite heavy, but we maintain if we can save you some money and give you back time, you have to consider what that time is going to cost you.
Bronkhorst added: “We’re looking at a way to ensure the cost being part of our FAP is less than the cost of setting up your own licence. The time you would need to spend maintaining your own FAP would be given back to you with the efficiencies we create at group level.”
Sarah Johnston, of Astute Financial Management, said the group had set out its fee structure when it first came to market, and it had not changed. She said the group’s CRM would allow it to efficiently monitor audit and compliance.
Johnston added: “We’re also fortunate that we are supported by our shareholder companies that represent 500 advisers in the Australian market, so we already have scale. We are a fee share model, and we charge $100 per adviser per month for the compliance part of the business. That’s dictated by the fact they are using our CRM, which is non-negotiable. That allows us to do remote checking on a bulk number of our advisers. A minimum of 5% of their work will be vetted.”