Advisers must ensure they meet the competence, knowledge and skill standards set by the new Code of Conduct for Financial Advice Services, posing significant barriers to sustaining business operations and expansion for small and medium FAPs.
According to the FMA, 82% of FAPs have fewer than 10 financial advisers spread across the country.
These FAPs can have limited resources and capacity to invest in training, technology and systems to comply with the new regime, say Australia-based Guild Solutions president and chief executive Engelbert Nolasco and New Zealand-based Smart Adviser founder Sam Kodi.
They may also face increased competition from larger FAPs that have more economies of scale and scope.
Nolasco and Kodi say another challenge facing small and medium FAPs is keeping up with the latest trends in automation and other technological innovations that are reshaping the financial advice landscape.
“Technology can offer many benefits for FAPs, such as enhancing efficiency, reducing costs, improving customer experience and expanding market reach,” Kodi says.
“However, technology can also pose risks such as cyberattacks, data breaches, ethical dilemmas and regulatory uncertainty. FAPs need to balance the opportunities and threats of technology and ensure that they use it in a way that is consistent with their fiduciary duties and client interests.”
One possible strategy, according to Nolasco and Kodi, is for small and medium FAPs to form an aggregate or join a network of FAPs that share common goals, values and standards.
“Aggregation can offer many advantages for FAPs such as collective bargaining power, economies of scale and scope, shared services and support, enhanced professional development and better brand recognition and reputation.
“Aggregation can also entail costs such as loss of autonomy, increased complexity and coordination, potential conflicts of interest and liability issues. FAPs need to weigh the pros and cons of aggregation and choose a model that suits their business objectives and culture.”
Another alternative for small and medium FAPs is offshoring or outsourcing some of their functions or activities to third-party providers based in other countries.
Nolasco and Kodi say offshoring can offer benefits such as reducing operational costs, increasing flexibility and scalability, accessing global talent and expertise and diversifying risk exposure. “It can help FAPs leverage their strengths, address their weaknesses, exploit opportunities and mitigate threats,” Kodi says.
“Offshoring can also pose challenges, such as quality control, communication barriers, cultural differences, legal compliance and reputational risk. FAPs need to carefully select their offshore partners and ensure that they adhere to the same standards of professionalism, ethics and quality as they do.”
The success of these strategies depends on how well they align with the FAPs' vision, mission and values, he says.
