The Financial Services Legislation Amendment Bill will, if passed, create a new regime for regulating financial advice. It is designed to remove the current classifications of advisors and advice firms (authorised, registered or qualified financial entity/QFE) and the distinctions between ‘class advice’ and ‘personalised advice’ and category 1 and 2 products.

The Government is proposing to oblige anyone who gives financial advice to retail clients to be engaged by a so-called financial advice provider who/that is licensed by the Financial Markets Authority (or has become licensed as a financial advice provider him/itself to give advice directly). The requirement that advice can only be provided by a natural person is to be removed. The new regime also intends to introduce new conduct and competence requirements for anyone who advises a retail client.

The Bill is before Parliament, has been through two readings, and will eventually repeal the Financial Advisors Act 2008. A working group has consulted the public twice about a new code of conduct for financial advice and the Ministry of Business, Innovation and Employment (MBIE) has consulted the public about disclosure requirements and about ways to deal with people who misuse the Financial Service Providers Register.

The MBIE believes that the "code approved regulations" will be made by the second quarter of this year and that transitional licensing applications will be open by the fourth quarter. The new regime, if all goes well, will start in the second quarter of 2020, when the Bill has become an Act and the regulations and code of conduct come into force.

There will then be a transitional period of two years which feature a "competency safe harbour" for previous participants in the advice business; a transitional or full licence that financial advice providers must hold; the need for every financial advisor to be engaged by a financial advice provider; and the compulsory registration of FAPs and financial advisors on the register. When the transitional period ends, perhaps in the second quarter of 2022, the "competency safe harbour" will end and all FAPs will have to have full licences.

The MBIE is consulting interested parties about licensing fees and levies. Submissions close on Friday 22 February.

Flat levies for licences

There will be two distinct phases of licensing in the new financial advice regime: transitional licensing and full licensing. Transitional licensing will allow financial firms to continue giving advice while introducing the benefits of the new regime sooner than would otherwise be practicable. During the this phase, the Bill says that the FMA need only consider a limited number of factors. For that reason, the transitional licensing process will be relatively straight forward and unlikely to vary much among different applicants for licences. The FMA will therefore incur similar costs in considering all transitional licence applications. The FMA wants to spread the cost of transitional licensing, including the relevant estimated information and communication technology (ICT) system costs, evenly between all applicants through a flat levy or 'fee,' a word usually associated with someone providing a service rather than hampering the payer's business.

The MBIE is proposing to charge A$575 for each full licensing fee for an FAP that is a single-advisor business or that only gives advice on its own account; A$730 for each FAP that engages more than one financial advisor but not nominated representatives; and A$885 for each FAP that engages nominated representatives. The proposed transitional licensing fee for all FAPs is $363. The ministry also wants to impose A$155 per hour for complex applications. At the moment, a single registered financial advisor who runs his own business need pay nothing; a small FAP that engages five financial advisors pays A$996; and an FAP that engages 100 nominated representatives pays A$4,249. This is therefore an excellent deal for large firms.