The purpose of this article is to analyse the pros and cons of the most common licensing structures for New Zealand financial advice businesses. 

Every business is different and it’s important to consider the potential impact of certain licencing decisions.

This article is a general reference and you should consult with a compliance professional before making a decision that might impact your business.

Clarifying terms:

  • A ‘financial advice provider’ or FAP is a company that provides a financial advice service. A FAP can be an individual, however, this is uncommon.

  • An ‘authorised body’ or AB is an entity named on a financial advice provider’s licence that can provide the licensed service without needing its own licence. 

  • ‘Financial adviser’ means an individual (person) who is registered in relation to providing a financial advice service, but does not include a ‘financial advice provider’. 

  • A ‘nominated representative’ means an individual who is nominated by a financial advice provider. (usually employees of a larger institution like a bank or a KiwiSaver provider that only provides advice on one product/business)

Why do I need to be licenced? 

From March 2021, the Financial Services Legislation Amendment Act (FSLAA) entered its transitional period and financial advice providers (FAPs) now needed to be licenced to operate.

This was a time of uncertainty and it added an additional layer of complexity to a financial advice business. 

What are the different licensing structures?

The Financial Markets Authority (FMA) have three different types of licences:

  • Class one licence

This for businesses with a single adviser

  • Class two licence

This is for businesses with multiple advisers or authorised body FAP’s that utilise the licence

  • Class three licence

This is usually for larger financial institutions like banks that has nominated representatives under its licence

How your business structure may influence your licensing decision - three different scenarios

Whether or not you should hold your own licence is largely influenced by the type of business structure you operate. The legislation is drafted to provide advisers with ultimate flexibility, so by no means is this the only way you could move forward. The scenarios below should provide you with a useful guide to understand licensing in a range of different contexts. How you ultimately apply this knowledge to your business will be up to you.

Scenario one: Solo and independent financial adviser and director of a financial advice business:

You are a sole operator, and run an advice business underneath your own brand. You’ve built up a loyal client base, who know you and trust you. The licensing decision will have implications on the flexibility you have to maintain your own systems and deliver advice by your own methodology. 

When it comes to licensing, your options will be to:

  1. Apply for your own licence

  2. Become an authorised body under another licence. For example, under an aggregator

  3. Become a financial adviser under a financial advice provider’s licence 

Managing your own licence will give you ultimate responsibility and flexibility to control the future direction of your business.

Over 40 percent of financial advice businesses are single adviser businesses. The FMA and Government have stressed the importance of providing flexible options for small independent adviser businesses. The FMA challenged themselves to make sure licensing wouldn’t be overly onerous for independent advisers, which is reflected in their licensing fee structure, which scales based on number of advisers covered by a particular licence. They’ve also given the option of a class one licence which is designed for single adviser businesses.

When deciding on the structure of your business, you will want to understand the implications of not holding your own licence. You may lose a lot of control over your processes and capacity to deliver advice your way. 

Financial advice providers who hold licences on behalf of a large number of advisers may be under a higher level of scrutiny by the FMA than an individual adviser will receive.

Because of this, the Financial Advice Provider (for example an aggregator) will most likely dictate to you the exact processes you need to follow. This does come at a risk of you being unable to provide advice on certain products (KiwiSaver for example may not be included on the licence holder’s licence).

Scenario two: Independent financial advice business with multiple advisers:

You’ve been running a successful advice business for a number of years, and have a loyal client base, which is serviced by you and a number of employees/contractors within your business. 

When it comes to licensing, you have two decisions to make. 

Do I hold my own licence or become an authorised body on a licence?

Firstly, you need to decide whether or not you would like to hold your own licence. Usually, financial advisers work with a business like yours to benefit from your brand, processes, capacity to generate leads, and streamlined admin support. If you would like to maintain processes and continue with business as usual, having a licence could be useful.

How should the financial advisers who work with me be referenced in my licencing decision?

You also have to decide whether or not you want to hold a licence on behalf of the advisers who work with you. If they are employed directly by you to give regulated financial advice on your behalf, you will most likely want to include them in your licence application. 

If you do this you’ll need to have systems and processes in place to ensure the quality of advice they deliver, as you will ultimately be responsible for the advice.

However, you may want advisers who like to have flexibility on how they operate to become authorised bodies. Although the costs of licensing may increase, the liability will be shared by your financial advice provider and their authorised bodies under your licence. 

You will still need to have some control and oversight over their advice.

Scenario three: Financial adviser who owns or is a member of a franchised advice business/model

You’ve committed to your franchise/branded model to get access to strategic, marketing, process, and admin support. Your customers know and love your brand and the unique benefits of working with your business. 

Franchise businesses such as New Zealand Home Loans, Loanmarket, Mike Pero Mortgages, Prosper, and Share NZ all hold their own licences as a head franchisor.

While the head franchisor holds a licence, they will ask you to either:

  • Become a financial advice provider and be an authorised body on their licence

  • Or become a financial adviser falling under their licence. 

Both of the scenarios above involve the head group taking shared responsibility for the advice you are giving. Because of this, you’ll most likely have to follow their processes or face potentially being asked to leave.

This also means that each business that is on the licence is connected to each other and may be at risk if there are systemic issues within the group.

Why getting your full licence might not be a good fit.

You are a member of a franchise or branded group

You might be a business owner that operates under a brand of a group (Loanmarket, Mike Pero, Mortgage Express for example). To be a member of such groups you will need to fall under their licence as an AB and follow their processes. The only instance where a business under such brands would get their own licence would be if they started their own brand and business and moved outside of those groups.

You have little interest in understanding your compliance obligations

Staying up to date with your compliance obligations is a requirement, regardless of your licensing structure. However, some advisers may want to ‘just be told what to do’ with no consideration of the impacts. In this instance, we recommend that you do strong due diligence on the licence holder as there is a risk that if something affects their licence, your business may be impacted too.

You have a commercial agreement that prevents you from applying for your licence

This is usually where you’re part of a head group that only supports members who are authorised bodies under their licence.

Competing industry licensing opinions

Depending on who you speak to, you’ll get a different opinion as to whether or not you should be looking to apply for a licence or become an authorised body under another’s licence. 

It’s important to understand why people in different positions would encourage you one way or another. Incentives play a big part in driving recommendations. For example, if you speak to an independent compliance consultancy, they might tell you to manage your own licence, knowing you’re more likely to become a prospect of theirs for outsourced auditing work. Likewise, in order to justify their fee, an aggregator might encourage you to fall under their licence. 

It is worthwhile to consider if this aligns with your business goals. It is also worth considering the costs. You may lose business autonomy and ownership over your clients. Other unforeseen costs may arise as well from this decision including but not limited to higher fees or split commission models.

In some cases, it may be better for an adviser and the advice business to remain independent, while other cases it makes more sense for the adviser and business to fall under another financial advice provider’s licence. 

What does the full licence application process look like?

What are the steps to apply for your full licence

You’ve made the decision to become a financial advice provider and maintain your own licence. What will you need to do, and when will you need to do it? 

This list should give you a good idea of things to consider prior to applying:

  1. Read our guide on licencing (completed!)

  2. Register your business and any advisers in your business are registered on the FSPR

  3. Open the application portal (this needs to be done 24 hours prior to applying - instructions below)

  4. Make sure you have adequate policies and processes in place to comply with your obligations both from a business and individual’s perspective

  5. Apply for the licence on the FMA website

  6. Make sure any sub-advisers are engaged by your FAP

How much does it cost to apply for your full FAP licence?

The cost varies depending on your business structure.

Class one licence: solo adviser businesses $612+GST

Class two licence: financial advice providers that engage multiple financial advisers $767+GST

How much does it cost to add your business to the FSPR

If you are not currently on the FSPR and need to register a business, the costs are as follows:

  • An application fee of $300+GST

  • An FMA levy of $600+GST

  • $35+GST to cover the cost of your criminal history check, unless you've undergone a successful check within the last 36 months.

How long does the application process take?

This depends on the size and complexity of your business. Generally speaking, the application process is relatively straightforward. Typically advisers can get through it in 30-60 minutes once they’re ready to apply (they have the appropriate documentation, polices, processes etc in place).

Once applied, a response is typically received back in 10 working days. The FMA have quoted as much as 90 days, however, I am yet to see any application take longer than three weeks from application.

It’s important to check your spam box during this time as they will sometimes email you follow up questions that need to be answered before processing can continue.

Once your application is successful, you will receive email confirmation from the FMA.