It consulted on the minimum standards for personalised DIMS in November.  That paper included additional standard conditions for AFAs relating to outsourcing and financial resources.

The FMA yesterday clarified and re-issued the standard conditions and has asked for more feedback. Submissions close February 27.

The outsourcing standard requires that any AFA who outsources processes or systems a part of their DIMS must be satisfied the provider is capable of performing the service to the standard required to meet the AFA’s authorisation obligations.

The AFA must have a legally binding agreement with the provider and ensure the records pertaining to DIMS are available for inspection at the FMA’s request.

The FMA said the condition only covered outsource arrangements where the AFA relied on them to meet authorisation obligations.

It said AFAs should consider the outsource provider’s experience, any complaints about them, their operating jurisdiction and any protections and controls imposed there. They should regularly review the arrangement and its performance.

The financial resources standard requires AFAs to calculate their net tangible assets at least monthly and notify the FMA if they have a negative result.

Adviser Simon Hassan said there were unlikely to be big problems with either of the conditions – advisers who outsourced functions of looking after client money should have good systems to ensure the people working with it were appropriate.

He said it also made sense that advisers’ books be kept in the black. “If I was insolvent there’s a bigger threat or moral hazard that I could find some way to deal with my problems by dipping into what people give me to look after.”

But Hassan said he had decided not to continue to offer DIMS.

“It seems there are so many – and multiplying – areas of red tape and veiled threats, such as the FMA saying ‘in our opinion only a handful of advisers are capable of offering personalised DIMS’.”

He said his business was hiring another adviser, who was not authorised for DIMS. “We would have to go through all the hoops and with all the complexity it would create we thought let’s just ditch it.”

Now, instead of writing to clients to tell them that changes to their portfolio would be made unless they objected, Hassan’s firm would write and tell clients what they recommended and ask them to approve or reject the idea.

“It will annoy some clients who like the idea that we take care of it.  There’s no difference in the safety and security of client money,” he said.