Industry commentator Russell Hutchinson said the experience of financial service providers applying for licenses under the Financial Markets Act could be illustrative of how advisers would fare.

The FMA received a total of 253 license applications for FMC licenses, of which 201 resulted in a granted license. Eleven were unsuccessful and 41 withdrawn.

That means about 20% did not make it across the line.

Hutchinson said advisers should not expect their experience to be very different.

“The draft Financial Services Legislation Amendment Bill moves financial advice law into the framework of the Financial Markets Conduct Act," he said.

"The law under which those FSPs are licensed. The approach the FMA has taken to licensing is bound to be the basis for the approach that will be applied to financial advice providers and financial advisers.”

He said the 20% failure rate under the FMC was significant and did not capture those who looked at the criteria and decided not to apply at all.

What was hard for financial service providers should be expected to be difficult for financial advice businesses.

“Some [financial service providers] are small businesses, they do things like write pieces of software or get people to trade options. But they are not tiny businesses. A lot of financial advisers are tiny businesses.”

He said the FMA might make it easier for financial advisers to apply – “but why? Which standards are you going to adjust?”

Many financial advice businesses were not even running as incorporated companies, he said.

“They’ve got less resource there. The bottom 20% of financial services providers are better equipped than the bottom 20% of financial advisers.”

Hutchinson said the least productive advisers would find licensing harder. But he said the impact should nevertheless be expected to be significant and the failure rate could be 20% or 30% of the industry, or even more.

Those who did not become licensed could opt to be representatives or salespeople.

Gavin Austin, of compliance firm ABC, is in Australia meeting licence-holders there.

He said Hutchinson had raised valid points.

"Many advisers will struggle to justify the cost to be licensed individuals," he said.

"Not just the fees but the time and the added ongoing compliance. In Australia many small businesses joined licence holders who had scale ability where the licensee was responsible for compliance or similar to the FAR proposed designation of the current review.

"In Australia the FAR pays either a flat fee of $2000 per month, which includes PI, all the tools to be compliant and no hassle with the regulators. Small businesses who do become licensed will not be able to justify in-house compliance resources so will contract this to independent compliance consultants. I hope to find out what they charge."

He said it would be important for adviser businesses to start early once it became clear what was required from them. "I expect that one of the costs that will increase dramatically will be PI cover."