Home / Industry / Advisers shift out of one-man shops as more ‘Micro-AFSLs’ close doors in 2024

After the Hayne Royal Commission many advisers decided to steer away from large dealer groups in favour of becoming self-licensed. In the last six months, however, that trend has taken an abrupt turn.

The trend for advisers to hang up their shingle and start their own Australian Financial Services License is abating, with increasing numbers of ‘Micro-AFSLs’ being shut down in 2024 as advisers forgo the struggle of running a singular, self-licensed advice business in favour of joining forces with other small groups or joining a larger, more scaled licensee group.

According to research from Wealth Data, one Micro-AFSL (defined by founder Colin Williams as licensees with under ten advisers) closed for every two that opened across the current financial year to date. In the current calendar year, however, the data shows that one Micro-AFSL is closing for every one that opens.

The pattern becomes stark when the calendar year to-date is matched up against the same period in 2023. While 30 Micro-AFSLs commenced and (-12) closed in 2023, 35 new licensees have commenced and (-32) have ceased so far in 2024.

Narrow the aperture even further and the trend becomes crystal clear. In the last few weeks the number of licensees ceasing has actually become greater than the number commencing. Since the beginning of February 25 Micro-AFSLs ceased while only 19 commenced.

According to Williams, the trend is a reversal of what we saw following the royal commission, when a raft of institutional licensee closures and negative publicity associated with large dealer groups led to more advisers becoming self-licensed.

“The royal commission convinced a lot of planners to leave a lot of big groups, and the whole vertically integrated model was under pressure,” Williams tells The Inside Adviser. “A lot of advisers wanted to tell their clients they were independent. At the same time it was becoming a bit easier to make the transition as a sole proprietor because more compliance consultants were starting to emerge as facilitators in the process.”

Five or six years on, some of those advisers are retiring. But most of those ceasing Micro-AFSLs, Williams explains, are opting to merge with other Micro-AFSLs so that they can add a degree of scale without entirely sacrificing their independence.

“There’s a fair bit of convergence going on, with advisers choosing to get bought out or merging with other small groups,” he says, before explaining how the pressure of operating an advice business and licensee, combined with maintaining a full book of advice clients, can be difficult to bear. “It’s a lot of pressure on one person, and the administration side of it is pretty intense. That’s just the nature of the system.”

Some advisers also probably jumped into running their own licensee before they were ready, Williams believes. “Quite a few of them, you could tell by the way they’ve set the business up that it was a bit premature,” he says.

From here, the researcher predicts the Micro-AFSL closure rate will probably drop a little further before stabilising. “I wouldn’t be surprised if the cessation rate hung around this number for a while,” he says.

There are typically “peaks and troughs” in the Micro-AFSL rate, he says, with a rise in cessations expected at the end of financial year and a then a rise in new Micro-AFSLs expected in the following month.

“All up, it’s probably getting to that stage where 1 new Micro-AFSL to one cessation is the status quo for a while,” he says.