Move to micro makes sense, but comes at a cost for advice businesses

The financial advice landscape has experienced a concerted shift away from large licensees and towards smaller licensee groups and, in particular, self-licensed advice firms since the Hayne Royal Commission tore an institutional hole through the industry.

But while the trend to micro continues, the move from a licensee or ‘dealer’ group to self-licensed entity is not without danger according to advice consultancy outfit Business Health.

While there are many advice groups that have transitioned to self-licensing successfully, the Business Health team says, those considering it need to consider just how much responsibility they are taking on. Further, they need to do the numbers and work out whether replacing licensee support – which costs roughly $30,000 to $40,000 per year – with a clutch of alternative providers is a viable solution.

Practice owners considering the move need to remember “there will be a price to pay”, the Business Health team says.

“Running a practice under another’s AFSL is very different to running a practice under your own license – responsibilities, costs, capabilities have been assumed,” the group stated in a recent note. “How do you tool up with the necessary capabilities for ‘licenseeship’?”

Independence is desirable for advice firms wanting to take the business in a specific direction without constraints on things like compliance and product lists, but achieving the right balance between adviser and licensee responsibilities is not always easy. In many cases, businesses lose as much, if not more, than they gain.

“The collegiate feel and spirit of the community of a previous licensee can be at risk of being forfeited when you strike out as a micro. Don’t under-estimate the power of peers and community,” Business Health says.

Selecting providers is also a considerable task, especially when a lot of the viable service providers are the same licensee groups that newly self-licensed advice groups are trying to avoid.

“There are a number of different types of providers seeking to deliver their services, tools and support to the micro and they range from independently owned and operated right through to larger licensees who are looking to leverage their already established service platform,” the group states. “Selecting the providers that best matches you and your needs isn’t always a straightforward task.”

None of these issues, on their own, should preclude an advice firm from becoming self-licensed, the group notes. The important thing, however, is that practice owners go into the endeavour with eyes wide open, and ask the relevant questions before they make a move.

“What are you looking for that you’re currently not getting from your licensee? Does it really justify moving to another’s license or to your own license?” the group states.

“And if your own license is your decision, speak to others who have already gone down the own license path,” they advise. “What’s been their experience? Knowing what they now know would they still do it? 

“Appreciate the additional costs – budget accordingly and realistically. Be prepared to pay directly for those services that were once part of a licensee’s all-in fee and perhaps taken for granted – never forgetting that this discussion should always be about value, not cost.”

Staff Writer