It is interesting to see recent commentary claiming that more and more advisers are making application for their own Australian Financial Services License (AFSL). While it’s been a long time coming, in my mind, it simply stands to reason that this trend was always going to develop.
In 1995 I presented a paper, at the FPA’s annual conference, titled: ‘Gaining control of your business destiny – becoming a licensed dealer’ (prior to the Financial Services Reform Act, 2002, most licensees were known as ‘Licensed Securities Dealers’. The key messages in the paper were around the advantages (and disadvantages) of advisers having their own license. In 1995, the incentives were driven around profitability along with advisers having the capacity to build their own business with much greater flexibility. In that regard, nothing much has changed.
Many advisers the nation over would be familiar with both the advantages and disadvantages of being attached to what are most often larger capital city based licensees. Representative advisers have to take the good with the bad and there are entries of both sides of that ledger. But for advisers who have been around for a while, they reach a point where they question the value they receive for the contractual obligations they submit to in being attached to a licensee.
Some decide that they’re happy to keep on keeping on with their licensee while others – perhaps those with a more entrepreneurial spirit – decide that they need to have a much greater say in how they build their business and the advice they give to clients.
In raw commercial terms, for very many financial advice business owners attached to a licensee, there reaches a point where the fees paid to the licensee outstrip what it would cost for the adviser to operate her own license. And it’s at that point that many will question the value for money. Those who really understand their business will know well before that point is reached.
Notwithstanding, frankly, I don’t think becoming an AFS Licensee is for every adviser – many really should stay under the hopefully ever watchful supervisory eye of a larger organisation. However for others with sufficient experience and education, it’s a viable opportunity to really build something of significant value in their business. In addition, it remains a mark of distinction that an individual has been prepared to step up to the plate and, in effect, make a statement that she is extremely serious about her legal obligations to clients.
The bottom line with becoming an AFS Licensee is that for most advisers, their largest asset (their business) is on the line for damages recovery if they are found to be negligent. While litigation can eventually find its way back to ‘representative advisers’, I think there is a lot to be said for advisers taking first and full responsibility for the advice they give.
Despite the seemingly incessant legislative change environment that financial advisers continue to work under, I suspect that we will witness a continuation of this trend for advisers to make application for their own AFSL. As I alluded to earlier it represents the professional maturation of the current cohort of Australian financial advisers.
For some larger licensees, within this trend lies opportunities for them to provide services to advisers establishing their own AFSLs. For many it will mean a rethink of their business model with the associated strategic planning issues. If the trend were to ‘morph’ into a groundswell of movement to quasi individual AFSLs, some larger licensees might not survive. But that’s evolution in its purest form – it’s not the largest that survive but those that are best able to adapt to a changing environment.
