Making the right licensee choice

This article has been taken from the NMP education library which has now moved to Advisely

The topic of licensing and the long-term sustainability of the established model certainly predates the Royal Commission and Australia’s big four banks moving to exit wealth management, but it’s fair to say those two events have given it an extra air of urgency. After all, when a large established dealer group gets wound up – recall, for example, the Dover collapse several years ago which stranded $4 billion in client money and saw over 400 advisers looking for a new licensee – advisers have to move pretty fast before ASIC bars them from practicing. 

Partly because of situations like the above, many advisers and other industry stakeholders have advocated for self-licensing. For instance, the FAAA has argued that the AFSL system should be adjusted to fit more in line with the post-Royal Commission reform agenda, and that individual registration “acknowledges the relationship between a client and their [adviser] … not between an AFSL and the client.” 

As we’ve discussed previously, though, going the self-licensed route can have its downsides or difficulties – in a 2019 FPA Congress presentation, Personal Financial Services director Angela Martyn described her own journey and noted that challenges could include the need for a responsible manager, potentially higher PI insurance costs, lack of support services and the need for specialist infrastructure. There were other potential issues including an unstructured succession plan, less brand awareness and a smaller marketing budget. 

While Angela’s appraisal of self-licensing was ultimately positive, it’s also worth asking: is there another way? 

Last time we spoke to Evalesco director Jeff Thurecht, he explained the process that led to an (ongoing) transformation of his advice business. And as it happens, his licensee structure played a key role in helping him do just that. 

Jeff had previously been with another (larger) licensee, and while he’d enjoyed his time working with them, he realised his business was at a stage where he wanted to do things “a bit differently”. 

He explains: “The main reason we decided to move on is that you have to cater to a larger group whom you can’t see on a regular basis. That was just making it tricky for us; we could do some of the things we wanted to do, but we’d have to get permission for everything.” 

As you might expect, this led Jeff to a fact-finding mission where he considered the different options available to him – including, of course, self-licensing. “We thought about that,” he says. “At the time, we had maybe 13-14 people in the business and the GM was running compliance and back office.” 

He believes they could’ve made it work with the resources available, but ultimately decided against that route. 

“It can be a big distraction,” he notes. “Running a license on top of running an advice business would have stretched us a bit and maybe stopped us focusing on our strategy.” 

Fortunately for Jeff, a group of industry colleagues were already putting together an alternative – a dealer group where the directors of the underlying advice businesses each co-direct the licence, thereby providing the benefits of autonomy while splitting up the workload of running the licence itself. Initially, Jeff felt it was too early to make a firm decision about his future licensing arrangement, but after a dinner with one of the directors, he was sold. 

“The clinching moment for me,” he says, “is when we were well down the track of looking into this business as well as the idea of setting up our own license. The directors came down to Sydney and we caught up for dinner, and one director told me, ‘To be honest, I’m not sure if I want you guys as I don’t want the extra risk.’

“I was actually really glad that he had that mindset, because we didn’t want too much risk either. You have to take some, obviously, but that mentality struck a chord with me. So we ended up joining – after they’d established it, of course, and in some ways it meant we didn’t have to do all the hard work of setting it up!” 

There were four firms once Jeff joined, meaning four businesses to help run the licence. Another joined later on, and while each business is different, Jeff believes the common thread is their shared values. 

“Some of the businesses are smaller than us,” Jeff says, “and some are bigger. And we each serve different client bases. But we have a very consistent ethos about what’s right for the client – I’d say we’re quite conservative in our approach of protecting the downside first and foremost.” 

An adviser-run licensee – where each business has a stake in its success – has proven very valuable to Jeff, and the consistent values in each underlying business have greatly assisted him in building his vision of an advice model focused on health, wealth and happiness. 

“Looking back on the self-licensed route we could’ve taken,” he says, “I know a lot of businesses do it well. But I also know in some cases the CEO is spending three days a week running the license, with volunteer roles supporting that. Doing that on your own can be really tough. I’m glad we didn’t go down that path as it would’ve been a massive operation. I certainly wouldn’t have the time to talk about this now!” 

While Jeff’s arrangement might not work for everyone, it demonstrates that the future of the advice business model doesn’t have to be an either/or. As he puts it, if you’re considering a new licensing structure, first consider what works for your business – and, of course, your clients.