The one advice sector that’s bucking the downward trend

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

At the time of writing, adviser movements shows many advisers have left the industry. 

There was, however, one area of growth: small self-licensed advice businesses providing financial planning and/or investment advice services. 

At a point where the time and cost involved in running a profitable advice business seems higher than ever – especially in light of obligations associated with DDO and ongoing fee arrangements – this news might seem counterintuitive. After all, any adviser planning to go down the self-licensed route is essentially assuming two different roles: one being the delivery of advice and the other being the management of the licensee. 

As Evalesco director Jeff Thurecht told us, going self-licensed can become a “big distraction” and lead to a businesses being “stretched too thin.” 

There are many challenges associated with self-licensing. Personal Financial Services director Angela Martyn cites issues including 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 problems including an unstructured succession plan, less brand awareness and a smaller marketing budget. 

Why, then, are an increasing number of advisers moving towards getting their own AFSL? 

Well, as Martyn explained, the self-licensed approach confers numerous advantages to advice businesses – despite the challenges involved. “You can retain control,” she said, “as well as contain costs, contain risks to your own activities and maintain business independence.” 

She added that a self-licensed adviser also has the ability to “refer to other service providers based on their relevance to the client rather than what the licensee’s arrangements are and you can build your own APL and manage this with efficiency due to the small chain of command. It also removes any public perceived conflicts of interest; you can set your own marketing program, contain compliance and build your own brand.”

While advice businesses can achieve these things via other approaches and through different licensing arrangements, research suggests a clear increase in appetite for the degree of autonomy associated with self-licensing. And this might be partially due to the fact that getting and running one’s own AFSL isn’t quite as expensive and time-consuming as it once was. 

WLM Financial Services director Matthew Walker told us that in the in the 20 plus years he’s been self-licensed he’s seen the cost of running one’s own licence fall from $100,000 to $10,000. And unlike in preceding decades, it’s much easier now to outsource a lot of the work involved in managing an AFSL. 

“There are businesses like My Dealer Services,” he said at the time, “and they can basically set you up however you want. When you decide to self-licence you consider how you want it to run, what you’re trying to achieve and what you’re going to do with it, and there are now groups like MDS which can set it up out of a box. That kind of turn-key business solution is out there in the market.”

Walked continued: “Those difficult issues from yesteryear can now be handled by another support business. A lot of people worry that they’ll miss out on the research and compliance and so on from their dealer group, but those services are out there.

“And it makes sense, because as a matter of practicality, how much time do you really have? You can’t compete with the capacity available to large licensees, so why not focus on what you do best?”

At a time where many of those large licensees are some of the biggest contributors to the net loss of advisers, perhaps it’s inevitable that a greater shift towards self-licensing is on the horizon. Is it something you’ve considered? And if you’re already self-licensed, what do you think other advisers should know about it?