Part 2 The top 5 reasons to self-license

Should I Stay or Should I Go? (Part 2) Five top reasons to self-license

Posted by Anne Wilkinson on Aug 13, 2019 12:30:20 PM
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Estimated read time: 2-3 minutes
Start rating: *****
Topics: RG105 | AFSL CPD | Responsible Manager Fundamentals |


Financial planning businesses are evolving, as new licensing models emerge. In this two-part blog series, we examine the pros and cons of the AFSL market. Part 1 explores the top five reasons to stick to the traditional licensee approach.

Part 2 of our look at financial planning licenses takes you through our top five reasons to self-license.

Part 2

According to recent research by CoreData, nearly one-quarter of Australians looking for financial advice say they would seek out an own-AFSL adviser to get it. At a time when distrust of the Big 4 banks has never been higher, many financial planners are leaving their licensees behind and striking out on their own.

In this second part of our series on the pros and cons of self-licensing, we’ve identified five top reasons financial planners choose to self-license.

Top 5 reasons to self-license

1. Reputation management

Prior to the Royal Commission, trust in financial advice was at 60%; now Investment Trends' 2018 Financial Advice Report found that more than 40% of Australians do not believe that the financial services and banking industry has met its obligations to everyday Australians. You can be the best operator going around, with the best compliance track record, excellent customer reviews and years of experience, but if you’re name sits alongside a bank logo on your business card then it is likely to deter some potential clients.

CoreData’s research found that, after planners who operate their own AFSL, the majority (30%) of clients said they would seek advice from an ‘other’ licensee, as opposed to one of the bank-owned groups. This indicates there is strong demand for independence when it comes to financial advice. Far from offering security and trust – both of high importance to potential advice customers – are the big brands are actually turning potential clients off?

2. Uncertainty of ownership

The big institutions are also adding to the air of uncertainty around financial planning, as many begin to offload their advice businesses. Adviser Ratings reported that planners who have been caught up in a licensee sale have had to come to terms with new business models and operating agreements, as well as the cessation of subsidies or other preferential deals, all of which have the potential to alter an adviser’s revenue and cost base. The fear of the unknown can cause a lot of anxiety and stress and is not a sustainable position from which to run a small business.

3. Choice of service providers - New technology

One of the biggest areas of gain for self-licensed advisers is flexibility. If a new product or service becomes available, they can easily introduce it into their business, without endless rounds of sign-off from management.

There have been significant improvements in financial planning technology, offering slick, sophisticated and time-saving services that were not even thought of a decade ago. Indeed, advisers rank quality of technology and compliance support as the two most important factors when deciding to switch between licensees, CoreData’s research shows. Self-licensing gives advisers the freedom to select from the best-in-market options and match solutions to their individual business requirements.

4. Value

On average, financial advisers are paying $43,400 in licensee fees every year, and the majority are paying more than they did this time last year. But the increase in fees has more to do with spiking compliance costs than it does the introduction of additional, value-add services for advisers.

Total costs of self-licencing are dependent on the size and nature of the business. They go beyond the Licence Application Fee (Payable to ASIC), and may include PI Insurance, consultant application fees, annual return audit & licensee review, ongoing external compliance support, ongoing fees to ASIC & various annual membership fees.

You must also consider operational costs such as financial planning software, education and business development support. Refer to the Your AFS licence obligations explained page of ASIC’s website.

There are also a number of new licensee support businesses emerging, competing for the self-licensed adviser’s dollar. For many advisers, the value equation no longer adds up for large licensees.

5. Independence

It should come as no surprise that the number one reason advisers are electing to self-license is having control over their own risk. Despite action prompted by the Royal Commission, question marks remain over the large institutions’ ability to ‘ring-fence’ previous bad advice and behaviours.

In contrast, self-licensed businesses employ their own responsible managers and manage their own compliance, giving them full control over behaviours, products, reporting, education and employees. In the end, the buck literally stops with the self-licensed business owner.

With clients valuing trustworthy, individualised service above all else, and an ever-expanding range of technologies and services targeted at helping small advice businesses thrive entering the market, there has never been a better time to consider self-licensing.

Ask yourself whether you’re getting true value from your licensee relationship. If the answer is no, maybe it’s time to break free.

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Financial planning businesses are evolving, as new licensing models emerge. In this two-part blog series, we examine the pros and cons of the AFSL market. Part two of our look at financial planning licenses takes you through our top five reasons to self-license.

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