The surge of small licensees in Australia, the only AFSL segment that has grown as AFSLs numbers have declined from a high of 2,282 at the end of 2018 to 1,826 today. What are the implications for advisers and the financial advisory landscape?
In 2021, financial adviser, Dean Holmes, of Absolute Wealth advisers decided to close his AFSL and jump on board Paragem (part of the Diverger Group, which in turn will now be part of the Count Group).
Conversely however, hundreds of advisers were opening their own AFSLs and going self licensed. Small licensee groups (i.e. of 1 -10 advisers) have increased 17% since 2018, with advisers preferencing self licensing to mid tier licensees and dealer groups as banks have exited and AMP and Insignia have cut their numbers.
Source: Adviser Ratings
Dean’s reasoning was 5-fold:
➡ Focus - Dean had 2 jobs | Compliance and Adviser; He argued that it “was hard to be your own police officer.”
➡ Time - Doing it right takes longer that you think.
➡ Knowledge – Dean questioned whether he really had the knowledge, expertise and experience.
➡ Risk - As Responsible Manager and shareholder of his practice, was he being compensated for the risk?
➡ Cost – he argued that running his AFSL was not cheaper option?
That being the case, there is also the argument that smaller licensees have higher financial and operational risks for any new advisers looking to join them. Not all licensees will offer the same quality of products, services, or support. The onus is on the adviser to ensure that they're partnering with a reliable and reputable licensee.
As we’ve seen time and time again, if a small licensee faces negative publicity or regulatory actions, it can have a cascading effect on the reputation of the advisers associated with them.
Countering this, do many mid-tier and larger licensee groups really offer that financial stability or appropriate level of PI cover.
Self-licensed and small licensees will contend that the opportunities and benefits are there particularly in terms of choice via:
1. More diverse offerings : The proliferation of small licensees can lead to a wider range of offerings. With each licensee potentially specialising or having a unique value proposition they can mould, which can better suit the needs of their clientele.
2. Niche market specialisation: Smaller licensees or self licensed advisers might focus on niche markets or specific client segments that larger licensees might overlook. This provides advisers the opportunity to cater to these specific segments with specialised products, such as MDAs, and other services.
3. Flexible business models: Smaller entities might offer more flexible business arrangements, access to technology, fee structures, or service models. This could be appealing to advisers who are looking for bespoke arrangements or are dissatisfied with the constraints of larger licensees.
4. Personalised relationships: Many self licensed advisers argue they have more direct and personalised relationships and are not beholden to bureaucratic layers or inefficiencies that may exist in larger organisations, leading to quicker decision-making processes and lower costs.
Are you in the Dean camp or the self-licensed / small licensee camp? On a pure numbers basis, many of currently side in the latter camp. To accommodate and in part alleviate Dean’s concerns, many larger licensees are turning themselves into licensee support services.
Fortnum are rolling out their Business Optimisation Service, Insignia has had IOOF Alliances in market for some time, with both CPAL (Associated Advisory Practices and La Vista Licensee Solutions) and Diverger, through Diverger X, actively assisting this self-licensed space.
With adviser numbers bottoming out, will fragmentation continue to grow? Or will we see more consolidation in the mid tier group and the rise of mega-licensees on the back of Count - Diverger merger?
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