The challenges facing advisers in the new regulatory and business environment are manifold. The issue that illustrates these challenges probably more than any other is the changing nature of the licensee environment and how individual advisers will be adjusting to that now, and in the future.
We’ve been following the established trends of adviser moving away from institutionally and aligned licensee’s, towards privately held licensees and the explosion in newly established licensees for some time now. In light of this, it is unsurprising that a recent survey from coredata found that Adviser satisfaction with institutionally branded licensees has plunged to less than 25 per cent in the last 12 months. The same survey found that Satisfaction levels at independent (privately owned) licensees remained steady at around 70 per cent over the period; from 71.6 per cent in 2017 to 69.3 per cent in 2018 and the same again in 2019.
Negative coverage from the Royal Commission would have played a role is this, but wider trends should not be discounted. Included here is thecontinuous drive to “professionalise” the industry and addressing real and perceived conflicts in both licensee and adviser business models. Some traditional licensee models, reliant on subsidies and rebates sourced from external providers and margin from in-house product are increasing being seen as out of date.
A recent licensee summit, co-ordinated by Professional Planner again highlighted the need for licensees to adapt to changes in the industry – in particular the service and payment options they are offering to advisers. The cost of being an authorised rep is increasing and while many existing licensees might say it’s a struggle to get advice firms to pay more for their services, it is becoming apparent that advisers are willing to pay more for the right services.
Speaking at the event, managing director of consulting firm Peloton Partners, Rob Jones said “I think there is a massive revenue shift under way,” (from product revenues and rebates, towards revenues generated by fees paid by advice businesses).
“The problem is many existing licensees aren’t helping enough or are not offering some of the services that practices need” Jones says. However, licensees are finding that the quality of their services is the major factor in their competitiveness and that advice firms are absolutely willing to pay for services that genuinely add value to their businesses.
Technology providers that help streamline the advice process, and the development of more nuanced “fee for service” models by those providing other services to advisers, whether they be in small licensees or to self-licensed advisers, are opportunities waiting to be exploited, given the move to private licensees and self-licensing by advisers. Larger licensees across the board are realising that they must rejuvenate and renovate their service offerings, or face declining revenues and irrelevance.
Data from our latest Musical Chairs report shows that the majority of the growth in adviser numbers is heading to small independent licensees, while the large formally dominant institutions are shedding adviser numbers, some at a rapid rate.
Figure 1. shows the top 10 licensees with the most additions and removals of advisers for the first quarter this year. The first thing to note is the magnitude of the difference in the size of the numbers of additions and reductions. For the licensees that have added the most advisers – the biggest number of additions is only 12 advisers. Contrast that with the top licensee that has reduced numbers, AMP FP, who shed 70 advisers in the quarter. You’ll note that this number is almost equal to the entire top ten list of licensees adding advisers. With overall adviser numbers remaining relatively stable, this suggests that there are many more advisers joining many more smaller licensees, and our more granular data backs this point up.
The other thing to note is that 8 out of the 10 growing licensees are privately held, whilst 9 out of the 10 licensees shedding advisers (and large numbers of them) are institutionally owned or aligned.
This type of analysis, together with the acknowledgment of the emerging trends relating to adviser and licensee business models, shows that if service providers to the industry can come up with solutions for these businesses at cost effective prices, there is a large and growing market eager to entertain possible change.