After investigating the key considerations that advisers take into account when selecting a new licensee, this week we look at the process from the industry supplier’s viewpoint.
An adviser changing licensee has the potential to effect more than just their own business. The people who engage with advisers from the businesses that serve the advisers - product and service partners can also be impacted. Talking to these people provided the opportunity to get a view of the adviser migration process from an arm’s length point of view.
Perhaps not surprisingly, they saw their personal relationships with advisers as being vitally important in terms of keeping the channel for their products open. They spoke of transitioning advisers under much stress and experiencing lots of emotion. Multiple calls and personal contact with advisers were a regular part of the process and issues for advisers could be very different, depending on the terms of their transition. An adviser deciding themselves to change licensee’s is potentially in a very different situation than one who’s dealer group has been sold to or merged with another entity. Many advisers were “scared to death” of potential ramifications of joining a new group and take time off in this transitional period.
Here too, we can see a difference in the challenges facing advisers moving to larger versus smaller entities.
Different Licensees Present Different Challenges
Those being “forced” to change via a sale or merger have to come to terms with new business models and operating agreements. Particular subsidies they enjoyed at one licensee may not operate in the new licensee. The cessation of these and other, similar preferential deals have the potential to alter an adviser’s revenue and cost base and fear of the unknown can cause much anxiety and stress. Westpac advisers moving to Viridian, where the advisers are required to own shares in the firm, and which uses equity incentives in lieu of paying bonuses or commissions to advisers is a case in point.
Sudden closures, such as Dover last year mean that such transitions can happen relatively quickly. This would only add to an already stressful situation. Spectrum Wealth Advisers, owned by Freedom Insurance Group – which came in for a hammering at the Royal Commission, closed in Q2 affecting dozens of advisers, most of whom were taken in by Consilium Advice and Climb Wealth in less than a month or two. Advisers needing to keep operating would potentially not be able to do as much DD as they would like on their new licensee. As small business operators, they too have bills to pay. Some may be just following the herd, believing that if some of their colleagues are moving to a particular licensee, it should suit them as well. On the licensee side, as relatively small licensees, their ability to absorb large numbers of advisers may be questioned and will certainly be followed by regulators.
Plan For Surprises
In general, for advisers transitioning to a smaller licensee, the experience was often one of surprises, with cost increasing and borne by a smaller pool of advisers. From the feedback we have received, having to deal with new cost processes, employment contracts for support staff and other requirements that may have been provided by their previous licensee, it seems, has taken many advisers by surprise.
Another observation from BDM’s was that advisers in transition have often taken this time to “cleanse the decks”, dropping unproductive clients and fund managers as part of the process. If a fund manager does not have a strong relationship with an adviser, the line of communication may be lost forever.
A final, positive observation from one BDM we spoke to was that although the initial transition for advisers can be filled with high stress and anxiety, with many advisers being ”busy” but not “productive” during this time - it was common, when speaking to advisers in the months after their transition, that they felt it was the best thing they had done. The relief was palpable, as they say.