In our recent analysis of movements in the industry, we witnessed the continued migration of advisers towards privately held licensees and identified a preference towards larger licensees. Rather than relying on just the numbers and hard data, our analysis also included spoking to both advisers and BDM’s for service and product providers, to get their take on the most important considerations for advisers deciding to transition to a new licensee. The advisers we spoke to generally identified 2 key areas in their decision making.
What the Advisers Are Saying
1. Compliance Support
The first consideration was for compliance support. It is no surprise that in a post Royal Commission world, with much sabre-rattling from the regulators and record amounts of compensation being handed out to past and present clients, advisers have a heightened sense of trepidation and responsibility regarding the compliance aspect of their advice.
While not necessarily indicative of every adviser we spoke to, one conversation stood out. When we asked one particular adviser why they decided to move to a larger licensee, the adviser mentioned it was basically for compliance support. When the adviser was unsure about particular guidelines at their former licensee, they were told to “google” ASIC to see what it said. This relatively inexperienced adviser decided it was just too risky at the start of their career and in the current environment to rely on Google for compliance, and anyone who has tried to navigate and locate particular regulations on ASIC’s website would appreciate an expert’s opinion and support in this area.
Particularly for less experienced advisers, it’s easy to see how regulatory compliance would be a top priority. Larger licensees would also provide larger networks for less experienced advisers, potentially giving access to some older, wiser heads who could help these advisers navigate their path in the industry and provide valuable mentorship.
This trend may be in part one of the unintended consequences of loss of experience that is expected due to the structural changes being forced upon the industry.
2. Choice of Product
The second key area for transitioning advisers was for product choice. It would appear that vertical integration and restricted APL’s, whether practised by large corporates or smaller privates is on the nose. Several advisers we spoke to mentioned the ease at which they could use different products at their new licensee, compared to their old one.
Typically, as long as the product held a good rating by a reputable company, they were free to use it. This outsourcing of risk to external agencies may be a business imperative for smaller licensees who do not have the capacity for detailed product assessment and selection themselves.
As our article on the future role of Research Houses suggests, they are themselves facing structural pressures and challenges, and their roles in some cases are morphing to consulting and product provision themselves.
As always, the integrated nature of the different components of the financial services industry means that a policy decision or new piece of regulation in one area will have flow-on effects and potentially unintended consequences for other parts of the industry. When you take a step back, you can see this exact dynamic happening in advice. Although many are all waiting for the dust to settle, it may be some time before the industry finds its new normal.
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