What should advisers expect from the changing nature of the Licensee business model? The emergence of different licensee models reflects an industry in both crisis and regeneration. The rigidity of licensee models of the past is being replaced by new approaches based on flexibility, customisation and user-pays. The better licensees at the vanguard of this change are also helping the industry professionalise, by removing product conflicts, building stronger technology backbones, and enforcing higher standards of behaviour and accountability.
The two licensees adding the most advisers in Q4 2019 were Alliance Wealth and Fortnum. These two licensees are utilising “hub” licensee offerings, which if the numbers are anything to go by, are proving popular with advisers. Alliance Wealth – part of the Centrepoint Wealth group, actually added 47 new advisers in Q4 (with seven advisers departing). They promote “self-licensee solutions” and offer tailored licensee services which proffer to give advisers “power in community and strength in numbers”. The CEO of Centrepoint, Angus Benbow, says their offer to advisers is not just bundling up a licensee service for advisers – but rather making it easier to pick and choose which service they want (and what they don’t) from a suite of offerings such as dealer group services, advice services, advice technology and others.
Fortnum Financial Group had the second most additions in Q4 adding 33 advisers (with four departures). Two-thirds of these came from the CBA aligned Financial Wisdom which has been haemorrhaging advisers since CBA announced it would be wound down by mid 2020. Fortnum’s CEO and Managing Director, Neil Younger, says licensees will redefine how they support advisers to drive down costs and deliver high-quality, affordable advice. Rather than advice and licensee businesses existing as separate entities, Younger believes that it is inevitable that advice and licensing will co-exist in a single structure as they do in self-licensed firms, as the industry continues to separate product from advice and to remove the cross-subsidisation of licensee services.
What becomes the dominant business model in the advice/licensee space remains to be seen. There are of course other licensees developing alternative business models such as CountPlus with their ‘owner-driver, partner’ model which uses agreements between member firms and Countplus. In theory, this allows owners to retain day-to-day management, with CountPlus providing strategic support as well as access to IT systems, best practice HR programs, improved compliance and stronger risk management. They also offer the flexibility to change the ownership structure of any firm if required.
There is also Affinia, which experienced the third most adviser additions of any licensee in Q4. Aligned with TAL, Affinia housed dozens of ex-AON advisers under the new “Tribel” brand following their management buy-out in 2019. The licensee offers “Affinia Access” which starts with a base package including a white-labelled AFSL infrastructure and a range of extra service offerings that advisers can tailor to suit their needs such as licensee tools, advice and marketing support and other business resources.
Most of these emerging models offer flexibility in one form or another that was to a large extent missing in more traditional licensee models. The ability for advisers to tailor and select what they want, rather than be compelled to fit into a tighter licensee structure seems to be a feature of the emergent licensee model.
These changes have developed in part due to regulatory changes such as grandfathering removal and tightening of conflicted remuneration standards. Concurrently, licensee subsidies that were available when the system emphasised sales and distribution under the vertically integrated model utilised by the larger institutions are being phased out. This has had the effect of increasing the price advisers have had to pay for licensee services. This price pressure is ultimately a key driver behind the licensee business model changes which have emerged to include service selection and flexibility to the range of licensee offerings.
This analysis from Adviser Ratings Q4 2019 Musical Chairs report, and more is freely available to download here