This brochure covers some of the key questions to consider when deciding if self-licensing is right for your business including; understanding your obligations, what is involved, and the transitional and ongoing considerations to be aware of.
Download here: The Principals Community_Is self-licensing right for my business_Jan24.
While changes were made to the breach reporting regime in 2021, the release of ASIC Corporations and Credit (Amendment) Instrument 2023/589 made modifications to reporting requirements and reporting timeframes from 20 October 2023. Our very own Donna Penny, State Manager – Corporate Governance joins BT’s Sarah Conte to discuss the impact of these changes on financial advisers and licensees.
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As financial advisers, to provide personal advice to our clients we are required to capture their personal information. With recent data breaches top of mind for many Australians, keeping this data confidential is not only necessary, it’s the law.
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As the advice landscape continues to shift and evolve, there’s been a noticeable trend among profitable practices to seek control of how they run their business by becoming responsible for their own licence, creating a burgeoning group of “micro-AFSLs”.
Earlier this year, Wealth Data found some 27.1 per cent of the advice industry work at what it termed as “micro-AFSLs”, or those firms with less than 10 advisers.
Although major firms still dominate in the number of advisers, recent industry figures suggest micro-AFSLs are gaining greater popularity than larger licensees, the research house said.
Founder Colin Williams noted the number of advisers at micro-AFSLs has risen from 568 licensees in 2019 to 869 in 2023, an increase of 301.
“It’s difficult to know exactly ‘where’ financial planning models are heading, let alone if we have reached a destination. All the data tends to suggest that self-licensed models or micro-AFSLs, as we like to refer to them, have definitely shaken up traditional models,” he said.
Similarly, Adviser Ratings found small licensee groups of one to 10 advisers have seen a 17 per cent rise since 2018, with advisers preferring self-licensing over mid-tier licensees and dealer groups. This has been attributed to banks leaving the industry and large licensees, such as AMP and Insignia, cutting their numbers as well as broader trends around the Future of Financial Advice (FOFA) reforms and the Hayne royal commission.
In its FY23 financial results, Insignia said it has 1,413 advisers in its network and 461 practices, down from 1,600 in June 2022. Meanwhile, AMP’s advice segment saw NPAT losses of $25 million in the first half of 2023. and has lost around 40 advisers since the start of 2023.
The benefits of self-licensing, Adviser Ratings said, include the flexible business models as well as the ability to have a more diverse offering with each licensee potentially specialising or having a unique value proposition they can mould, and focusing on niche markets or specific client segments that larger licensees might overlook.
“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,” it said.
“This provides advisers the opportunity to cater to these specific segments with specialised products, such as MDAs, and other services,” it added.
It also said self-licensed advisers could observe more direct and personalised client relationships as they are not beholden to bureaucratic layers or inefficiencies that may exist in larger organisations, leading to quicker decision-making processes and lower costs.
The licensee piece of the puzzle
With the shift in this advice landscape, some larger licensees and institutions have been forced to make strategic adaptations to their business. In July, Insignia announced Advice Services Co, a partnership ownership model for self-employed licensees comprising RI Advice Group, Consultum Financial Advisers and TenFifty.
This model “has demonstrated a potent capacity to drive business expansion in advice practices, providing a mutually beneficial partnership between licensees who have scalable access to technology, compliance and backend processes and advice firms”, Adviser Ratings said.
It has also been speculated AMP could make a similar move. Speaking to Money Management in August, CEO Alexis George said: “We have been considering all propositions over a number of months now.
“The important thing for me going forward is the proposition has to be viable for us and for our advisers. We are still losing $50 million and that is not viable for advisers and not viable for AMP. We have to have a clear strategy in place to make sure that business can be at least break-even when considering something like the Insignia model.
“There’s many different propositions as we continue to transform. We can talk about greater adviser ownership in terms of our licensees. There’s many different things we could see.”
AMP has been offering its Jigsaw Advice Solutions business since 2002 to help self-licensed practices while other licensees, such as Diverger and WT Financial Group, also have their own similar offerings.
In an investor presentation, WT Financial’s managing director Keith Cullen said: “It’s a definite trend. We’re addressing it through providing services – we offer our wealth adviser services there – and we think the fundamental structure of the profession remains as it is. It’s beholden on the licensees to add value to the practices that operate under their licenses and we think the practices in our group recognise that.
“A lot of them felt abandoned when the banks and others ran for the door and didn’t want to expose themselves to that risk anymore, I completely get that. Others are doing it because they’ve got a particular risk profile they want to take in, the type of practice they want to run and the advice they’re giving and it doesn’t sit well within large licensee structures.”
However, Wealth Data’s Williams has questioned if, having taken the decision to exit the large licensee space, self-licensees will use these services.
“As a licensee, it is difficult to make money out of servicing self-licensees. People prefer to do it themselves rather than work with a licensee again,” he told Money Management.
Forming a community
Instead of utilising the services of a large licensee, one area that has benefitted from the growth is The Principals’ Community for self-licensed advisers. Previously part of BT, the group has had its own experience of leaving a large licensee when it exited in November 2021 and now has some 122 self-licensed businesses that authorise around 1,260 advisers across the profession.
Kon Costas, managing director of The Principals’ Community, said: “[The Principals’ Community] has grown since being separated from an institution because we’ve been able to remove conflicts associated with vertical integration being aligned to a product, removed conflicts associated with licensees having to report each other, and enabled [us] to focus purely on the needs of the AFSL and the needs of the community.
“It’s the piece that’s given us great strength. We’re not vertically integrated in any way; we don’t have any other purpose apart from supporting these self-licensed businesses to achieve their goals and objectives.”
It has provided a community for such businesses to thrive, unlike popular misconceptions that advisers will be ‘going it alone’ in self-licensing.
Stephen Prendeville, founder and director of Forte Asset Solutions, said: “People get institutionalised in large licensees and are terrified to leave and set up on their own without their support and that isn’t the case. They are finding the grass can be greener.
“As there has been this growth and merger, people feel they are gaining less value from being in a dealer group as the businesses have got so big.”
Williams added: “The Principals’ Community put together self-licensed advisers and formed a community, and that’s the part people miss when they aren’t part of a licensee.”
For those advisers considering this route, Costas believes the first step lies in talking to people with knowledge and experience on what it takes to run their own license.
“The first port of call would be to understand your requirements as a business to operate your own business – what sort of support do you require? What infrastructure do you require? What capacity do you need to have to ensure you can confidently and adequately run your license? Whether you have the capabilities, and capacity is one of the biggest points.
“Also, making sure you’ve got the support, which comes through specialists, people that have expertise and experience in running their own AFSLS, finding that peer connectivity you can leverage and lean on.”
However, he stressed that self-licensing isn’t for everybody.
“Let’s not think that it is. It takes a very well-structured business to run, manage and operate their own licence,” he said.
Based on The Principals’ Community experience, he noted that highly profitable financial planning businesses go down this route, seeking to take control of their direction and build a business and service offering specific to their needs.
“We don’t see businesses struggling to be profitable looking to obtain their own AFSL; it feels counterintuitive given the time and effort it takes to then manage an AFSL,” he explained.
“Running an AFSL requires capital, investment, time and resources to run them.”
As published on 17th October 2023 in Money Management – https://www.moneymanagement.com.au/features/taking-reins-burgeoning-trend-micro-afsls
Almost two years on from the exit from BT Financial Group, The Principals Community managing director Kon Costas believes the group has found its feet as a standalone company.
BT announced in November 2021 it would no longer provide a service-only offering to self-licensed advisers, but the group ultimately ended up continuing under the leadership of managing director Kon Costas.
“The transition has been amazing,” Costas tells Professional Planner.
“I can remember the nervousness, together with the absolute excitement, of coming out of an institution, plus taking on the responsibility of bringing on our team on this journey.”
He adds the exit from BT has opened other avenues since the group is no longer tied to a single institution.
“Today we have open architecture around who wants to join and participate,” Costas says.
“It’s not open for everyone, but the activity we have from other providers and the recommendations and endorsements we get is now far greater than when we were part of the BT group.”
The group currently has 122 self-licensed businesses, but Costas believes they have capacity to support up to 150 practices.
“We had up to 130 as part of the community; however, we had many mergers happen of late which we have encouraged and facilitated,” Costas says.
“We continue to attract other like-minded businesses to be part of our Principals Community that supports our growth aspirations.”
The current 122 in the network authorise 1262 advisers, making its reach larger than two largest institutional licensees, AMP and Insignia.
Despite the high number of practices and advisers in the network – which still only covers less than a third of the 4000-odd self-licensed advisers in Australia – Costas says there is still a barrier to entry for the community.
“We can’t help everyone that is self-licensed,” Costas says. “We have our own due diligence process, we make sure that people that understand what we’re about as a community – that like-mindedness, cultural alignment, and attracting professional growth orientated practices is what we’re about.”
“It’s very difficult for us to support every self-licensed business but those like-minded, higher net worth businesses based on the ratio that we’re talking about [122 practices and 1262 advisers] gives you a bit context on the type of businesses we work with.”
Strength in numbers
Costas says the core proposition for the service offering is bringing peer-to-peer connectivity for sharing and learning between like-minded practices.
“If it’s a technology solution, an AI solution, if it’s a PI request, if it’s a research [or] investment capability – think about all the different things that businesses need to consider – if they had to go to every provider, conduct their own due diligence and every provider tells them exactly the same story that their service is the best in breed… versus sharing and learning from each other’s first-hand experience and insights,” Costas says.
“What we’re able to do is go to many of our business partners or service providers and negotiate on behalf of the community because we have the buying power there.”
When it comes to what keeps responsible managers and principals up at night, Costas says governance of the AFSL is the biggest factor, as well as making sure they’re across all the regulatory and legislative requirements.
The community has a 10-person team, including three dedicated state managers and three dedicated governance managers.
“The governance team are best in breed when it comes to governance and being across the detail whilst working closely with our legal friends to ensure our practices are across all of the legislative and regulatory requirements and obligations in running an AFSL,” Costas says.
“Our quarterly meetings are in person quarterly meetings with the practice. It’s not a ‘call us when you need us’ service it’s a structured program – we sit on the committee and chair some of those meetings to ensure that everything has been captured and covered.”
Costas didn’t expect the community to become a training education provider, but given it currently produces 60 to 70 hours of continuing professional development content, he believes there is scope to take further advantage of that offering.
“Ideally we’d love to take that to a broader market, because we’re doing all the hard yakka in developing the content with our education partners and specialist presenters,” Costas says.
“We’d love to be able to share that even broader in the marketplace because it’s there to be shared and the CPD is actually relevant.”
Building connections
In a business environment that favours scale, the community aims to leverage its networking ability to aid in the merger and acquisition process.
Noting the reduction of 130 practices to 122 in the network, Costas says the approach to pairing practices is finding like-minded businesses, in terms of culture, but offer different aspects that ultimately compliment both parties.
“Our focus is certainly with like-minded practices looking for scale – we certainly facilitate that,” Costas says.
“But there’s also businesses out there who would like to expand in particular area that they don’t specialise in today.”
Costas says there is a more attractive proposition for businesses who want to move into different areas but don’t have the capability.
“That like-mindedness of the community with the cultural alignment, the extensive due diligence, and the personal connection that they make via our state-based gatherings or national events,” Costas says.
“Two of the same doesn’t always work, because they’re already good at what they do but when you’ve got synergies of specialisation this can be very successful.”
However, the network still has many “high calibre” businesses who are comfortable continuing on their own journey, Costas says.
“[Those businesses] have solid year on year growth,” Costas says.
“We support a lot of our businesses through our business insights that we do each year where it enables us to compare key ratios of like-minded businesses and have a look at what levers a business needs to make adjustments to improve their outcomes and what they’re trying to achieve.”
As published on September 29 2023 in Professional Planner – https://www.professionalplanner.com.au/2023/09/principals-community-carves-out-space-in-self-licensed-world/#:~:text=Almost%20two%20years%20on%20from,feet%20as%20a%20standalone%20company.
Our very own Brian Pollock, Director of Corporate Governance recently joined Sarah Conte, Senior Manager, Technical and Regulatory, in the BT Technical Team on the BT TECHknow Podcast to talk about breach reporting. Brian and Sarah explore the new breach reporting obligations using practical examples, clarifying aspects that are commonly misunderstood, and share key tips and insights to help Advisers and Licensees avoid breaching in the first instance.
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