Is self-licensing worth the cost?

“Businesses will initially consult with a compliance or legal consultant to attain the cost of obtaining their own licence, but that’s only part of the equation. It’s really important that they look more thoroughly than that,” he told Money Management.

“Depending on what the business looks like, those costs can vary dramatically. You can’t really give a specific number.”

The Principals’ Community provides support services to self-licensed advice practices and conducts a bottom-up cost analysis for each business. The range of expenses can include the following:

• AFSL application through a consultant
• ASIC levy and ongoing licence fees
• Professional indemnity and cyber insurance
• Financial accounting and auditing
• Investment research costs
• Ongoing education and professional development
• Governance and compliance support
• Advice software and technology

For Esencia Wealth chief executive Matthew Fenning, going down the self-licensed route was a “no brainer” for him. However, advisers should not underestimate the substantial costs and time involved, he told Money Management.

“For us, it was a no brainer. But it’s something that you’ve got to invest a lot of time and resources into. It’s not to be underestimated. It’s not going to always be a ‘grass is greener’ type situation for everyone. It is a lot of work and it requires a lot of senior people in the business committing time to it,” he said.

Is it cost-effective?

While some might assume that self-licensing will save them money, Fenning added that this may not always be the case depending on the size and scale of the practice.

“The reality is that if you’re a smaller business, the time commitment to doing it fully and properly will be substantial. We spent a lot of money to make sure that we got it right. That’s one of the things that people need to really do their homework; not only what help they need, but whose time are they going to invest in. What’s the opportunity cost of that?

“With scale, [self-licensing] would definitely work out to be more cost-effective in the long run.”

Similarly, McGuren said that smaller advice practices without the benefits of scale might operate more effectively with the support of a larger AFSL.

“From a cost point of view, smaller businesses would generally benefit better from being under a larger licence model, because of those operating and fixed costs of having a licence. Larger businesses can better leverage the existing infrastructure which probably makes it more cost-effective for them,” he explained.

Greater autonomy

Costs aside, the key reason for advisers opening up their own AFSL boils down to the desire for freedom and flexibility, free of influence from a licensee that may have differing views, McGuren added.

He unpacked: “I doubt that any of them would say they went to their own licence purely to save costs. Most of the businesses have gone down the self-licence path primarily for the autonomy and agility to make decisions and operate in a manner that suits them.”

This was the primary driver for Esencia Wealth, Fenning noted: “It was about the ability to control the business much more greatly, to make decisions that directly benefit clients and the business more intimately and to operate in a more flexible manner.”

However, the decision is largely personal and depends on the individual adviser’s preferences as to how they want to run their practice, McGuren added.

“Do I want to focus on just seeing clients or do I want the additional responsibility of running the licence and the costs that go with that? It comes down to how they want to run the business. If they want autonomy and speed, then it obviously makes sense for them to get their own licence if they are happy with the extra responsibilities.”