The financial services industry will forever be changed by the Royal Commission and advisers are adjusting their thinking for this new world. In this, the first of a two-part series we will be releasing to help support advisers in making the best licensing decisions for themselves and their clients we look at why some advisers have chosen the self-licensed path. Next week we look at the pros and cons of other pathways.
If Dover’s collapse has brought anything into stark relief for the advice industry, it’s the flaws in Australia’s licensing regime – fortunately, going your own way is easier than ever.
Paul Tynan, who runs advice M&A firm Connect Financial Service Brokers, describes the Dover fallout – that is, $4 billion in stranded client money and over 400 advisers looking for a new licensee – as “one of the most stupid things I have seen in my 40 years in this industry.” He sees it as clear evidence that the prevailing model of tying clients to the dealer rather than the adviser is something of a Faustian bargain which doesn’t always take into account client concerns.
“There are nearly 200,000 accountants in this country,” he says, “and they manage to get on just fine with a self-licensed structure. Same goes for lawyers, so why should it be any harder for financial planners?”
Lifting the veil of what Tynan sees as an ongoing misunderstanding about the process of self-licensing, one can see what drove more than 500 advice businesses to take the plunge over the past three years. Here are three reasons why:
Falling costs
WLM Financial Services director Matthew Walker has been self-licensed for over two decades; in half that time, he’s seen the cost of running one’s own licence fall from $100,000 to $10,000. On top of this, many of the costs and headaches associated with setting up a business can now be effectively outsourced.
“There are businesses like My Dealer Services,” Walker says, “and they can basically set you up however you want. When you decide to self-licence you consider how you want it to run, what you’re trying to achieve and what you’re going to do with it, and there are now groups like MDS which can set it up out of a box. That kind of turn-key business solution is out there in the market.”
Support services
Walker adds that once you’re set up and ready to go, there’s no reason to feel like you’re going it alone. There are now businesses which allow self-licensed businesses to outsource compliance, education software and even investment management for an ongoing fee.
“Those difficult issues from yesteryear can now be handled by another support business,” he says. “A lot of people worry that they’ll miss out on the research and compliance and so on from their dealer group, but those services are out there.
“And it makes sense, because as a matter of practicality, how much time do you really have? You can’t compete with the capacity available to large licensees, so why not focus on what you do best?”
Tynan agrees with this sentiment, adding that there are “plenty of grey-haired individuals out there who used to work for the big end of town” who regularly engage with new advice businesses and help get them going.
Consumer expectations
Perhaps most important, though, is how self-licensing better affirms changing client expectations. It’s no secret the advice profession has taken a beating over the past 12 months, and while the Royal Commission has mostly set its sights on Tynan’s “big end of town,” the industry as a whole has had to bear the brunt of its inquiry – rightly or wrongly.
Walker is glad many in the industry appear to be moving towards what he’s always seen as the “appropriate model,” because he feels it’s one of the best ways to restore consumer trust.
“When we got our own licence,” he explains, “we wanted our independence. We didn’t want any institutional associations. The whole ethos of WLM is geared towards that. So we’re really enjoying the conversation in the industry right now and believe it’s heading in the right direction.”
He notes that while the “confluence of factors” leading to said conversation – including the Royal Commission, certain media exposés, multiple institutions shedding their wealth arms – haven’t always painted advice in the most positive light, it’s ultimately the catalyst for necessary changes.
Of course, there are also many reasons to partner with a licensee that works well with your business – we’ll be exploring these in next week’s article.
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