But missing from this discussion is often a current understanding of what licensees have to offer and the important function they provide in the advice market.
It’s as though the rhetoric around the licensee model is out-of-date and what is now needed is a more modern and accurate reflection of what they can offer so advisers can make an accurate decision about the future of their business.
A modern licensee model
A modern licensee model is much closer to being a professional services provider than a licensee.
As a professional services business, a modern licensee provides its community with group buying power and capability. It facilitates and executes on a range of services that are necessary components to running an advice business, irrespective of whether a practice is individually licensed or not.
Regardless of where the licence is held – technology, compliance, and business consultancy work (to name just a few) are all key elements required to run a quality advice business. Advice practices need service providers such as modern licensees to innovate and enhance technology and help them to provide greater efficiencies in their business.
Under this model, the licence is not the only reason professional networks stay together, and nor should it be. What cannot be underestimated is the power of a community and having trusted people who you can call on and discuss any topic; business or personal. Developing relationships like this takes time, which is why it is important to keep communities together.
If structured correctly, professional service businesses can add value and efficiencies into an advice business. The good ones elevate practices and provide them with the flexibility they need to deliver and focus on the provision of quality advice.
Licensee model through the ages
The licensee model has certainly evolved over the past three decades, shaped by its operating environment and adviser and customer needs.
Originally an ‘AFSL’ referred to a dealer group where their job was to predominantly distribute product, typically those of their large institutional owners.
But as new regulations focused on licensing and compliance placed more scrutiny on the relationship between product and distribution, dealer groups were replaced with the term ‘licensee’.
While licensees these days come in a range of different shapes and sizes, privately owned groups account for 62 per cent of the overall industry while institutionally owned and aligned sectors accounted for 38 per cent of the market .
The latest Adviser Ratings Musical Chairs report in Q2 2020 found 679 advisers across Australia (12 per cent annualised) switched licensees in that quarter, with advisers continuing to move out of the institutionally owned and aligned licensees into privately owned groups.
The need to be in a group
A large proportion of advice business owners recognise the importance of the business support and shared journey influence that comes from what we still refer to as a licensee model.
Today, even self-licensed businesses are looking to be part of groups that can offer scale. Also, some are finding out the cost of running their own licence can adversely impact their business growth and other strategic goals.
In a small business one person can play number of roles, highlighting the role the CEO and business owner of a practice has in driving a business to be scalable and efficient.
In the advice industry, we need to cater our support not only to the adviser role, but to the CEO and business owner as well because in many cases it’s the one person conducting all three roles – a tough gig if you do not have the right support to do this successfully.
At Paragem, we feel strongly about our role as a professional services provider and while one of the services we offer is an AFSL, what we do runs far deeper. The licence aspect of our model does not define us.
We believe our modern licensee approach is demonstrated in our four key tenets:
• We are about making quality decisions and executing quickly, without bureaucracy;
• We believe in the power of community and shared experiences, so you can learn;
• We are business partners, providing the compliance, technology, and business expertise you need to help you grow; and
• We’re adaptable and willing to adjust based on the needs of your business.
These tenets drive the service offer, not just the licence. It is the language used by our community that reflects our model.
Further, our model gives advice business owners the flexibility to operate in a way that suits their business and their clients. Through this, we can move closer to our industry goal of providing more advice to more Australians.
Craig Kouimanis, general manager practice development, Paragem
For any person with no FP qualifications and not on the FAR, what would you know?
The AFSL is responsible for the advice to clients. Advisers are overseen by the AFSL.
If the AFSL does not have appropriately qualified senior people, they add ZERO value.
Seriously, Seriously!!! There are plenty of high quality, experienced and professional people who help planners every day who aren’t on the FAR register. Your comment is a gross exaggeration and unfair to many who do add significant value every day.
There are qualified advice professionals and then there is everyone else who is worthless to the Industry.
I am guessing you are in the second category.
A licensee has a completely different and additional layer of monitoring that they implement because they simply do not know who may be shonky or who may become shonky, who is a compliance risk and who is not…so everyone has to comply with this additional layer over and above the Asic layer. This makes the cost of a dealer group negate the economies of scale. If you’re honest, hardworking, and self-sufficient then you’re far better off on your own licence.
all advice has a compliance risk – shonky or not.
Good article Craig. More of an advertisement for Paragem than an opinion but plenty of relevant points. Advisers should certainly start thinking about getting their own AFSL and now more than ever before if they have the size, the scope, the skill and the understanding of what needs to be done. Capacity will be key. Most just want to be an adviser and run their own business rather than take the leap forward, which is not surprising. Regardless, advisers have lots of good support available to them at different price points and with uniquely different approaches. From the offer at Paragem (which I am sure is very good) to the more “corporate” approach at Associated Advisory Practices (under the publicly listed Centrepoint Alliance umbrella) to the new Lifespan Partnerships model offering more flexibility and choice. Advisers should start planning for 2025 today so speak to the BDM’s you know and trust who can give you guidance on the best path forward for you. Sitting around and hoping for the best is most likely not the best choice.
You are speaking in front of an abyss. But it’s nice