Empty nest syndrome
The desire for self-determination among advisers has never been stronger. Traditional dealer groups will need to fight to survive.
There are plenty of good licensees out there and the best ones talk about themselves as a family.
But as the parents reading already know, one day all family dynamics must shift as the kids approach adulthood and embrace their innate human desire to be free.
The financial advice industry is at one of these cross-branches on the family tree and traditional dealer groups are facing the prospect of increasingly becoming empty-nesters.
New research conducted by Forte Dealer Services and Momentum Intelligence, in partnership with ifa and InvestorDaily, has found that the appetite for obtaining an AFSL is at historic highs.
The 2017 Dealer Group of Choice survey found that 27.4 per cent of advisers are considering a switch to new licensing arrangements, and of that a whopping 28.89 per cent would choose to get their own licence rather than join an existing network.
Given that only a minority of practices currently operate their own AFSL, and that the costs and ongoing compliance burdens involved in self-licensing are well-documented, the finding is significant and provides evidence for a number of trends underway.
Chief among them is a deep desire for independence, and I use the term in complete acknowledgment of the sensitivity and can of worms it can engender.
Putting to one side the Corporations Act conception of this term, and ASIC’s dubious reading of it, at its core independence is about self-determination, about being in control of your destiny and making your own decisions. It is about owning the risk and the reward, something financial advisers implicitly understand.
ifa has been at the forefront of charting the trend towards self-licensing and the firms that have undergone this process consistently point to this issue of freedom: freedom to choose technology options, freedom to choose financial products and investment strategies, and freedom to act in the best interests of the client.
These attributes were once luxuries. They are now non-negotiables.
The self-licensing path is not for everyone and contains additional risks and responsibilities. But advisers are increasingly viewing this as the only viable path to providing these freedoms.
Needless to say, this puts dealer groups under considerable pressure. To be blunt, it threatens their very existence.
On the one hand, you can’t help but feel for them. Many, particularly in the non-institutional space, are deeply passionate about the importance of financial advice and have the best intentions in supporting their authorised representatives to do their life’s work in a compliant and carefree manner.
They face very real obligations and compliance burdens that make due diligence the chief priority, often meaning a trade-off that values security over choice and leaves their advisers without those deeply-desired freedoms.
Many operate on the thinnest of margins as a labour of love, out of service to the profession and to clients. And many are run and staffed by people that, in ifa’s assessment, are simply good folks of humour, decency and character. This has certainly one of their historic strengths in recruitment and traditional defences against the self-licensing urge.
But on the other hand, when you take the sentimentality out of it, it is difficult to feel sorry for a business that has no natural market demand.
Licensees do not exist because their customers want them to. They exist because of parliamentary whim – the decree that financial advisers in Australia must be licensed – and because the obvious solution of self-licensing had been made expensive and difficult (arguably by design).
Any business that is reliant on regulation, rather than real consumer demand, for its existence is bound to feel pressure at some point.
Moreover, too many licensees have acted in their own interests first and foremost, viewing their adviser networks as nothing more than a distribution vehicle for the products of their parent company or as a means to clipping the ticket over and over again.
The age of tied distribution is over. The age of bullying and restrictions is over. The age of self-determination has arrived.
This is true irrespective of the self-licensing surge. The dealer groups that are ranking highest for satisfaction are those that are granting the greatest freedoms.
Smart and agile licensees will survive, offering community and antidote to loneliness or even providing dealer services and practice management consulting to the new ranks of self-licensed boutiques.
Even the strongest family bonds are not enough to hold back the human urge for freedom.
Good parents value independence too.
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