Following the announcement of the deal with AMP on 8 August, Entireti chief executive Neil Younger appeared on The ifa Show to discuss the deal and the future of the licensee landscape as the last institutional group exits advice.
With the deal set to bring more than 1,300 advisers, approximately 8.4 per cent of the total profession, under the Entireti banner as AMP exits advice, Younger said it marks a significant milestone for the profession.
“It’s a pretty significant industry change. AMP are the last of the institutional groups in the advice segment and this change signals a progression in the market such that now, essentially, all of the businesses now are out from underneath that institutional umbrella,” Younger said.
“I think this is a momentous occasion in terms of where the sector evolves to. I think the sector, by the way, has been evolving to this for some time. So it’s not new news, but it certainly is a milestone event and I think one that’s really positive for what will be a great opportunity for the next five to 10 years in this sector.”
Regarding the overall licensee landscape, Younger explained that the advice profession has been experiencing a “period of fragmentation” in which advisers splinter off from the larger licensees to join smaller ones or get their own AFSL, but we are now beginning to see greater consolidation of licensees through means such as mergers and acquisitions.
“The economics of scale make a lot of sense, certainly in the licensee business structure where there are a lot of high fixed costs. Dispersing them across a broader population of advisers makes a lot of sense,” he said.
“Where you might see some more consolidation is in that smaller end of the AFSL number set. Not right down at the one, two-person bands, more so in that sort of 50 to 100, maybe 150 AFSL level where it’s challenging at that level to get the economics right and they might find themselves either competed against from a scale perspective or struggling to ensure an appropriate level of sustainability in the business model.
“I think we’ll see more consolidation, no doubt.”
As the number of advisers in the profession has become relatively stable in recent times, Younger said the rate of advisers switching between licensees has slowed considerably, leading advice businesses to utilise M&A to gain more advisers to allow them to grow.
“I think M&A activity probably is a natural next step for those that see the opportunity to benefit from that additional scale,” he said.
Younger argued that while becoming self-licensed is the right decision for some advice practices, he is concerned that others may not be doing so for the right reasons.
“I think for some of those groups, the decision that they’re making is right in terms of fit for their business model. I do worry about the decision drivers for some businesses where you hear things like, ‘Here’s a way to save money’ or ‘Here’s a way to minimise the level of oversight that maybe a licensee would apply to the business model’,” he said.
“I think those two factors ring alarm bells for me for the sector into the future, but for those that have the right thinking behind it in terms of the types of advice services that they may want to deliver to their clients, and maybe that isn’t the right fit for them within a large AFSL structure.
“I can see merit in taking that path and I can certainly see merit in those businesses that recognise the very important responsibility of the licence and the obligations that are then required that reach out for help.”
Appearing on a recent episode of The ifa Show, chief executive of Tribeca Financial Ryan Watson discussed his decision to become self-licensed almost a decade ago.
He said that doing so has allowed him the “freedom and flexibility to make timely and client-centric decisions” and run his business in accordance with his values.
He added: “We’re self-employed for a reason. We don’t like bureaucracy and we’re not very corporatised.”
To hear more from Neil Younger, tune in here.
If now the profession is independent from the “institutional umbrella” and advisers are not tied to a product manufacturer then the licensee system becomes irrelevant. If advisers are now impartial why do we need a licensee? No other profession needs it to navigate the legal compliance of their specialty like law or taxation. Licensees are now just an unnecessary burden which blows out the massive cost to serve.
So the question for you Steve is if all Licensees ceased to exist would advice standards lift or fall. I say the later.
I say lift. The primary function of licensees under the current model is to influence inhouse product sales. In house product sales are inherently conflicted and are the root cause of most bad advice.
So why are AMP charging $50000 for an adviser to exit their license ( 5 years run off cover charge ) if they believe in the IFA space ?
The behaviour of AMP is not, and never has been, an indicator of what’s best for the profession or consumers.
You can check out anytime you like but you can never leave (unless you pay lol)
They would stay the same. You’re stating that the licensee’s job is to police advice standards – that’s ASIC’s job. The licensee system was to police advice when the advice came from a product provider – now that that system is no longer, the system is not needed, we have statutory standards to be held accountable to. No need for licensees and no need for client’s to pay for them, driving the cost of advice from lower income cohorts.