Does self-licensing foster more ethical business practices?

Despite the inherent challenges that come with being self-licensed, TruWealth Advice director and principal financial adviser Natallia Smith said that operating this way allows her greater control over her business to keep clients and ethical practices at the heart of everything without interference from higher ups.

“I'm accountable to my clients and to the regulator, I'm not accountable to corporate parents, so that’s the difference there. And my decisions and my actions would be very different to somebody who is under a bigger licence,” Smith said on The ifa Show.

This responsibility to clients, Smith explained, is something she takes very seriously, utilising the freedom that comes with being self-licensed to ensure clear separation between product and advice and leading the practice with ethics top of mind.

One area in particular where this is reflected is in TruWealth’s use of fixed dollar-based fees, as opposed to asset-based fees, with Smith subscribing to the idea that the former is a more ethical model than the latter.

Even so, she recognised that self-licensing is not for everyone, particularly those new to owning an advice practice, as operating under a bigger licensee can provide additional support in the early stages of operating, rather than trying to work everything out on your own.

On top of that, there are the added duties to consider as business owners operating under their own Australian financial services license (AFSL) will have more responsibilities to manage, something that not all practice owners may be willing or ready to take on.

“The amount of work that is involved when you are self-licensed, you are the responsible manager, you've got different requirements. It is high responsibility, 100 per cent,” Smith said.

“And also you make the decisions, you make your calls so you’ve got to be comfortable with that.”

Then there are the additional costs to consider, Smith explained, as the AFSL itself can be rather expensive for a business, and that is before adding on technology and regulator-induced expenses

“Over the years the cost hasn't really increased as much but looking forward, with all the new levies that we now have to pay, we potentially might have higher costs going forward,” she said.

Furthermore, there is the pressure that can come from being legally responsible for others under your license.

“What I think for me personally is a difficult one there, it's really. I know that I have to be personally responsible for anyone, any ARs that I get on board in my business,” Smith said.

“So, the overseeing factor of it is a huge risk because there's a lot of responsibility there. And if your advisers are not doing the right thing in the licence then obviously that's the highest amount of risk that you can have.”

While technology is helping licensees ensure that those they are legally responsible for are doing the right thing, Smith said it is still an ongoing challenge for AFSL holders.

However, in spite of all the challenges that can come with self-licensing, there are still many businesses that choose this path.

For example, Tribeca Financial chief executive Ryan Watson said on an episode of The ifa Show last year he chooses to be self-licensed because doing so gives him “the freedom and the flexibility to make timely and client-centric decisions”.

He added: “We’re self-employed for a reason. We don’t like bureaucracy and we’re not very corporatised.”

Watson is certainly not alone in this decision, with Adviser Ratings’ Q1 2025 Musical Chairs Report showing that almost a third (32.5 per cent) of all practices are privately owned with 10 or less advisers.

Then, there are those such as PlanningSolo founder Jordan Vaka and Connect Financial Service Brokers chief executive Paul Tynan, who have essentially called for the whole AFSL system to be dismantled, suggesting that it is the root of so many problems in the profession.

To hear more from Natallia Smith, tune in here.