Selecting the right licensee
Recent developments in the regulatory space and the advice industry point to the importance of carefully evaluating the historical record and operating model of your next AFS licensee.
Self-licensing is an option for many, but like any decision there is a trade-off – a sense of greater control over the future versus the opportunity cost of investing enough time and energy into running the licence.
For advisers who prefer to be part of a community and access group buying power and capability, understanding the history and operating model of a licensee provides great insights on their ability to deliver a consistent service in the future.
It also shines the spotlight on the licensee’s values and the type of community it works with.
So, what do I believe advisers should look for in a licensee? I believe there are three key areas of consideration:
1. Sustainable fee model – In a sustainable fee model, fees are generated from only one source – the adviser’s practice. The cost of operations is covered in this fee and the licensee can operate sustainability with an appropriate margin.
While this means a practice will be paying the true cost of licensee services, they have the comfort of knowing the licensee has to provide a service that advisers continue to value and be willing to pay for.
Advisers can identify a licensee with a sustainable fee model simply by asking them to explain how and where they make money.
2. Claims record – The cost of professional indemnity insurance is going up, in some cases more than 100 per cent. The claims history and complexity of the advice model a licensee supports has a significant impact on professional indemnity insurance and operations.
Conducting due diligence on the past claims history of a licensee is a critical part of the assessment.
3. Clients best interest – With the obligation to act in a client’s best interest falling squarely on the adviser’s shoulders, they need to make sure they have the freedom to do that. Some licensee revenue structures can have a big impact on this. Considering a licensee’s revenue model is, therefore, another key assessment.
Finding out what platforms are available and whether there is access to relevant products in the market to meet the best interests duty are also important starting points.
The best sources of information to evaluate the historical performance of a licensee are advisers in the network. Talking to referees and conducting your own background checks are also great sources of good information. Ask to attend PD days, demonstrations and get access to the key decision-maker.
Finally, how licensees respond to your enquiries is another good indicator of how they operate. Licensees that take the time to get to know people and their motivations shows they understand the relationship is built on mutual success that is not dependent on a transactional sale.
Nathan Jacobsen is managing director of Paragem Pty Ltd ABN 16 108 571 875, AFSL & ACL No. 297276.
What is the value of an adviser?
A new report has dived into the value of advisers and found that they deliver va...
Expect industry overhaul: FPA
Financial planning is set to have a revamp, the Financial Planning Association o...
Industry needs to speak the language of women
The adviser industry still has work to do in finding a way to speak the language...