As a practice consultant working closely with self-licensees and fielding frequent calls from aspiring self-licensees, it is interesting to hear and read others’ comments about the challenges of managing your own AFSL.
Usually, they focus on three main “challenges”, namely:
1. Professional indemnity (PI) insurance is massively expensive, keeps rising and is impossible to get.
2. The time it takes to manage your ASIC obligations is a wipeout.
3. The cost of running your own AFSL is prohibitive.
But when you work closely with AFSL responsible managers, as I do, it’s interesting that these “challenges” are not generally raised.
Maybe it’s because my job is to support AFSLs and this very support serves to negate or minimise these challenges. Perhaps, it’s a bit like clients of financial planners who seem to be happier and wealthier (or have fewer challenges) than their non-advised counterparts?
So, my take on these “challenges” is this:
PI insurance costs haven’t been rising stratospherically for AFSLs with low claims history that operate fairly vanilla businesses. However, if you grow your funds under advice (FUA) or your revenue, then the overall cost will most certainly increase. This is because the overall cost tends to correlate to your revenue and FUA.
PI insurance isn’t necessarily difficult to obtain, if you are an average advice-driven AFSL, with a good claims record, providing standard advice to your client base.
However, if you don’t find an experienced PI broker or mismanage your PI application process, then this might change your fortunes. Additionally, if you are wanting to obtain an AFSL to manage what might be deemed as high-risk investing, then it is likely that obtaining PI insurance might indeed be difficult.
So, if you resemble a regular financial planning AFSL, who is supported by an experienced PI insurance expert, then potentially there isn’t an insurmountable hurdle here.
Time required to manage AFSL obligations
It isn’t necessarily the time dedicated to managing AFSL obligations that has changed significantly, but this in combination with providing financial planning advice has certainly placed pressure on responsible managers who juggle both.
When you consider the raft of regulatory changes applied to the provision of advice, it is easy to understand where a financial planner’s time goes. The outsourcing or use of technology can only streamline so much of the financial planning process.
However, when I talk to self-licensees that are aided by support service providers, they seem to be relatively happy. This is particularly so for those who utilise compliance oversight and guidance services and can rely on compliance templates that are also generated through an automated software solution.
This highlights the importance of identifying and reaching out for the support you need. With the right support and infrastructure, your licence will benefit from your resources and time being available for more profitable activities.
When you run your own AFSL, there is definitely cost involved — after all, you are essentially cutting out the middleman. However, you are still accountable for the advice you provide which is ultimately governed by a higher authority in ASIC.
Again, there are support services that can assist here. It is a matter of assessing what you outsource and who you outsource to. The great benefit of being self-licensed, of course, is that you have the benefit of choice, as opposed to being subject to a more mandated, and likely less flexible, solution.
Most AFSL holders I speak with would still say it is the cost of advice that has risen due to the continuously overwhelming regulatory changes, and these costs fall mostly at the financial advice delivery level. Those that grow scale can therefore meet their fixed costs and grow profitably and sustainably by managing their value chain, including tapping into technology, support services and the right people.
Considering getting your own licence, but unsure about how to address the cost, time and PI insurance “challenges”? Seek out the right support to start you on your way. You don’t need to go it alone. Reach out to service providers to support you to transition, and do your research as to what is the best fit for your business.
Jill Tunkin, national practice consultant for AFSL support services, Lifespan Partnership
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