Debunking the myths around getting your own AFSL – a legal perspective

At Connexus Solutions, we decided to revisit an earlier topic on debunking the myth around self-licensing. We recently interviewed Catherine Evans, CEO, Kit Legal, to get her expert view on the important considerations for obtaining and running an AFSL.  

The first consideration is that self-licensing is not for everyone. However, if you run a good business, with good people and advice professionals, with a focus on the next generation of advice delivery, self-licensing can make a lot of sense.  

According to Catherine, the main considerations a financial planning business should consider before obtaining their own AFSL include: 

    1. SUPPORT NETWORK

Catherine says one of the first steps businesses should consider when contemplating self-licensing is to carefully analyse the support they currently get from their dealer group. Assess the support they are getting and plan how they will implement new forms of support without the dealer. There are now many opportunities to get the type of support you pay for from a dealer group but have the autonomy of your own licence. You need to piece the framework together carefully so it can all work smoothly.

    2. CLIENTS

It’s also important to consider what the client wants out of the relationship with their adviser. For some, an alignment to a dealer group isn’t an issue, but for others, the flexibility of a small AFSL is appealing. 

Post Royal Commission, we're seeing more instances where alignment with a particular dealer group prevents a firm from growing their advisory business as the focus on autonomy in advice grows.

    3. COST

You need to be fully aware of the cost of self-licencing prior to deciding on a licensing option. In days gone by, the cost of obtaining an AFSL and then maintaining it was huge. With online and streamlined support that is now available, this is no longer the case. I’ve seen many ARs who have indicated that they actually save costs by obtaining their own AFSL, following careful setup of their support systems.

    4. RM SUITABILITY

Businesses need to think about their ability to get an AFSL through ASIC. ASIC’s RG105 sets out what it will look at when determining if an organisation is 'competent.' What you won’t find in RG105 is ASIC’s prominent shift over the past 12-18 months in the assessment of AFSL applications and Responsible Manager (RM) competency. It is safe to say that it is now harder to get an AFSL. AFSL applications that would have got through a couple of years back, may now not. The shift we’ve seen is that the people put forward as RMs must have direct experience. Simply being a director of an organisation that has done the activities or other supervisory role, is not always enough. Activities directly relevant to the authorised activity no longer cut it. This isn’t a big a deal if a firm is happy to apply for an AFSL that has authorisations the same as your AR authorisations. It becomes more of an issue when you want to expand or try for new authorisations.

So, what information does a business need to gather when applying for their AFSL, and what requirements does an RM need?

1. Information about your RMs ie. relevant experience and qualifications, police and bankruptcy checks.
2. Information about your directors and any individual who controls the entity applying for the AFSL ie. police and bankruptcy checks. If the entity applying for the AFSL is a subsidiary of any other company, police and bankruptcy checks for each director of the ultimate controlling company. 
3. Business Info ie. An organisational chart of your business which highlights the key organisational divisions and numbers of employees within each division. 

What commitment is involved in managing your AFSL above your obligation as an Authorised Rep? 

As an Adviser, you already have significant regulatory and contractual obligations when it comes to practicing and running your business. These include obeying financial services laws, professional development, having the right human and technological resources to run your business and have adequate financial resources. Similar obligations apply for an AFSL. We find that advisers running a good business in the first place and using a streamlined online tool adds very little extra work to meet your obligations as a Responsible Manager of an AFSL depending on the size of your business of course.

We think there’s one major factor that gets overlooked - you don’t need to give up community and sense of belonging.

You're not alone if you choose to get your own AFSL and work with a provider of licensee services. Not only do you get the support of service providers to help you run your business efficiently and effectively, you get a community of like-minded peers and professionals doing the same thing. Your fellow practice owners are growing businesses just like you, so you can all learn and grow from your knowledge and continue having the networking experiences that you’re used to. Even better when you have a community of high performers with the same cultural alignment and performance expectations.

That’s what we’ve seen at Connexus Solutions. A place for you to take back control and get the services you need, so you can increase your value to clients, innovate and grow. We’ve seen and experienced that already have a community of peers waiting to meet you.

To find out how Connexus Solutions can help with your licensing requirements, visit our website.