Adviser Ratings’ Musical Chairs Report for Q2 2020 found that 83 financial services licences had been discontinued in the three months to June, a significant rise on the 61 licences that had ceased in the first quarter of the year.
The report noted that “as more businesses struggle with the current economic conditions”, the ratio of licences ceasing versus forming had accelerated over the past 12 months, and was now almost 3:1 versus 1.5:1 in the second quarter of 2019.
Further, there was now a trend towards more recently established businesses with between two and five advisers cancelling their licence, demonstrating that some practices that may have attempted self-licensing were deciding against continuing down this road.
Around 74 per cent of licences that ceased in the second quarter were five years old or younger, up from 65 per cent in the previous 12 months.
Deregistrations were also more evenly split among one-man band practices and multi-adviser groups, with 47 per cent of ceased licensees having one adviser and 87 per cent having five advisers or less, compared with 65 per cent and 90 per cent over the previous 12 months.
“These latest results show a worrying trend: that the sustainability pressure on younger businesses continues, however it is now spreading to the larger, two to five adviser self-licensed boutiques,” the report said.
The group noted that many of the advisers working in the ceased licensees – around 24 per cent – had opted to go on working in the industry but switch to working under a bigger AFSL.
In addition, five licences were cancelled by ASIC over the quarter and two suspended, which Adviser Ratings suggested could be a sign of the distressed business environment.
“Interestingly, two of the [ASIC] actions were due to a perceived lack of financial sustainability,” the report said.
“Given the ongoing pressures from enforced business shutdowns or isolation, we may see more licences being shut down this way, particularly with the financial year-end now behind us.”
Adviser numbers are decreasing and regulation is increasing.
The value a good AFSL provides is improved practice efficiency allowing the time poor adviser get their life back.
That said, I’m biased!
They key Phil is good and not cheap with little to no support or guidance
Nothing to do with Covid. On the ground Covid actually creates more activity in the financial industry and keeps everyone busy. People are leaving because the industry is not viable for most. The players who are viable are the ones who service HNW or Ultra HNW clients.
Who would have thought running an AFSL with 1 or 2 advisers would be hard?
any AFSL with less than 100 Proper Authority (advisers) need to be closed as they are now not viable.
You know the price of everything, but the value of nothing, don’t you!
100 is far too high, 20 is probably a better bar to set. Although the way things are going it may get to 100 very soon…
Whatever way you spin these figures, it has nothing to do with COVID. While COVID may be a major issue for most people, for financial advisers it is relatively tiny compared to the other issues they have to deal with. The impact of a draconian over complicated regulatory environment, which just gets worse and worse every day, makes COVID look like a picnic.
Another way to interpret these figures is that 76% of licence cancellations were from advisers who were going to leave the industry anyway. Just like the hundreds of advisers under larger licensees who have also chosen to leave the industry. The number of advisers shifting from self licensed to a larger licensee is actually quite small.
Maybe it’s time to join the 9000 plus that have already left…
Who would have thought that advisers leaving due to the stupidity of the legislation we need to follow would result in licensees leaving as well.
The cost of self licensing is one thing but the headache of constantly having to look over one’s shoulder vs look out for clients is a huge disincentive. I dont like that licensees take as much as they do but it seems better than never knowing when a new landmine has been thrown in front of me that I failed to detect. That is why I continue to pay licensee fees. If I see there is no longer sufficient value, I would sell the practice.
The continuing rising cost of PII, if you can get it, doesn’t help.
Being independent is empowering, but the perceived cash saved is not realistic.
Everything has to be paid for.
Still independent, with another PII renewal behind us, but who knows next year.
Are you able to provide approx. baseline cost per annum to operate the AFSL?
About $20K for a simple, single person practice. Scales up from there according to size and complexity.
That’s probably a base line figure. It depends on each AFSL. Costs will start from approx $20k but can increase quite easily to an amount considerably higher.
A salutary lesson for those advisers who think they can run their own licence…it’s not just about trying to arrange cheaper PI insurance & other services. The compliance issues are ridiculously complex, time consuming & a major distraction. Even the compliance service providers fund it challenging & hence are increasing their costs.
Red tape rules supreme in the financial services industry!
I agree – and god forbid ASIC knocks on your door because business just has to stop while you meet their requirements. Scale is so important in my view in this very challenging time