Small licensees up 17% since 2018

According to numbers from Adviser Ratings, there has been a 17 per cent increase in the number of small licensees since 2018, which is in stark contrast with the broader AFSL environment. Over the same period, the number of Australian Financial Services Licensees (AFSLs) has fallen from 2,282 to 1,826 as of June 2023.

The Adviser Ratings numbers showed that there are now 1,483 licensees with between one and 10 advisers, up from 1,266 over the last four and a half years.

AFSLs with between 11 and 100 advisers have fallen from 146 to 123, while large licensees (100-plus advisers) have dropped from 17 to 14. The largest exodus has been among limited licensees, with the 692 at the end of 2018 falling to just 107. Banks have also seen a mass departure, with all but five of the 22 from 2018 leaving the industry.

“There is also the argument that smaller licensees have higher financial and operational risks for any new advisers looking to join them. Not all licensees will offer the same quality of products, services or support. The onus is on the adviser to ensure that they’re partnering with a reliable and reputable licensee,” Adviser Ratings said.

“As we’ve seen time and time again, if a small licensee faces negative publicity or regulatory actions, it can have a cascading effect on the reputation of the advisers associated with them.”

According to Adviser Ratings, the benefits of small licensees include a wider range of offerings and an ability to focus on a niche market specialisation that larger licensees may neglect. It added that flexible business arrangements and more personal relationships are also among the draws for advisers working with small licensees.

The Adviser Ratings findings are broadly in line with recent numbers from Wealth Data, which took things further and looked at “micro-AFSLs” – licensees with up to two advisers.

The firm reported in September that the industry has seen the addition of 76 new licensees this year alone and a total of 491 since 2020.

According to Wealth Data founder Colin Williams, almost all of these are micro-AFSLs. Namely, recent data showed that back in 2019, there were 568 licensees with up to two advisers – that number now sits at 869.

This growth in micro-AFSLs has complicated the job for BDMs, according to Mr Williams. Namely, where back in the day, they would reach some 70 per cent of the industry by knocking on just six doors, today, the landscape is much more intricate.

“The doors would have belonged to the big four banks, AMP, and Insignia (IOOF). And that 70 per cent of advisers would have been a lot more than the total current number of advisers,” said Mr Williams.

“Today, the landscape has changed dramatically. As the banks pulled out, their licensees have been sold or left to dissolve on their own accord.”