Choosing the right licensee: A blend of strategy, intuition, and due diligence

Founder of My Money Buddy and The Savings Squad podcast, Adele Martin, told ifa that the process of deciding to change and finding a new licensee can significantly impact the future of your financial planning practice.

“Drawing from my own roller coaster experience of navigating licensee changes four times over two decades – yes, twice in a single year, which I don’t recommend – I’ve come to appreciate the weight of this decision,” Ms Martin said.

“Each move, while necessary, posed its own set of challenges, from operational disruptions to client uncertainties with every new Financial Services Guide (FSG) introduction.”

Speaking from her own experience, Ms Martin said that researching and vetting licensees individually can be difficult and the whole process can be overwhelming.

“Given the absence of a comprehensive register detailing licensees, their fee structures, and offerings, the selection process can feel like navigating a maze without a map,” Ms Martin said.

“It's not just about finding a licensee; it's about discovering a partner who aligns with your business's ethos, operational needs, and growth aspirations.”

In a LinkedIn post, Ms Martin shared her ‘essential tips’ for advisers navigating the journey.

In the recommendations, she suggested trying to gauge a licensee's professional culture to test if they are a good fit for your business prior to making an agreement.

Ms Martin explained the importance of understanding how streamlined the process will be to switch, whether you will need to redo SOAs, get new signatures from clients for direct debits, or any other factors that may hinder the process.

She also recommended understanding the licensee's fee structure, whether it's a flat fee or a percentage, and if they can offer a reduced or fee-free period at the beginning to assist with potential revenue dips while you transition.

“It’s the blend of strategic thinking, due diligence, and intuitive alignment that will lead you to a licensee partnership capable of supporting your vision and facilitating the growth of your financial planning practice,” Ms Martin said.

“While these practical considerations form the backbone of your decision-making process, never underestimate the power of intuition.

“That gut feeling about whether a licensee 'feels right' can be as crucial as the more tangible factors.”

Ms Martin’s full list of tips for advisers looking to switch:

1. Exit strategy: Just like a prenup. Know your way out before you're in. Inquire about the exit process – it's your business's safety net.
2. Fee negotiation: Transitions can take time and hence dent your revenue. Negotiate a reduced or fee-free period with your licensee to soften the blow.
3. Foundational SOA requirements: Will redoing SOAs for existing clients be necessary? Unrealistic time frames are a major hurdle.
4. Client transfers: Any clients with direct debits may require new signatures – a significant admin task. Super fees usually transition smoothly, thankfully. Prep for both scenarios.
5. Culture and vibe: The vibe matters. Experience the licensee's culture firsthand, perhaps at a PD day, to ensure a good fit.
6. Social media and PR policy: Ensure there's a balance between compliance and trusting your expertise online. If every social media post or media appearance requires licensee sign-off – that’s going to be painful.
7. Technology policy: Check if you're free to choose your tools or are restricted. And if you are restricted, hear from other advisers using their tech. Your efficiency is at stake.
8. Data mapping: When moving licensees, you may need to move to a different version of X-plan. The data mapping process can take time and be costly. Get clear on how much this will be and who is funding it.
9. Invoicing flexibility: Are they stuck in the past with client invoicing, creating a lot of friction by requiring old-school printed forms, or moving with the times and embracing online payments using things like Stripe? In the age of Uber and Shop Pay, your clients expect quick and easy processes when it comes to payment.
10. Fee structure: Finally, let's talk about the elephant in the room fees. Is it a flat fee that keeps things straightforward and predictable, or are we dancing with percentages, where the cost ebbs and flows with your business size? And if it's the latter, is there a safety net – a cap to prevent costs from skyrocketing, or a minimum that ensures you're not paying more than your fair share for the value received?