Licensing regime described as ‘root of evil’ in advice

Speaking to ifa, the chief executive of Connect Financial Service Brokers said one of the core issues plaguing the industry is the licensing regime.

“If I’m an accountant, I don’t have to work under a dealer group. If I’m a doctor, I don’t work under a dealer group. If I’m a journalist, I don’t have to work under a dealer group," said Tynan.

“Why is financial planning the only profession that’s gone down this route under corporations law?”

In his opinion, the licensing structure is the main culprit for the professions move towards a “boutique” setup, which can only service less than 10 per cent of Australian consumers due to its majority focus on high-net-worth (HNW) individuals.

Adviser Ratings recently found that 66 per cent of newly established advice licensees are one-person bands. Moreover, more than 80 per cent of licensees are in a privately-owned licensee with less than 10 advisers.

“The most profitable [advice] businesses that I’ve ever seen in my 30-year history are those smaller, boutique practices that are self-licensed, with an adviser and a couple of support staff,” Tynan said.

These boutique firms are opting to maintain a small client base of high-net-worth individuals who can afford advice, he said.

“I know businesses in this country that make a 60–70 per cent EBITDA and they’ve never been to a Financial Advice Association Australia (FAAA) conference. They give fantastic advice and they are boutique businesses,” Tynan said.

“The ones that scale up – the dealer groups – are not the ones that make a profit. The most profitable firms are the ones under the radar. People who have money and can afford advice will pay for quality.”

Amid discussions surrounding self-licensing, industry professionals have weighed up the risks and benefits for advisers looking to take the plunge.

Earlier this month, Numerisk managing director and founder Richard Silberman said the trend was underpinned by the preference for autonomy and freedom from institutional licensees.

“While self-licensing isn’t suitable for every business, with the right support and guidance, many thrive under this model. This autonomy allows them to tailor their operations to suit their specific needs and objectives, a flexibility often lacking in larger licensee frameworks,” Silberman said.

As the industry struggles to reduce business costs and bring down the price of advice, PlanningSolo founder Jordan Vaka argued that removing licensees would put money back in advisers’ pockets, thus bringing down the cost to operate a business and, in turn, the cost charged to consumers.

“If I explain the way licensing works to anybody outside of advice, they look at me like I’m insane. Lawyers, accountants, engineers, they look at you like, ‘Why would you do it like that? It’s so expensive’. And that’s why the affordability of advice thing, to me, it’s just so hollow,” he told ifa.

“The most expensive part of advice is licensing. It costs the average adviser $40,000–$50,000, and you multiply that by the number of advisers left and it’s a horrendously big number. You pull that out of the system, and you put half of it back in, advice is still going to be cheaper.

“That’s how you make advice affordable. But that was never considered because there’s too many interests involved. That to me is the solution to advice. Do that. But that was left off the table through the whole review, which I think invalidated it, to me anyhow.”