What advisers need to look for when assessing a licensee

Whether you’re assessing your current licensee or choosing a new one, group executive of adviser services for Centrepoint Alliance, Paul Cullen, has argued that the process is much the same.

Speaking with ifa, Cullen said the first thing an adviser should do is figure out what is most important to them and their business and use those criteria to assess an existing or potential licensee, making it easier to filter out those that don’t meet their needs.

Using an example, he said that if technology is the most important thing for the advisers, then “you're basically assessing licensees on their capability around delivering advice technology or other technology”.

While each advice firm will have different needs and preferences, Cullen said advisers need to be sure that a prospective licensee can deliver the necessary compliance support, ensuring the security of the business.

“There are lots of things you may not want. You may not want technical support, you may not want research, but you do want your licensee to have the capability to make sure it's meeting its regulatory and legislative obligations,” he said.

One important factor to consider is the financial stability of a licensee, however, he said this is not always top of mind for advisers when it comes to making this decision.

“Because a lot of them are private businesses, you just need to be able to get underneath the hood and around the finances. There were a couple of licensees last year that shut down. They had some client complaints, and so they just turned the lights off and told the advisers to go find another license.”

According to Adviser Rating’s latest Musical Chairs Report, Q3 of this calendar year saw 18 licensees discontinue, bringing the total for the year to 71.

Cullen also strongly encouraged advisers to find someone within the licensee to speak to and verify that they can deliver what they are looking for.

“I don't think you can always rely on the word of a licensee to say, ‘Look, I've got strengths in technology’. Or, ‘Yes, I actually I'm really good at supporting businesses through giving business diagnostics’. Because I think what we find is everybody says they can do stuff. They never, ever say ‘I can't do something’,” he said.

“So, unless you validate either directly with teams that are doing that stuff within a licensee or an adviser that's actually in that licensee, then you're not really doing your due diligence properly.

“Everybody's struggling for growth because the market's not growing. So, to get growth, you're basically taking it from somebody else. That's the way the system's working at the moment. It's sort of a red ocean.

“The adviser just needs a process for validating what people say. Otherwise, you're going to get in there, they don't deliver what you expect, and then it's very hard then to extricate yourself because it's so disruptive to move licensees.”

Taking a wider look at the advice profession, Adviser Ratings’ Angus Woods explained that while there has been an upward trend on self-licensing, larger licensees offer something that smaller ones may not: community.

“Advisers are looking for communities to support them – we've seen the growth of Alliances, Principles Community, BFP, and then the likes of Ensombl and Advisely – planners want to talk to and learn from peers. Larger licensees do have a role to play here about community connectivity around best practice,” Woods told ifa.

“Ultimately, you still need someone to authorise you. Revenue management from products is still channelled through licensees. Ultimately, compliance obligations still go through licensees – so having a licensee that will support and protect your business as a key partner is critically important for advisers.”

Process in practice

Having gone through the process of choosing a licensee just 12 months ago when starting Freshwater Wealth on 1 December 2023, veteran adviser Roger Perrett told ifa that there are several important criteria he considered but ultimately trust was the most important.

“We’re in the trust game”, he said, and because of that it was crucial that he found a licensee that he trusted to help support his business and, subsequently, his clients.

“I think trust is a huge one … the reason we chose Centrepoint, for example, on the trust side, is we already had relationships there that we've known for a long period, so that helps the trust factor,” Perrett said.

“They're a lot bigger than the licensee where we were previously, so I felt that was a benefit on the trust scale, if you like, for our clients, going from a smaller to a larger licensee.”

Due to previous experiences, Perrett was adamant that his new licensee have an independent board, giving him the peace of mind that they would be considerably more inclined to act in the best interest of the business and their authorised representatives.

“Some of the licensees, although they were great, I was just concerned if they were sort of heading in a bad direction and things like that, if it was like a ‘boys club’ or a family business, I’m always a little bit reluctant, because they're never going to step aside, right? With that independence, I think that helps,” he said.

“Absolutely a no-go for us … They may have been fantastic businesses, and they must have, they might have had a great track record, but I just didn't like the structure of that.”

Other key criteria when choosing a licensee, Perrett said, was quality support, whether that be in compliance, technology, or just general customer support, as well as an open approach to technology that wouldn’t see him overly limited by an approved product list (APL).

“[Being] open to looking at new technology was really important, and then openness in terms of solutions as well … We wanted to go to a licensee where we felt that we could be as efficient as we could be,” he said.

While cost is certainly a factor to consider when choosing a licensee, Perrett said that, while he wasn’t looking to pay exorbitant amounts for a licensee, he was happy to pay a premium to ensure his business got the necessary support.

“We wanted to be at the premium end for our clients. You know, our whole brand is premium, so it then didn't make sense for us to go and get the cheapest, we wanted the licensee that could support us in that and add value to the brand that we wanted to portray for our clients.”