New year, new licensee: Considerations when making a switch

Given that the needs and priorities of an advice firm are likely to shift over time, Paul Cullen, group executive of adviser services for Centrepoint Alliance, suggested reassessing your licensees’ performance approximately every two years to ensure they still align with your values.

Speaking with ifa last month, Cullen said that most don’t start looking deeper at their licensee until they start to chafe. Adding to this, with most of the profession so chronically time-poor, many are reluctant to switch until absolutely necessary.

“It’s a difficult thing to move, right? So, advisers don’t tend to move. They don’t tend to look unless they’re really unhappy. That doesn’t mean they shouldn’t look at it, because at the end of the day, licensees provide services, and if they’re not doing the job properly, then they should be reviewed,” Cullen said.

“The thing is that, because advisers, at the moment, they’re very busy with new clients and most of the ones we speak to have got more business than they can handle. So, things like changing licensees, or a complete rebuild of a technology stack, don’t rise to the surface.”

Cullen also noted that, with the profession being made up primarily of small businesses, coupled with the not insignificant amount they pay for a licensee, it is important that their money is going towards the services they want and need, making it essential that licensees are delivering on advice firms’ needs and expectations.

What to do once you decide to leave

If an assessment of a current licensee reveals unsatisfactory results, leading to the decision to move licensees, Cullen said there are several considerations to make when assessing prospective licensees.

“Make sure you’ve got the foundation stuff, right? So, is the business financially sound? Does it have the capability to do the compliance, risk management stuff? Because that’s just the ticket to the game,” he said.

“Then, what’s important to your business in terms of prioritising services out of a licensee? Critically assess what they are.”

Cullen also stressed the importance of understanding the potential ramifications, as well as the firm’s responsibilities, when leaving their current licensee to ensure there is minimal damage or disruption to the business upon leaving.

“Then I would always check the fine print, because there’s differences in agreements that you have with licensees, and there’s all sorts of things that can sneak in,” he said.

“For example, when you leave, do you have to pay runoff cover? When you leave, has the licensee got the ability to retain revenue if you don’t get your product codes changed within a certain period of time? Some of them actually continue to collect your revenue and don’t pay it to you.

“What’s in the transfer deed when you go? So, for example, sometimes the transfer deeds will have quite onerous terms around assuming the responsibility for the advice you provided under that licence.”

Cullen added: “I would say, when you leave and when things aren’t working out, have you checked all those terms and conditions? Because sometimes people get shocked at some of the T’s and C’s that they’re subjected to on the way out.”