Sharing his dismay regarding the Australian Financial Services (AFS) licensing model, Jordan Vaka, financial adviser and founder of PlanningSolo, recently suggested that, while he doesn’t personally believe that advice practices should operate under an external licensee, going self-licensed is not for everyone.
Steadfast in his displeasure with the licensing model, Vaka said on the Challenge the Standard in Financial Advice Podcast, “I’m somewhat of the belief that every single thing wrong with financial advice boils down to licensing”.
“I think that if you start from a position of OK, licensees justify why you exist. There is no case; they cannot. There is no logical argument that if you’re starting with a blank piece of paper, you’ll start with a licensee structure that we have because it’s ludicrously stupid.”
Vaka is certainly not alone in his views, as Paul Tynan, chief executive of Connect Financial Service Brokers, described the current licensing regime as “one of the roots of evil” in the advice profession when speaking with ifa last year.
Despite holding such views of the system, Vaka explained that, while self-licensing was the right option for him and his business, doing so comes with considerable responsibility.
“Self-licensing … it’s worked well for me. But I don’t have the intention of doing anything kind of on the edges, which I think, if you’re that way inclined, self-licensing can be quite appealing and that worries me a little bit. I think there’s some systemic issues there as well,” he said.
“The idea of having eight or nine advisers and the monitoring and supervision responsibilities that come with that worries me … The supervision and monitoring responsibilities for a licensee is really severe, so you need to either be doing it manually or build systems and structures to make that a possibility and that’s where licensees start having to scale.”
Independent financial adviser Nathan Fradley added that businesses looking to scale might consider bringing someone in to manage some of the mounting responsibilities.
“I think there’s a sweet spot … when you split the compliance costs across all those people, and you can get an external consultant in who can do a bunch of your compliance stuff, and then you get an external consultant in who can do your business processes and things like that, and it scales well,” Fradley said.
“Then, when you do the maths on that versus licensing, you’re probably going to find a sweet spot where you’re like … ‘There’s no difference in cost or it’s cheaper, but our benefit is that we get to do more.’ That’s got to be the tipping point.
“Before that point, I think the question is, ‘Can I run the business that I want profitably in my current environment?’ That’s the number one question you’ve got to ask yourself before you make that shift if you’re already with a licensee.”
Despite the challenges that come with self-licensing, more of the advice profession has been moving towards doing so in recent years, according to Adviser Ratings’ 2024 Advice Landscape Report, with 81.5 per cent of the 1,863 active licensees at the time being privately owned with 10 or fewer advisers.
While there is likely a number of factors driving advisers towards self-licensing, Tribeca Financial CEO Ryan Watson said on The ifa Show last year that the decision to get his own AFSL has given his firm the “freedom and flexibility” to act fast and make the best decisions for the business and its clients.
Watson added: “We’re self-employed for a reason. We don’t like bureaucracy and we’re not very corporatised.”
What about the cost?
Although cost is of course one of the chief considerations when making decisions regarding licensing, including whether or not to go self-licensed, Fradley said that cost should not be the deciding factor.
“I think there is some really good licences out there … You don’t need to be self-licensed or run your own licence to run a business that is supported, to a point, but you’re paying,” he said.
“The thing is, I don’t think there’s a lot of cost savings fundamentally. I don’t think cost is the reason you go self-licensed.”
Vaka also noted that becoming self-licensed is a challenging path that is not guaranteed to cost any less.
“Don’t do it because you think life will be easier or cheaper, or you’ll be able to dodge stuff. They’re not the reasons to go self-licensed. Go self-licensed because you want the control, the independence, or you have a really firm way on how you want to do things, and you’re really clear across the legal or true requirements,” Vaka said.
“It’s not an easier path, and it’s possibly not a cheaper path, but it’s just the path that I know, for me, it’s the best of a series of crappy options, to be completely honest.”
Fradley added: “I would encourage everyone to explore the options that are available in the small and medium phase before they jump to self-licensing.”
As I have said before as I had my own licence for twenty years enjoyed every minute but I had a compliance officer looking over my shoulder to make sure I got everything right and kept asic away from me if anybody needs a compliance officer chris is still around best of luck to you all
Financial advisers going through a bad experience with their existing dealer group will likely have the blinkers on and fall into the trap of thinking self licensing is the only way for them, not conducting proper due diligence and consideration on self licensing beforehand.
Do your homework, as well have a look at other established licensees beforehand – you may find a good fit without having to take on all of the responsibilities (properly check these also if you haven’t – these scaled up considerably after the B&FS RC). Initially you have the safety net of your previous licensees processes & functions. A couple of years in, the landscape will change (it always does) and it will be all up to you to change with it.
Definitely get in a licensee consultant or internal compliance manager where possible to ensure licensing & RM duties don’t fall by the wayside when the FP business gets busy.
I can concur with the contents of this article. I work for myself providing an AFSL compliance service to a Licensee with less than 10 advisers. These Advisers are not employed by the Licensee as they operate as a Sub-Auth Rep through a Corp Auth Rep structure. The Licensee is a “professional licensee”, and its costs to the Advisers are kept to a minimum so as to cover fees/charges incurred in maintaining its License.
I manage the Licensee’s Policies, monitor compliance obligations on the Advisers, facilitate Responsible Manager meetings, collate sample SOAs & licensing documents for independent review by a 3rd party, maintain a Compliance Diary and liaise with the Advisers. When this Licensee started up this model, it took a while to set up processes etc. However, now that the model has been bedded down, I spend approx 35 hours per month to deliver the service resulting in savings in relation to 3rd party audit & legal costs.
This Licensee’s model encourages the Advisers to run their business their way but will get “involved” should an Adviser not adhere to its documented Policies.
Just imagine if you could get all the benefits of Self Licensing but without the time, cost or risk!
You can. If you are a half decent financial adviser (and I expect most are after the cleanout), the time and money you invest upfront will be paid back to you many times over down the track. As for risk, I would argue that I was at far greater risk when I was under the umbrella of a large AFSL.
“Don’t do it because you think life will be easier or cheaper, or you’ll be able to dodge stuff”???
I am a solo adviser, and I started my own AFSL a couple of years ago. I am very happy to have an easier life, to be paying less and ‘dodging stuff’!
To be clear, the ‘stuff’ I am dodging, is the unnecessary, inflexible, inane red-tape rolled out by the dealer group, which went well above the law and regulations. I can now deliver better service, which is more client friendly. I can service more clients, make more profit and I am doing all of this with less risk, with better software and a happier team.
I chuckle now at all the lies I was told by dealer group bureaucrats about the costs and complexity. My advice is to get a good compliance consultant, block out a month in your calendar to bed everything down during the transition, be prepared for some extra work over weekends leading up to the switch, and the in few months that follow and then don’t look back!
Am constantly told by my AFSL that it isn’t as easy as it looks. I don’t believe them and we will be leaving later this year.