To be or not to be: Should you get your own AFSL?

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.”