Self-licensed v licensee just a business model decision

Debate has raged over the value and sustainability of the licensee model over recent months, with some advisers arguing that the Australian Financial Services Licence (AFSL) system plays a significant role in driving up the cost of advice.

PlanningSolo founder Jordan Vaka is one such critic, saying that while it is not an indictment of individual people or licences, it is a “structural and systemic issue that suppresses, infantilises and increases the cost of financial advice in Australia”

“For the QAR to talk all of a sudden, pivot to affordability of advice and never touch on the cost of licensing, is a complete joke. Makes the whole thing irrelevant to me. It dismisses the entire discussion,” Vaka said.

Speaking with ifa last year, Connect Financial Service Brokers chief executive Paul Tynan also took aim at the licensing regime, calling it “one of the roots of evil” in the advice profession.

“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,” Tynan said.

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

However, according to Lifestyle Asset Management director and head of strategic planning Scott Heathwood, the argument over whether self-licensed versus a licensee is moot.

“Where I think people are missing the point is that the argument seems to be very much couched in either or, and it doesn’t need to be either or,” Heathwood told ifa.

“The reality is the people have always had the opportunity of being self-licensed. The first time we were self-licensed was 1999.

“The reason I became self-licensed, and having had a couple of dealer groups in the ’90s, was that I was sick of the arbitrary imposition of silly rules and dictates from the licensee. And I wanted to control my own destiny. It wasn’t about cost or anything else. It was just that the overarching compliance regime that these guys were imposing wasn’t sensible, didn’t reflect, didn’t reflect the law.”

In Heathwood’s eyes, an advice firm deciding to go down the self-licensing route is a business model decision.

“In the same way that you could be self-licensed and a single practitioner or have a partnership, it’s a business model,” he said.

“A dealer group-type model is maybe a glorified franchise model, for want of a better term. It’s a way of standardising certain things, certain operating practices, certain issues around the regulatory environment.

“I mean the bigger ones, for instance, strictly control the products and services that you can offer, which is a bit like a franchise controlling the products and services that their franchisees are offering.”

While he understands that there is “a lot of anxiety” from advisers around which model is right, Heathwood ultimately isn’t sure it’s “relevant” because the option to become self-licensed exists.

“They can make their own evaluation about whether it’s cost effective, or they can evaluate which of the licensees might suit their own business model,” he said, adding that the argument should not be about whether you should be self-licensed or not, it should be “how do you leverage your position?”

“What’s your business model look like? Does your single stream focus support you just being self-licensed? And it might, I’m not saying it doesn’t, and if it does, happy days go for it. If that’s how it works out for you, then I think that’s a great thing, and people should do it.

“But you still need an approved list. You still need your professional indemnity insurance, you still need to do an audit, you still need to make sure that your team’s complying with the rules. Someone has to be across it. There’s got to be a person across all of those issues, and the more people you’ve got in the organisation, the more salaries you’ve got. It’s as simple as that.

“The days of just being a single sort of operator, I think, are probably beginning to vanish.”

He added that beyond simply being in favour of advisers having the option to be self-licensed, he believes it “keeps everyone honest”.

“We’re a licensee, my core businesses is selling licensee services. I like the fact that there is options,” Heathwood said.

“I can tell you, we’re not for everybody. We’ve created a business model that suits some people but doesn’t suit everyone. At the first interview, I tell people not how we’re good, I tell people who we can’t help. I just want to make it clear to people that we’re just not for everyone.”