More scrutiny needed on licensee and business model

Future of Financial Advice Case Study Financial Advice

Advice firms looking to change licensees need to consider the long-term viability of the group rather than reacting to short term incentives.

Mr Paul Cullen, Group Executive Advice, Centrepoint Alliance, said the disruption that has occurred in the financial advice industry in recent years has seen increased interest in mid-tier dealer groups offering both licensing and self-licensing options. However, finding the right licensee to align with means advisers need to apply more scrutiny, including probing as to how licensees are adapting to the changing regulatory environment.

“Selecting a group to align with is potentially a life-changing choice, so advisers need to spend a lot of time researching the right partner,’ said Mr Cullen. “However, some licensees are unreasonably expecting advisers to make choices in as little as eight weeks.

“With grandfathered commissions ceasing from 1 January 2021, advisers need to ensure licensees have the necessary scale and structure in place to manage the transition to new revenue models or they risk significant fee increases.                                        

“Advisers are now more focused on what they get for their money and are looking to align with a provider that has both financial strength and longevity. Advice technology, approved product lists, business support and access to the right training opportunities are also critical areas of focus.

“This is not only being driven by the advisers but also by their clients, who have become increasingly savvy and want reassurance the licensee is reputable,” Mr Cullen said.

Choosing the right business model

In a new white paper, What’s Your Path?, Centrepoint Alliance provides a framework for deciding whether to join a licensee or to self-license.

“Choosing the right licensing option can be overwhelming, and it is difficult to remove emotions to make objective decisions,” said Mr Cullen.

“We have observed that many advisers who have been displaced by large institutions are often drawn to the autonomy offered by self-licensing. However, many are unprepared for the responsibilities that come with operating an AFSL.

“We hope this report will help business owners who are grappling with which direction to take to weigh all the available options.”

Adviser movements to continue

Looking forward, Mr Cullen said recent developments in the financial advice industry, including the sale of MLC’s Wealth division to IOOF and AMP’s comprehensive review of its business, were likely to lead to more adviser movements in the current financial year.

“We are seeing a second wave of movements as advice firms either review their initial decision or take the first steps towards finding a new licensee to call home,” said Mr Cullen.

“Centrepoint Alliance has been receiving more than double the usual number of inbound enquiries as a result of recent industry announcements.”

In FY20 Centrepoint Alliance saw a 6% increase in its adviser numbers, against a market that contracted by 13%.

“Centrepoint Alliance was one of the first to introduce a clear fee-based pricing model, and these numbers show our model is resonating with advisers,” said Mr Cullen.

“Advisers with high quality, sustainable businesses are increasingly seeing Centrepoint Alliance as their partner of choice.

“We are investing in our service framework and our focus is to continuously improve our offer so we can provide even greater value for our licensed and self-licensed advisers,” he said.

You can access a copy of the whitepaper here.