The rubber has hit the road with licensing this year and it will do nothing but get harder in times ahead. The fragility of licensing will be increasingly tested if the market is forced to disengage the vertically integrated model because the reality is pure advice models aren’t economically viable for the broad market.
It’s feasible for a few but not for the masses and in future we are likely to have fewer dealers, not more. This doesn’t imply consolidation; instead, it means no one in their right mind would launch a dealership today with all the regulatory costs and a litigious society.
The challenge is this: we all want scaleable advice in a personalised market and it is illusory.
ASIC imposes SoA content that is sensibly framed around the Corporations Act but in so doing the content is so compliance-heavy, is costly to create, hard to read and easy to tear apart in a world that wants personalised/tailored commentary.
It all makes sense of course, but it does nothing for scale and cost control and worse still it imposes a heavy tariff on supervision and monitoring, which is a cost to the dealer not the adviser.
All of this leads to advisers looking for so-called low-cost licensing providers, but without the opportunity to carve out revenue from an integrated model the provider will struggle or reduce governance levels.
This is a bad outcome for consumers, the advice profession itself and the regulatory authorities.
New AFSLs driven by an anti-bank, anti-institutional push often have a romantic vision of independence, but the seductive nature of being free comes at a cost it would be wise to reflect on the difference between being a new dealer, joining an existing dealer or being a lone AFSL practice.
They all differ but the key word is ‘lone’. Stay small and liability is controllable, as is cost, but stray into dealer land without the experience, the balance sheet and the supporting professional staff and it is danger territory.
Last week we read of the demise of Sentinel Private Wealth, a medium size dealer with over 20 authorised representatives. It hit the roadblock of appropriate supervision and monitoring and received an enforceable undertaking.
The rest is history; as time went by the AFSL began to meet its obligations but the dream went out the window and the owners surrendered the business to administration.
This is an appalling picture for consumers – people who give financial guidance getting into a financial mess creates distrust, and right now confidence is needed more than ever before.
It also begs the question – what will the dealer landscape look like in five years time? It’s not the rosy growth scenario of an IFA market on an independence trajectory; it’s the very opposite, with less medium-size dealers, more small practices and higher industry costs. It all means advice is less likely to be affordable and it’s certainly not scaleable or if mistyped …‘saleable’.
So where to? Well for starters we need financially strong mid-tier dealer networks that are able to share service costs and support back office efficiency for ARs.
This means advisers should pay the correct rate (which should increase) for licensing, not a subsidised rate. In turn this means the low cost providers will struggle without a proper value proposition and the profession will improve.
Whether it happens or dealers just disappear, change or aren’t required remains to be seen.
First published: 4 April 2018
*Written by Ian Knox. The views expressed are his own.