Why planners should avoid getting their own licence
Financial planning is already one of the most heavily regulated industries in Australia, with a raft of legislation, regulation and other compliance obligations for planners. Getting and keeping an Australian Financial Services Licence (AFSL) is a significant undertaking, and I sometimes hear (from vested interests) that financial planning practices should get their own AFSL. I think this would be a mistake for many practices.
An AFSL can destroy the value of a small financial planning practice. Meeting the compliance requirements of an AFSL is an onerous task, so a financial planner can easily spend all of their time trying to comply with the AFSL and worrying about this. In the process, they can take their eye off the business of financial planning.
There are many disaster cases where financial planners went out and got their own AFSL, but didn’t realise how much time and effort is required to keep it, and this created a real mess for their practice. The last thing a financial planning business needs is distraction when they should be focusing on building value and creating a great practice that someone will want to buy.
Big advice businesses need their own licence, and given the industry trend towards consolidation, any firm that is likely to buy your financial planning business one day has probably already has a licence (or can easily go and get one). Financial planners don’t need to be distracted by onerous legal and regulatory obligations. They need to be free to do what they can do best: delivering good advice, good service and good value. As long as you can do these three things, you will always have a business that someone will want to buy – no-one wants to buy the long tail liability of an AFSL when a “clean skin” licence is readily obtainable.
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So Barry, what is the right size?
Avoid getting own licence? Whilst I completely agree that the primary focus of any financial planning practice should be building value to clients and the practice, I’m unsure that the issue is as simple as ‘not getting your own licence’. The usual path of ‘outsourcing’ to a licensee can create more burdensome compliance frameworks than I suspect are actually required. So the poor small professional financial planning business spends much time meeting or failing to meet endless best practice standards that are unattainable. Clear, concise and proactive compliance training and support is generally not the standard for large licensees so the ironic outcome (for the advice business) is confusion about what is regulation and what is unnecessary burden. This is dangerous for the advice business. It must be said that the primary objective with large licensees, it seems, is protection of the licensee (not to mention product distribution) rather than support of the quality advice business. This is reflected in the onerous processes and requirements and the lengthy advice document templates that are created. The advice client needs a clear, concise and non-conflicted advice experience so it follows that a truly supportive licensee outsource arrangement needs to be clear and concise in relation to compliance advice. This is hard to find for small and professional independently minded advice businesses. Perhaps the only alternative is to gain the licence directly but instead of paying high fees to a large Licensee, engage independent and concise compliance advice and implementation support from a suitable provider. It’s possible that through this approach the business will become more efficient and confident in managing regulatory requirements and thereby build greater value for the clients and business alike. It would be ideal if established licensees could get better at delivering this style of compliance support for their authorised practices.