Don't do all the dumb things: Look (twice) before you leap

And I get all your good advice
It doesn’t stop me from going through these things twice
I see the knives out, I turn my back
I hear the train coming, I stay right on that track
— Paul Kelly "Dumb things"

One of the biggest decisions made as an adviser will be choice of Licensee. The recent closure of Dover may not have come as a surprise to many, but the speed with which it occurred still came as a shock.

Although Dover's advisers may have anticipated its closure, it seems that none received the ‘reasonable notice’ they might have expected. From an external perspective, in the absence of transparency, openness and authentic communication, Dover advisers seem to have been doubly penalised.  The Dover example shows that, as we have previously argued, choosing the right Licensee is perhaps the most critical decision an adviser makes.  

You may have noticed some commentators predicting the end of third-party licensing on the basis of Dover’s accelerated decline. Generalising from specifics may attract comments and clicks, but it’s flawed reasoning; we don’t apply the same reasoning to car accidents and ban cars nor do we cite ASX failures to argue for individual exchanges. The current licensing system requires licensees to be competent, capable, properly run and adequately resourced. Dover’s decline suggests that ASIC should place more focus on assessing and enforcing these requirements. It does not suggest they should abandon the existing third-party regime in favour of cottage industries and craft-based collectives.

Change is required but, in our view, advisers simply need to take a more active role in ensuring that their authorising Licensee complies with the conditions of their AFSL and the financial services laws. Let’s be clear; we’re not suggesting that the advisers should control, or even influence, the Licensee’s risk, compliance and governance framework, but they should ride management to ensure the framework is both efficient and effective (and they should hold management accountable where it’s not).

Remember that your Licensee must, among other things, ensure that its representatives comply with the law (particularly sections 961B, 961G, 961H and 961J of the Corporations Act) but they also need to ensure that they operate in a manner consistent with their corporate social license.

How well Licensees do this, and how well they’ve done it in the past, will come under increasing public scrutiny. It's equally clear that any identified deficiencies, failures, errors and omissions will not only affect the Licensee but impact their advisers. You’re a hostage to fortune, so if you want to avoid being collateral damage this may be a great time to critically assess your authorising Licensee.


Cost vs Value

In our experience, advisers are very skilled in explaining the difference between ‘cost’ and ‘value’ to clients questioning adviser fees, commission and ongoing service charges. They are generally unmotivated to apply their discrimination to assessing their Licensee. 

A good Licensee isn’t cheap, and a cheap Licensee isn’t good.
— Ben Moffatt, Industry guru

It’s impractical and naïve to suggest that authorisation expenses aren’t a consideration for advisers choosing licensees. We understand that, but recent events should highlight that cost should not be the dominant consideration. Affordability is always an issue, but it should be appropriately placed in your hierarchy of needs.  

As refugees from failed licensees eventually realise, the Licensee’s income (which includes your licensing fees) determines the quality of the services they provide to their advisers.

When the sustainability of their business, and yours, depends on their capacity to meet their legal and regulatory obligations, do you want them cutting corners on critical functions?  

If you are serious about the sustainability of your business, spend the money that ensures you can afford to have the right people, the right processes and the right culture in place.


Exodus, diaspora or realignment?

We’ve long suggested that fragmentation and consolidation are inevitable consequences of current events and will only increase pressure on advisers. Adviser Ratings data confirms what we’ve all known, that the ‘land war for distribution’ and Licensees’ reaction to risk has driven a steady increase in the numbers of advisers switching between licensees.


This trend is unlikely to change. Advisers are still on the move and perhaps in even larger numbers than before. The most important factor isn’t their  destination, but their reasons.

A recent article for Adviser Ratings, contained industry research that identified the key reasons given by advisers for switching licensees included:

  • Not wanting to be aligned with a major institution;

  • Access to an open APL with multiple options;

  • Simplified advice production and a client friendly SOA;

  • Virtual / digital framework and advice; and

  • Education, training and compliance support.

Our experience in Due Diligence and Practice Transitions is that most advisers feel they need to leave their licensee to have a sustainable, responsible and professional business. In some cases, they’re reacting to bureaucracy and compliance, in others to their licensees’ clear preferences for certain products and strategies and, in an increasing number of cases, from a realisation that their licensee places management’s interests before those of the advisers and their clients. The suddenness of the Dover capitulation seems to confirm that latter concern.

The Licensee was primarily product focussed and their unreasonably extended turn-around times created a nagging suspicion in my mind that that they actually didn’t quite understand what they were reviewing. They were entirely missing the point of the recommendation. Their constant pre-vet process could have been a good thing, if it was executed and managed correctly, but not when the advice document was being written and rejected by the same people.
— Former Dover adviser
You might not consider yourself a compliance expert, but you should recognise that your Licensee’s internal processes and control measures are a clearest indicator of its competence and capacity.


Own your application

Although you act for, or on behalf of, your Licensee, this doesn’t consign you to an entirely passive role. As an advice professional, you are ultimately responsible for your advice and your conduct.

You are accountable for the choices you make, so embrace this when you’re choosing the Licensee that’s best suited to help you build a sustainable advice business.

If you’ve the time, “measure twice, cut once”.

If you don’t have the time to compare and contrast all the Licensees that may authorise you, take a tactical approach and interrogate the key prospects. They’re going to assess and examine you, so return the favour. Find out as much as you can about the Licensee before you even consider adding to your short list. We recommend that you:

  • Ask questions;
  • Talk to some of the Licensee’s current advisers;  
  • Ask for specific examples of the Licensee’s support and systems;  
  • Compare their services against your ‘must haves’ (Due Diligence);
  • Tap your network for their insights and experiences;
  • ‘Feel the vibe’;
  • Research the Licensee’s management team; and
  • Identify the Licensee’s ultimate owner(s) and key partners.

Feeling the vibe refers to nothing more than assessing the environment and culture that the Licensee creates and maintains; we’re not talking about the ‘culture’ reflected in their documents and the CEO’s media soundbites, but the environment created by what they choose to do and what they choose to ignore. In our experience, Licensees under pressure (even pressures not publicly acknowledged) engage in erratic behaviour, create unease and tension and respond reactively, rather than constructively, to internal reforms or criticism.

When you recognise that transparency, stability and consistency are key strengths of a competent licensee, it’s easy to identify competent licensees. 

I don’t care to belong to any club that will have me as a member.
— Groucho Marx


Tempus fugit (Time flies)

Hopefully, you’ll never have to change licensees as a matter of urgency.

A relatively smooth transition can be upwards of 5 weeks. This may not include the time to contact clients, communicate the change, act accordingly and then, there’s pre-vetting process. Hint – if your new licensee doesn’t have a formalised pre-vetting requirement, or a rigorous recruitment process, choose a new licensee immediately.

How long have you got to get where you need to go? Give yourself breathing space to not only canvas your options but dig deeper into the ‘short list’. This is a critical decision and your clients; your reputation and livelihood depend on it. Interrogating your prospective licensee is essential.  Before you join any Licensee, take the time to consider:

  • whether your existing commercial arrangements (grandfathering) can be maintained;

  • what providers are on their Approved Product List (and why);

  • what providers aren’t on their Approved Product List (and why);

  • what product strategy text does the Licensee provide for your SoA;

  • what additional disclosures will you need to make;

  • what strategies or products will you not be able to recommend or maintain;

  • how frequently will you be reviewed and remediated;

  • under what circumstances can your authorisation be terminated;

  • the Licensee’s risk appetite;

  • how many risk/compliance people they have;

  • their Advice preparation and support network;

  • what client and file management systems and software they mandate;

  • what business development, growth, management and marketing support they provide;

  • who heads their compliance team;

  • whether they adequately resourced (and resourced for growth);

  • whether their organisation chart make sense;

  • whether they outsource compliance; 

  • if they are subject to any material claims, complaints or regulatory actions; and

  • whether they have a collaborative or feudal culture.


Don't do all the dumb things

On a final note, you are never really going to know exactly how a Licensee will act until after you're appointed. There's no perfect solution, unless you decide to become self-licensed. If you’re heading down this road, allow yourself considerable time (9-12 months)  and make sure you’ve carefully considered your options.

If you run a successful and sustainable advice business, we think self-licensing is the best option for you (but you’ll need expert and assured support). If you’re managing passive income with an eye on the door, choose an option that will facilitate your controlled exit. If you’re starting out, pick a Licensee that is as interested in your growth and development as you are.

If you have questions, or need help, contact us at