“Listen to many, speak to a few.”
— William Shakespeare, Hamlet, Act 1 Scene 3
Opportunities and obligations
2019 was a difficult time for advisers and licensees. Admittedly, 2020 hasn’t been a much better year.
In addition to the unwanted scrutiny of the Royal Commission, remediation costs, increasing regulatory scrutiny and declining margins, the long-anticipated fragmentation of the institutional advice groups has started to gather speed.
Few of the larger licensees closed with the unseemly haste (and confected injustice) demonstrated by Dover. While most have provided definite closure dates, they’ve also provided subsidised services or exit payments to mitigate adviser’s anger.
The issue for any adviser suddenly cast adrift of their authorising licensees is whether, and how, to continue to provide financial product advice in an increasingly complex and complicated environment.
We are frequently consulted by advisers grappling with this existential question.
We remain convinced of the value of financial advice and the significant consumer benefits it provides. We also believe in the inevitable emergence of an advice profession, but we don not believe that every adviser, or practice, has the competence or capability to hold an Australian Financial Services License and comply with the laws and their license conditions.
In fact, if recent events have shown us anything, it’s that even large, well-resourced licensees can struggle to do this.
Understand your options
If you find yourself in the position of trying to find a path forward, you know that you have a dazzling array of choices (whose appeal often depends on the financial interests of those presenting them).
As ethical professionals, we think whatever decision you make has to be the result of your “free, informed and prior consent” – so we’ll do our best to objectively lay out your choices, their costs and implications.
- Authorisation. It may seem counter-intuitive to respond to your ejection from a (collapsing) licensee by joining another licensee but it’s not always a matter of ‘any port in a storm’. There are some exceptional licensees that have the resources, leadership and expertise to provide you with the authority, support and assistance to continue to provide financial product advice. Please choose carefully and avoid any that see compliance as a problem to be avoided, have inadequate resources or restrict you to in-house products. A good licensee will provide you with the leadership, compliance and competent services you need to prosper. It should also provide you with time and convenience by removing from you the burdens of running a licensee in a complex and complicated regulatory environment. According to Professional Planner, the cost of an authorisation tends to cost Licensees between $38,000 and $45,000 but this depends on the licensee, the services provided and whether Professional Indemnity is included. If you need to be pointed in the direction of some appropriate licensees, email firstname.lastname@example.org.
- Employment. It may not suit every adviser, but there are a number of highly competent licensees that have chosen to manage the risks and costs of intermediated distribution by employing, and directly managing, advisers. Industry funds, accounting practices and some small to medium licensees operate using this model. While they may be more restrictive than other licensees, they are often better resourced and possessed of a more realistic risk appetite. They’ll either employ highly experienced risk and compliance staff or engage professional firms to provide objective advice and support. These salaried positions cost you nothing but your willingness to operate efficiently, honestly and fairly as an employee of the Licensee.
- Self-licensing. Being a good adviser doesn’t necessarily equip you to run an efficient practice nor does it necessarily prepare you to manage an AFSL. The obligations, and the costs of non-compliance, are significant. On the other hand, if you’re an ethical professional with management skills and appropriate education, resources and experience, this may be an option. Don’t choose this option if your motivation and focus is purely financial. Few licensees make a profit and, with the loss of grandfathered benefits, more licensees will struggle to deal with increasing requirements and declining margins. Scaling generates opportunities but, as has been recently demonstrated, can often generate significant liabilities. If you are an ethical, disciplined and ‘independently-minded’ advice professional, this may be the best option for you (but appreciate the significant costs and obligations). We’ll outline the indicative costs below, but appreciate there are ways to mitigate these costs – by outsourcing, implementing a shared-services model with other advisers, making lateral shifts or by embracing technology. If you’d like advice, email us.
Understand the cost
“You only have to do a very few things right in your life so long as you don’t do too many things wrong.”
— Warren Buffett
The indicative costs listed below are based on feedback and research. The indicative fees tend to reflect services provided to small and medium firms by established businesses in key capital cities.
The costs for single-adviser licensees and medium to large licensees may be significantly different to the approximation or range presented below. Please appreciate that the price range for these services can vary enormously between providers and it’s critical that you don’t confuse cost with value.
If you’d like a more detailed perspective, contact us.
Costs are subject to the nature, scale and complexity of the proposed business, the service provider selected and the level of project management and advice required.
Professional Fees: AFSL Application
This is a variable cost based on cover, activity and history.
Approximately 2.2% of revenue.
Assume minimum premium of $16,000 pa
Professional Indemnity Insurance
This levy will vary over time but, in 2021, the Financial Advice Sector minimum levy increased 167.475% from 2020. The insurance product distributor fee increased 79.84%.
As a result of the Royal Commission, the levy increased in 2020-2021 to a minimum levy of $1500 + $2,426 per adviser + a flat fee of $1,196 for “insurance product distributors” (insurance advice).
In 2020, the levy was $1500 + $907 per adviser + a flat fee of $665 for “insurance product distributors” (insurance advice).
$370 membership + levy. AFCA’s Complaint fees increased by 4% in 2021.
Subject to size, structure and complexity
Ranges from $2,233-$7,357
Statutory Lodgement Costs (AFSL Application fees)
These costs will depend on the provider engaged and the size and complexity of the advice business.
Approximately $4,000-$6,000 pa
Depends on review scope, report quality and reviewer capability
Approximately $1950-$2,400 per adviser/year
Read Adviser Reviews
Adviser Reviews (compliance audits)
A Compliance ‘health-check’ and assurance of the Licensee’s compliance and compliance arrangements.
We recommend our clients undertake this review every 3-5 years.
Independent, expert and assured support to ensure you continue to comply with the financial services laws.
Cost varies according to your specific needs, numbers and activities.
Assume $6,000-$8,000 pa for small licensee with few representatives.
CAVEAT: There are additional compliance services, such as pre-vetting, training or access to compliance technology that will be additional costs. The development of your compliance framework – the measures, processes and procedures that ensure your compliance with the laws – are often priced separately.
External Compliance Support
Appointing an Authorised Representative costs $48. Amending an Authorised Representative’s details or ceasing an Authorised Representative costs $31.
BONUS: After your AFS licensee is first approved, you have 10 business days during which you can appoint Authorised Representatives without incurring any fees.
Statutory Fees (ASIC charges)
The cost of these services depends on the provider, the number of users and the scope of the services they are required to provide. Thankfully, the presence of alternative providers helps to keep costs competitive. In addition, it’s possible to obtain discounts through some associations or corporate groups.
Technology (On-line training, Research and Planning Software)
Help is at hand
There’s little doubt that the costs of obtaining and maintaining an AFSL are significant.
They should be.
Licensing, given the resources and capabilities required, should not be an option for those industry participants who lack the competence, capability or culture to operate “efficiently, honestly and fairly”.
Although some of the costs appear high, they are not impossibly high, and need to be weighed against the benefits and opportunities self-licensing provides you.
If you are an ethical, organised advice professional, self-licensing may be the best way to protect your personal brand and your clients’ interests.
If you decide to head down the road to self-licensing, having the company of an experienced and expert guide can make all the difference.
We’re here for you so reach out to us for obligation-free advice.