I’ve done the math
There’s no solution
We’ll never last
Why can’t I let go of this?
— Laufey, “Promise”
Making better choices
Despite the media attention, this is not a new trend. In fact, it’s the inevitable, and desirable, response to conflicted industrialised advice models and vertically integrated businesses. The post-Royal Commission reality is that there are more than a few “boutique-licensees” (5-15 advisers) that operate more efficiently, and more effectively, than their larger competitors (and with a much smaller regulatory-risk footprint).
The push towards professionalism, and the push against product distribution, has driven this significant industry change. We’ve been supporting self-licensed businesses for over twelve-years and we’re proud of the part we’ve played in the inevitable emergence of an advice profession. While we are strong advocates of independent self-licensed advice businesses, we know (based on our data) that not 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.
Some can’t comply, some won’t comply and others simply don’t bother. Complying with the law, like providing exceptional advice, requires consideration and conscious effort. It also requires time, resources and focus. Compliance can be challenging for smaller licensees but history shows us that even large, well-resourced licensees can struggle to do this.
Understand your options
“Licensees are advisers willing to work 120 hours a week in their own business to avoid working 40 hours a week for a product issuer”.
If you find yourself in the position of trying to find a path forward, understand that those advising you might have their own reasons for their recommendations. We predominantly support self-licensed businesses, so we’re equally-conflicted, but we’ll do our best to objectively lay out your choices, their costs and implications.
1. 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’. Some exceptional licensees 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.
The cost of an authorisation tends to sit around $40,000 pa per authorised representative 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.
2. 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.
3. Self-licensing. Being a good adviser doesn’t necessarily equip you to run an efficient business nor does it necessarily prepare you to manage a Licensee. An AFSL is not a cash-cow anymore; regulatory expectations, costs and obligations continue to increase and the financial costs of non-compliance remain 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. Just don’t choose this option if your motivation and focus is purely financial. Few licensees make a profit, and, with the loss of conflicted remuneration and product rebates, 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. These risks and costs can dissuade some, but are ways to mitigate these costs – by outsourcing, implementing a shared-services model with other advisers, making lateral shifts or embracing technology. If you’d like advice, email us.
Self-licensing can be challenging, but if you have a growth mindset, stable revenue and an analytic approach, this may well be the best option for you.
The road to self-licensing
“Lately I have desperately pondered
Spent my nights awake and I wonder
What I could have done in another way”.
“Lovefool” by The Cardigans
If you are considering self-licensing, start by reading ASIC Regulatory Guide 36 “Licensing: Financial product advice and dealing” and Regulatory Guide 244 “Giving information, general advice and scaled advice”. You should read these even before assessing your competence and capacity (including your proposed representatives) or designing your structure.
If you don’t obtain professional legal or accounting advice at this point, at least undertake a cost/benefit analysis to assess your choices and their costs.
Although it may be tempting to delegate regulatory compliance to an external expert, it is critical that you read the following regulatory documents:
- Regulatory Guide 104 “Licensing: Meeting the general obligations”. This Guide addresses compliance and risk management, monitoring and supervision, training and the technological and human resources needed to demonstrate compliance with your general obligations.
- Regulatory Guide 105 “Licensing: Organisational competence”. This Guide addresses organisational competence and introduces Responsible Managers – those persons on whom the licensee will rely to operate efficiently, honestly and fairly. You’ll need to nominate appropriate Responsible Managers to cover the authorisations you’ll seek for your licence, so understand who and what you’ll need before you commence your application.
- Regulatory Guide 126 “Compensation and Insurance Arrangements for AFS Licensees”. This deals with insurance and compensation requirements. You should also read Regulatory Guide 167 “Licensing: Discretionary powers “ to understand ASIC’s position on security bonds and professional indemnity insurance. If you need context, read this article about ASIC’s review of these requirements. Better yet, skip to the punchline by reading AFSL Fundamentals: A quick guide to Professional Indemnity;
- Regulatory Guide 146 “Licensing: Training of financial product advisers”. This may be under review but it addresses the skills, training and education required by financial advisers. Remember that ASIC have a significant interest in adviser competence and acceptable professional development.
- Regulatory Guide 271 “Internal dispute resolution”. Like most advisers, you’ve probably never received a complaint, but this may be due mainly to luck or poor classification. Read RG 267 alongside RG 271 to understand your AFCA membership obligations so that you’re not unpleasantly surprised.
- Regulatory Guide 166 “Licensing: Financial requirements” deals with solvency, cash flow and capital adequacy. A sustainable business needs to be both solvent and compliant so make sure you’ve got the financial resources to obtain and maintain your licence.
- Regulatory Guide 168 “Product Disclosure Statements (and other disclosure obligations)” and Regulatory Guide 169 “Disclosure – Discretionary Powers” both provide useful insights into ASIC’s expectations of how licensees should approach conduct and disclosure issues. They’re both important, but Regulatory Guide 175 “Licensing: Financial product advisers – Conduct and disclosure” is the most critical Guide for advisers and advice businesses. Don’t overlook the importance of REP515 either. It may focus on large licensees, but the appendices contain a trove of useful information for compliance-focused licensees. It’s worth scanning Regulatory Guide 182 “Dollar Disclosure” at this point too.
- Regulatory Guide 181 “Licensing: Managing Conflicts of Interest” outlines the principles for managing conflicts of interest in a way consistent with the law and your licence obligations. It may be inconsistent with the FASEA Code of Ethics, but it’s still the best regulatory guide for managing perennial issues plaguing the financial services industry.
- Regulatory Guide 234 “Advertising financial products and services (including credit): Good practice guidance” might not have an immediate application but it will become important once you start to contemplate your marketing and media strategy.
Of course, the more determined applicants will also try to familiarise themselves with the relevant International Standards. ISO 37301:2021, “Compliance management systems” and ISO 31000 “Risk management” are the most relevant.
It’s at this point, and hopefully after taking advice, that you’ll contemplate the most effective way to manage your application.
Even for novices, the application process is manageable but using an external provider like Assured Support may save you time, stress, and unnecessary aggravation – we’ll also help you design a compliance framework likely to ensure your compliance with your obligations under s912A of the Corporations Act 2001.
The indicative costs listed below are based on client feedback and our research. They are only approximations and may only reflect the cost of services provided to small and medium firms by established businesses in key capital cities.
Please be aware that the costs for single-adviser licensees and medium to large licensees may be significantly different to the approximations listed below and these costs can vary enormously between providers.
If you’d like a more information about our pricing please, contact us.
Professional Fees: AFSL Application
Costs are subject to the nature, scale and complexity of the proposed business and the level of project management and advice required.
Exercise caution when selecting providers and don’t confuse cost with value. Some providers will manage and submit your application without providing you with framework documents you’ll need to support your application.
Professional Indemnity Insurance.
Approximately 2.2% of revenue.
This is a variable cost based on cover, activity and history. Assume a minimum premium of $16,000 p.a.
$1,500 plus $2,818 per adviser in 2023.
$187.77 to 31/3/2024, which includes the application fee and base levy.
Statutory Lodgement Costs (AFSL Application fees)
Ranges from $2,233-$11,305
Subject to size, structure and complexity
Approximately $4,000-$6,000 pa
These costs will depend on the provider engaged and the size and complexity of the advice business.
Adviser Reviews (compliance audits)
Approximately $2,200-2,800 per adviser/year
Depends on review scope, report quality and reviewer capability.
Read Adviser Reviews
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.
External Compliance Support
Assume $6,000-$12,000 pa for small licensees with few representatives.
Independent, expert and assured support to ensure you continue to comply with the financial services laws.
Cost varies according to AFSL’s specific needs, numbers and activities.
CAVEAT: Depending on your provider there may be additional compliance services available to you, such as pre-vetting, training or access to compliance technology that are only provided for an additional cost. The development of your compliance framework – the measures, processes and procedures that ensure your compliance with the laws – may also be an additional cost.
Be wary of Compliance Manuals offered as part of the licensing application process or support contract. In our experience, they tend to be generic documents that simply restate the legislation and regulation. A Compliance Manual that is not customised to your business exposes you to increased regulatory risk.
Statutory Fees (ASIC charges)
Appointing an Authorised Representative costs $57. Amending an Authorised Representative’s details or ceasing an Authorised Representative costs $36.
BONUS: After your AFS licensee is first approved, you have 10 business days during which you can appoint Authorised Representatives without incurring any fees.
Technology (Online training, Research and Planning Software)
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 groups like the Boutique Financial Planning Principals Association .
With the increase of regulatory expectations, and the commencement of regular reporting to ASIC, we’d suggest that a self-licensed business will not be sustainable over the long-term unless it embraces reg-tech. You have a range of options to consider from single-purpose IDR systems to integrated compliance platforms that automate and operationalise the entirety of your risk management and compliance obligations.
Help is at hand
Self-licensing isn’t for everyone, but if you are an ethical, organised advice professional with a sustainable and profitable practice, self-licensing may be the best way to protect your functional independence, your personal brand and your clients’ interests.
The financial commitment aside, even if you partner with a firm like Assured Support, becoming self-licensed will change the way you approach advice. Managing an AFSL well will require a lot of the time, energy and focus you previously dedicated to your clients. Making the trade-off can deliver significant benefits, but there are always costs, so you need to consider self-licensing with your eyes wide open.
If you decide to pursue self-licensing, having the company of experienced and expert guides can make all the difference. We’re here for you.