The decision to become self-licensed should not be made lightly. Becoming a licensee is a big move that involves many additional responsibilities. Therefore, financial advisers contemplating obtaining their own AFSLs should first consider all of the benefits and challenges that come with such an important role.
In its new guide for financial advisers, titled ‘Your own AFS licence – what you need to know’, Netwealth breaks down the pros and cons of the self-licensing journey and describes why it is important for advisers to carefully weigh these factors before submitting their applications.
There is a reason why many advisers are interested in operating under their AFSLs, and that is because of the several potential benefits. Some of the perks of being a licensee include:
- Increased control over the direction, operations, culture and reputation of your business
- Greater flexibility and choice (particularly in terms of product recommendations, platforms, systems, advice templates and support services)
- Freedom from dealer group restrictions
- Reduced compliance risks (due to not always having to follow dealer group directives)
- Improved outcomes for clients
- Increased business revenue and profit
These are all, of course, possible benefits only and are by no means guaranteed. As with most things, the rewards you derive from self-licensing tend to be in direct proportion to the amount of effort you put in.
Just as self-licensing comes with many potential benefits, it can also present additional challenges, costs and risks. These include:
- Paying the initial and ongoing licence costs
- Establishing systems for managing compliance obligations
- Keeping up with regulatory change
- Researching investment products and developing your own approved product lists (APL)
- Finding the time to handle the additional administration and maintenance tasks required
- Undertaking any required staff training, monitoring and management
- Maintaining relevant registers
- Producing new client documentation and client interaction reporting processes
- Handling the personal stress of the additional responsibility that comes with self-licensing
If you’re currently with a large dealer group, it may already support many aspects of running an advice business. When you have your own AFSL, you’ll need to handle these yourself or find a new, outsourced solution.
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How to decide
The decision to apply for your own AFSL depends primarily on the type of person you are and the type of business you operate.
Steve Murray, managing director of Catalyst Compliance (a niche provider of compliance and back office services to AFS licensees), suggests this relates largely to skill sets.
“It all comes back to the skill set of each person, and whether they’re capable of doing it,” Murray says. “Many advisers are with licensees and believe they can do it better. But when they get out there and have to make the decisions themselves, they’re not necessarily that good at it.
“This varies, obviously. Some of them have the skill set and others haven’t. In many cases they don’t know until they get there. That’s a risk they take.
“For some people, it’s just not suited to them to have that control. They’re better off not having to worry about all the extraneous things you have to worry about once you take on the responsibility of running your own licence. With other people, it’s not a problem – it’s relatively straightforward. They’re like a duck to water.”
More on self-licensing
If freedom, independence and control are high on your personal and professional values list, then self-licensing could be the right move for you. If you’re prepared to put in the time and effort required, you are likely to succeed.
If you’d like to learn more about how to become self-licensed, Netwealth’s adviser guide explains exactly how to apply for an AFSL and the steps involved. The guide also offers several tips for how to best manage a new licence in terms of compliance and ongoing costs.