Why more advisers are turning to self-licensing

Date: 10 January 2019

The financial advice industry has faced many challenges over the last few years. Increased regulation and public perception issues have forced many financial advisers to search for new ways of operating a successful business in today’s environment. One of those new ways has been becoming self-licensed.

Advisers who operate under their own AFSLs are known to enjoy greater control and flexibility of their practices, which in turn grants them the freedom to decide just how they want to serve their clients. This would be more restricted if an adviser was working as an authorised representative of a dealer group.

In its new guide for financial advisers, titled ‘Your own AFS licence – what you need to know’, Netwealth outlines the growing self-licensing trend and explains the motivating factors behind it.

Changing times 

The number of financial advice businesses obtaining their own AFSL is growing. These include large, multi-adviser entities, an increasing number of smaller, boutique firms and even single-adviser licensees.

With some upheaval in the advice profession in recent years – including implementation of the Future of Financial Advice (FOFA) reforms and the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry – many advisers now feel they need to decide whether they should remain with their current dealer group, move to a different dealer group, or obtain their own AFSL.

Adviser Ratings’ ongoing research into the financial advice industry continues to shed light on trends. In its 2018 Australian Financial Advice Landscape report (published in March 2018), Adviser Ratings specifically observed that the increase in the number of AFSLs granted by the Australian Securities and Investments Commission (ASIC) has far outweighed the growth in adviser numbers.

The number of AFSLs granted by ASIC grew by 32 per cent (1,333 to 1,752) between 2015 and 2017, while total adviser numbers grew by only 10 per cent (22,612 to 24,777) in the same period.

Investment Trends research director, Recep Peker, says the trend towards self-licensing is accelerating. According to Peker, 20 per cent of financial advisers have indicated they are already self-licensed or are under a boutique AFSL, with another 8 per cent saying they would like to obtain their own AFSL in the near future.


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Multiple benefits

The reason so many advisers are interested in becoming self-licensed is because of the list of perks that comes with being a licensee. Some of the benefits 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.

Sónia Cruz, head of licensing at The Fold Legal, believes many advisers are attracted to having their own AFSL due to the greater sense of control it can offer.

“The main benefit is that it gives you full control over how you present your value proposition to clients,” Cruz says.

“Sometimes, when you’re an authorised representative and part of a big dealer group, there are a lot of rules and regulations around how you can provide your services and what you can and can’t do.

She also identifies potentially simpler compliance processes as another attraction.

“Over the past 10 years, I’ve dealt with many financial advisers moving from some of the bigger dealer groups into developing their own practice,” Cruz says. “When it comes to things like compliance, they discover how much simpler it is managing it on their own, as opposed to relying on a big dealer group – because big dealer groups will have so many rules and processes you have to follow. Because their monitoring and supervision is on such a large scale, they have to do it that way.

“In a small practice, with only two or three advisers and your own licence, you can simplify things significantly.”

More on self-licensing

Just as self-licensing comes with many potential benefits, it can also present additional challenges, costs and risks. Becoming a licensee is a big move that involves many additional responsibilities.
If you’d like to know more about what it takes to run a successful AFSL, Netwealth’s adviser guide explains the challenges of self-licensing and describes the application process. The guide also offers suggestions on how to best manage your new licence once you have it.