‘Man is not an island’: Should you scale up a micro-AFSL?
Two industry professionals have shared lessons for self-licensed firms amid the debate over scaling up a financial advice business.
Money Management recently debated with two advisers on whether the cost and training of scaling up is worth it for their business. For one, he was deterred by onboarding challenges and whether the individual was passionate about financial advice, while the second saw scaling up as necessary to provide that depth of support and manage the daily workload.
Speaking at the ifa Adviser Innovation Summit in Sydney, Steve Prendeville and Eugene Ardino were asked about the challenges faced by self-licensed advisers.
Much has been written about the growing trend in micro-AFSLs and self-licensing as advisers exit the bigger players in favour of setting up their own businesses, with Wealth Data research finding licensee owners who commenced with between zero to less than 20 advisers rose by more than 208 in 2023.
Prendeville, founder and director at Forte Asset Solutions, flagged that while there are undoubtedly benefits to operating as a small licensee, advisers report feeling constrained and unable to step away from their business without scaling up. Around 70 per cent of advice firms are single principal firms.
“One in two report that if they weren’t there, then the business would not operate effectively, and 89 per cent say it would not grow and develop without them. Some 64 per cent say their clients would not deal with anyone else other than the senior or sole adviser.
“So it may all look good and golden, but this subset, which makes up a large part of our sector, is where I am concerned.”
Ardino commented that this is where the challenge lies around deciding to scale up a business and move beyond having a single adviser as it can temporarily lead to reduced profitability.
“For the majority who want to take it to the next level, you have to have a good plan because as soon as you start to employ another planner, more support staff, more infrastructure, then your costs go up,” he said.
“Your profit may even be going backwards in the early days and, if you want to grow in the organic way, then you probably have to be prepared to go a few years without any significant profit growth.”
Alternatively, firms can look to outsourcing if they are reluctant to hire extra staff on a permanent basis. Many of these firms are based in Manila such as business consultancy Vital Business Partners (VBP) which has multiple offices in the city.
“Man is not an island, and you need to be able to discuss with others about success and failures. One of the most successful strategies I’ve seen is outsourcing,” said Prendeville. “If you’re a single principal, then outsource what you don’t like and focus on what you are good at which is the provision of advice. So outsource asset management, outsource administration, outsource social media – everything now can be outsourced.
“Talk to other advisers about what they use, what’s worked for them, and what hasn’t worked. You don’t want to be talking to the sales people, you want to speak to your fellow advisers in similar situations on what has been their findings.”
AUTHOR
Laura Dew
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