Reframing the ‘licensed and self-licensed’ AFSL divide
Regulation around licensing should prioritise consumer outcomes over institutional convenience, according to compliance firm Assured Support, responding to the FSC’s licensing paper.
In a response to the Financial Services Council’s (FSC) Value and Future of Advice Licensing report, Assured Support said it failed to recognise the problems caused by institutional licensees which led to the Hayne royal commission.
This included entrenched conflicts of interest, cultural failures, systemic misconduct, and deliberate non-compliance within large licensees. This raft of failures is a reason that the sector now has stricter regulation and compliance costs.
“Consumers do not experience harm through licensing structures – they experience it through poor advice, unclear accountability, and limited recourse. Regulatory architecture should reflect this reality by prioritising consumer outcomes – clarity, fairness, and trust – over institutional convenience.
“When consumers suffer harm, they rarely care about business models; they care about recourse, clarity, and fairness. So should the law.”
It is also the commercial and reputational fallout for the sector from the commission, which has led many advisers to move over to a self-licensed model in the first place, it wrote – a sector which has been growing rapidly in recent years.
“Advisers who chose to become self-licensed were not merely reacting to fees or operational frustrations. They were responding to an environment where institutional governance had failed, remediation obligations were imposed at a massive scale, and reputational risk flowed from the licensees’ own conflicts and misconduct.”
On the topic of self-licensing, it also suggested an alternative lens that “licensed and self-licensed” could be a model of agent versus principal licensee, although it flagged this as a conceptual idea rather than a request for a legislative amendment.
The current usage of the two terms, particularly within the FSC’s paper, is “problematic” as it obscures the varying governance, accountability and decision-making capabilities between different AFSLs.
Under Assured Support’s recommendation:
- In a principal model, the advisers themselves influence or control governance and are embedded in the decision-making of the business.
- In an agent model, advisers provide services under a licence held by an unrelated entity, with centralised oversight but less day-to-day involvement in operations.
The proposed naming convention would instead help to demonstrate why smaller licensees may have stronger oversight and fewer conflicts than larger ones, and avoid conflating the size of a licensee with its risk.
For example, the FSC paper implied self-licensed practices may face greater risk as they conduct compliance internally, but Assured Support countered many tend to have greater oversight as they outsource compliance to independent providers.
“[This proposed model] shifts the focus away from crude distinctions of size and structure and towards the fundamental determinants of risk and culture: who controls the licence, how decisions are made, and where accountability ultimately lies. By understanding licensees through this lens, policymakers can better target regulation to the risks inherent in each model, rather than perpetuating narratives that oversimplify and mischaracterise the industry.”
Successful reform, the paper concluded, would require continued collaboration between regulators, licensees and policymakers, as well as evidence-based proposals and a focus on prioritising client outcomes.
“If approached in this spirit, the current debate provides a rare opportunity not just to adjust the mechanics of licensing, but to reshape the culture and expectations of the entire sector.”
AUTHOR
Laura Dew
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