Is self-licensing right for your business?

AFSL licensees compliance Wealth Data self-licensed

30 January 2024
| By Laura Dew |
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Advisers may be contemplating the switch to running their own Australian financial services licence (AFSL) after the recent spike in micro-AFSLs, but commentators have warned it is not necessarily the right path for everyone. 

Research by Wealth Data found all but two of the 113 new licensees that commenced in 2023 have less than 10 advisers. Similarly, Adviser Ratings found small licensee groups of one to 10 advisers have seen a 17 per cent rise since 2018.

The trend for micro-AFSLs was a popular route in 2023 and is expected to continue this year as high fees push people away from the larger dealer groups where licensing fees can reach as much as $40,000 a year.

Joel Ronchi, chief executive at Fourth Line, said: “People are thinking about what value they get from that and whether it would be better to get their own licence. That’s a large chunk of money walking out the door before you’ve even woken and that’s proving to be a trigger point for these advice practices.

“ASIC has made the process of setting up an AFSL a bit less painful, so there has never been a better time for them to take control of their destiny.”

But advisers have been warned, it may be popular but is not the easiest switch for them to make. 

Kon Costas, managing director at The Principals’ Community, said: “It’s a big responsibility to take on board and having the resources to maintain a licence. It’s not about whether it’s easy to set up an AFSL, it’s about being well-resourced enough to maintain it and succeed.”

He said he has had numerous advisers approach The Principals’ Community to learn more about becoming self-licensed, but he doesn’t always encourage them if it isn’t likely to be the right fit. 

“We try to give people enough information to make an informed decision. If the business doesn’t have the capacity to take on the extra responsibility of holding a licence, then we would encourage them to take a different approach and look at other licensees.

“Some firms contemplate coming together with another to get a licence, but that has issues as well what are you both trying to achieve? Do you have the same goals? There is nothing worse than getting into something that later has to be unwound because it isn’t the right fit.”

Ronchi added: “People have to understand there is a difference between being an adviser and running a business; you can no longer spend 100 per cent of your time with your clients. It is a big leap.”

From a legal and compliance perspective, Richard Hopkin, senior associate at Cowell Clarke, said there are huge regulatory consequences if a person isn’t across their obligations. Next month, many AFSLs will have to register their financial advisers and report their internal dispute resolution regime data both of which are new obligations this year.

Hopkin remarked: “Advisers in a large dealer group have no idea of the compliance obligations needed when you have the AFSL yourself. Even if they have the know-how of running a business, they might not be across the compliance day-to-day. 

“A lot get confronted with a huge task ahead of them on day one, especially one that has such big consequences if they get it wrong. We find it takes 1218 months before a self-licensed adviser feels confident on their compliance.”

The commentators recommended employing an operations or compliance manager, and working with an outsourced compliance or audit firm to help.

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