Why finding quality licensees is easier than ever

Thanks to the best interests duty financial advisers now have a better chance then ever to identify quality licensees, writes Anne Fuchs. 

People love it when gossip magazines run photos of celebs in old jeans and tee shirts, picking up groceries at the local supermarket. They love seeing the raw truth and they actually despise airbrushing.  

Our industry is no different – advisers in particular are sick of dealer group plastic surgery and are desperately seeking authenticity.  

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For years, larger licensees have been able to augment and enhance – they have had the deep pockets to hire stylists in the form of publicists to tell the story they want to be told around their value proposition, sometimes with scant attention to the truth. 

But the best interests duty is taking the Wonder Bra off every licensee in the country and advisers have a better chance of identifying the best fit for their business. 

If licensees really want to win the hearts and minds of advisers now, they will have to be very honest about what they have to offer and wear authenticity like a badge of honour. 

Financial adviser choice 

No dealer group can be 100 per cent perfect for an adviser and advisers know that. They can and they will look beyond surface attraction – because Future of Financial Advice (FOFA) and related legislation is forcing them to. 

Advisers must now thoroughly review licensees in order to ensure that the one they join has the financial resources to fulfil its promises. The risks and responsibilities involved in not performing proper due diligence on licensees are just too great for advisers to ignore. 

It is a profound change. In the past, advisers have been discouraged to ask the hard questions of licensees.

Those who did were seen as troublemakers or just plain hard work.

This is the wrong mentality. In the best interests of clients, we have to encourage both advisers and licensees to critically examine their business models and their value propositions. 

What licensees can expect 

Advisers are now asking their licensees challenging questions around their approved products lists (APLs), their costs and the management expense ratios (MERs) of the platforms they use. 

Dealer groups should welcome and embrace advisers prepared to ask challenging questions as these are the advisers who are building the practices of the future – practices built around servicing the best interests of clients, the kind of practices that our profession really needs. 

What financial advisers want 

Advisers are seeking an open architecture where they can operate confidently and know that their best interests duty isn’t going to be compromised. They are not shopping on price; they want value. They are seeking comfort around professional indemnity insurance. 

If there is a claim, they want to know that their financial viability won’t be compromised – and it’s perfectly reasonable for them to expect that kind of comfort. 

While advisers want respect from their licensees for their autonomy as business people, they also want – and probably need – a sense of belonging to a community of like-minded professionals, particularly as they continue to navigate through challenging times. 

Meeting financial adviser needs 

Licensees have to embrace what they can offer advisers and admit that they cannot offer everything.  

Some, especially in the institutional world, will struggle to meet the needs of some advisers. Risk-focused advisers, for example, are fanatical about their independence. Advisers who want to offer holistic advice will also present a challenge to certain dealer groups. 

In the face of these challenges, licensees will have to find new segments of the market to operate in and scaled advice seems an obvious one.

Operating in the scaled advice, one-off transaction arena may be entirely appropriate for some dealer groups and there should be no reason whatsoever why these dealer groups should not feel proud of the brands that they build around scaled advice in the marketplace. But only if they wear that brand authentically and don’t pretend to be anything else.  

The great land grab 

As bad as it sounds, many big dealer groups have, in the past, spent way too much money on plastic surgery, artificially enhancing their value proposition.

These artificial enhancers have eaten into money that could have been used to innovate on product, to lower MERs, to improve technology and to streamline administration services. 

If we have learnt a lesson as an industry, it is that we have to stop spending money simply to protect market share and start investing in ways that help us operate more effectively in the consumer’s best interest. A dealer group’s raw and honest value proposition is part of that.  

Our message to dealer groups is  – don’t pretend you can be everything to everyone because FOFA means you can’t hide any more.

Speak openly about your weaknesses and you will instantly gain a lot more respect from advisers – they are seeking the truth so they can make informed decisions. 

They know there is no perfect solution but want to make a decision based on what they can and can’t live with. When you say everything is perfect, advisers are more cynical and likely to steer wider.  

The question dealer groups need to ask is this: will you still be attractive to your suitors once the airbrushing is stripped away?

Perhaps you will. But for many advisers, the attraction will be lost before the agreement even begins if you pretend to be anything other than what you actually are. 

Anne Fuchs is the founder of Pinancle Practice, which provides advisory services to financial planning firms.

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