As larger Australian Financial Services licensees (AFSLs) continue to expand their reach in what has become an increasingly expensive industry to operate, FAAA chief executive Sarah Abood says there is still a place for smaller firms in advice.
While the last few years have seen considerable consolidation from larger licensees, there has also been growth in smaller, self-licensed firms as more advisers seek the benefits of greater control and flexibility.
Earlier this month, a Wealth Data analysis revealed that single-adviser practices now make up 33.5 per cent of all AFSLs, and capture a significant amount of industry knowledge as more than four in five (81.3 per cent) of advisers in these firms report having 10 years’ experience or more.
With this in mind, David Sharpe, FAAA chair, voiced a question on the future of small practices during an FAAA webinar, asking whether time is running out for these small, single-adviser firms and will they “go the way of the dodo”?
Responding to this, Abood said that although being self-licensed does come with challenges, whether that be the cost, compliance, or any number of other issues, she believes there is room for practices of all sizes in the advice ecosystem.
“I wouldn’t say that model is dead in any way. I think that it’s important when you’re in a small business to ensure that you’re reaching out and you’re engaging with others, whether that’s via your professional association or via a group that’s supporting your business.
“I think there’s a danger of being isolated when you’re running your own business and you don’t have those automatic connections that you get from being part of a larger business.”
However, there are pros and cons for either option.
One of the key benefits of being a part of a larger licensee, Abood explained, is the resource availability, which allows them to invest more in operational efficiencies in a way smaller AFSLs aren’t able to.
“The challenge that you face in a really small business is whether you can invest in these technological changes and services that will benefit your clients. Certainly, many of the large licensees are making available services to advisers who are in small businesses that effectively allow them to bat above their weight.
“So, you can take advantage of some of those economies of scale that large licensees have to use some of the discounts that they have available, some of the systems that they’ve built and so on. We’ve seen those businesses really grow, and many of the large licensees are investing in them.”
Research by the Financial Services Council found advisers have an average saving of $70,500 annually through tools and platforms included in their licence fee and the centralised support.
On the other hand, smaller or solo licensees have far simpler supervisor and monitoring obligations which are likely to be less prohibitive than those incurred at larger AFSLs that carry the risk of widespread supervision requirements.
“One of the biggest issues, if you’re licensing a couple of hundred advisers, is you need some pretty good systems to ensure that you’re adequately monitoring and supervising the behaviour. If you’re a single licensee, you’ve only got to monitor and supervise your own. So I think there’s economies, if you like, at both ends of the market.”
Despite the challenges that come with self-licensing, Abood reiterated that there is still a place for these firms in the advice space.
“I think all of those models can work. I’ve seen great advice from every different model that’s represented in our membership. So, that’s very much our perspective. We want to make it easier to give great advice to more people, irrespective of what model you’re in.”
