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The successful transition to an AFSL takes a significant commitment of time and resources, but self-licensed support networks can help streamline the process. Simone McMullin CFP® and Rodney DeGabriele AFP® share their experiences of belonging to an AFSL community.
The financial advice profession has faced its challenges over recent years, with FASEA education standards, the fallout from the Royal Commission, increased regulation and the exit of many institutions from the advice space, irrevocably changing the advice landscape.
It’s not surprising, therefore, that many of these changes has prompted a growing number of advice businesses to question the way they operate in today’s challenging environment, with self-licensing continuing to gain pace among advice practices.
Data from the Investment Trends 2020 Planner Business Model Report shows that 30 per cent of planners now hold their own AFSL or operate in a boutique AFSL – a twofold increase since 2016. A further one in 10 is considering becoming self-licensed.
“More planners are heading down the self-licensing route, whether by choice or structural changes in the industry,” says Investment Trends Research Director, Recep Peker. “As the dynamics of the advice market evolve, so do planners’ support and service needs.”
Ready to take back control
Melbourne-based Annex Wealth is one such business that made the decision to become self-licensed, obtaining its AFSL in July 2020. It’s a decision that Annex Wealth principal, Simone McMullin CFP® wished they had made earlier.
Simone says the key reason Annex Wealth obtained its own licence was centred on wanting to take control over the future of their business.
“We were previously licensed through a small boutique dealer group, but we felt we had loss of control over the future of our business through this arrangement. Instead, we wanted to control our own future and destiny.”
It was a similar story for Rodney DeGabriele AFP® – the managing partner at Affinity Private Advisors. Previously, Rodney was connected to a national dealer group aligned to NAB. But as much as he enjoyed being a part of the group, he felt as though he was a square peg trying to fit into a round hole.
“As a business with a focus on wholesale clients, we were having to comply with the dealer group’s regime under its retail licence, which wasn’t really working for our clients or my business. And that just became too difficult,” says Rodney.
Making the decision to become self-licensed in August 2020 was Rodney’s opportunity to run Affinity Private Advisors precisely the way that was best suited for his clients and business model.
It’s a recurring theme that the Head of BT Principals’ Community, Kon Costas hears from other business owners, who view the key attraction of becoming self-licensed as the freedom and control they get over their own business. But he warns that with self-determination comes added obligations and increased responsibility, including adhering to additional legal, regulatory and compliance requirements.
“But for those principals who want to take control of their business’s own destiny, and are prepared for the greater compliance and regulatory responsibilities that comes with that, then becoming self-licensed is ideal. But remember, the obligations of running a licence rests with you as the Responsible Manager,” Kon says.
Flexibility and control
With less than 12 months of being self-licensed, Simone says the experience of Annex Wealth running its own licence has been positive, which she attributes to careful planning in the lead-up to becoming self-licensed.
“We spent 12 months planning our transition, which included a lot of pre-work. I believe what really helped us with our preparation was the delegation of responsibilities within the business, which helped to distribute the workload. However, it was a time-consuming process, so the length of time required to make the self-licensing process as smooth as possible, shouldn’t be underestimated.”
And while Simone acknowledges there are numerous advantages to being self-licensed, such as having control over the future of the business, she concedes there are also challenges, with one of the biggest being deciding on who is going to be the Responsible Manager.
“We have eight people within Annex Wealth – six financial planners and two associates – so, deciding who was going to become the Responsible Manager was quite challenging, because in terms of ASIC accountability, the buck stops with them,” she says. “Finding the right person with the necessary skillset, expertise and time to take on this role was testing.”
In the end, Simone became one of the practice’s two Responsible Managers, as she was best placed to meet the stringent competency criteria required by ASIC.
And what about Rodney’s experience running his own licence?
“So far, so good,” he says. “It’s given us the flexibility and oversight of exactly what we’re doing, how we’re doing it and importantly, why we’re doing it. And that’s what I really like about being self-licensed.”
However, Rodney also concedes that becoming self-licensed wasn’t without its challenges, marking out time, cost and capability as the three key areas that the business had to tackle.
Rodney admits to not having the time to focus on the process of transitioning from his dealer group to an AFSL. Instead, he hired an additional person to oversee and complete the self-licensing process, while also engaging a third-party who specialised in applying for licences. He also used the BT Principals’ Community to help him move his business over to his own licence, which all added to the overall cost of the self-licensing process.
“Becoming self-licensed and running that licence is costly and not for the faint-hearted,” Rodney says. “If you get away with operating your licence for under $150,000, well, I don’t know how you’re doing it!”
He confesses to previously paying about $9,000 for PI insurance when he was under the NAB umbrella, but now that he is self-licensed, that amount has quadrupled to $36,000. And while his licence with MLC was formerly about $70,000, it’s now around $150,000. “So, you need to be aware of the costs involved in becoming self-licensed.”
Network support for going it alone
Having successfully gone it alone with her own licence, Simone admits that self-licensing is not suited for everyone and every business. She believes there are a number of key considerations principals need to make when considering getting their own AFSL.
“Firstly, don’t become self-licensed because you think that will reduce the costs of running your business, because we found the compliance requirements and costs of being self-licensed are greater than being licensed through a dealer group,” she says.
“Ultimately, being self-licensed means the buck stops with you. When you’re in a dealer group, you’ve always got someone up the chain to get direction from. Whereas, when you are self-licensed, there is no chain – you have to make the decision, and that can be a little daunting.”
It’s a view shared by Rodney, who also believes that self-licensing in not appropriate for sole operators. Why? Because he doesn’t believe a sole practitioner can adhere to the stringent compliance and regulatory obligations satisfactorily.
However, for those businesses wanting to push ahead with their own AFSL, both practice principals recommend joining a support network to help with the process. And that’s where AFSL support communities offering peer-to-peer interaction can help. Examples of such groups include the BT Principals’ Community, Macquarie’s Virtual Adviser Network (VAN) and IOOF Alliances.
Established in 2015, the BT Principals’ Community is a support network for self-licensed financial planning businesses. It is one of the largest AFSL support networks, with current membership standing at 133 businesses, accounting for 1,335 authorised representatives.
According to Kon, the group was founded on three pillars – community, governance and scale – where like-minded professionals working within self-licensed businesses, can come together to share and learn from each other, while being fully supported with the governance and day-to-day running of their licence.
“The Community assists principals at the start of their self-licensing journey as they transition to an AFSL, while providing ongoing support, including governance and compliance, post licensing. We talk to principals about whether self-licensing is right for them and how they will be positioning their business in the future,” Kon says.
“The Community supports self-licensed businesses by connecting them to a collective of like-minded practices, so they can engage with each other in a peer-to-peer support network. This includes sharing experiences of best practice, while they enjoy the leverage provided by scale that allows the Community to negotiate cheaper prices and arrangements from selected third-party service providers.”
As part of her process of transitioning to an AFSL, Simone opted not to go it alone, instead, turning to an AFSL support network – the BT Principals’ Community – to ensure the business had a strong network of professionals working with them on the transition. This, she says, essentially replicated all the good things about a dealer group environment.
“After doing our due diligence, we locked in a compliance partner, which we selected from a range of third-party service providers through the Community. And we partnered with legal firm, Holley Nethercote to help us with the regulatory and legal aspects of running our licence.”
While Simone accepts that getting your AFSL is not as complex as many might think, she emphasises you need the right partners to support you as a self-licensed business. “Self-licensing requires the time to undertake the process, the time required to be the Responsible Manager and having the right partners to support you in your decision.”
Simone doesn’t downplay the value of having a peer network to support you in your decision to become self-licensed. However, she admits to being initially reluctant to join an institutionally run support group, like the BT Principals’ Community, because of the concern she had that products and services might be pushed onto their business.
“But we heard them out,” she confides. “BT provided us with the governance we needed, help with our transition to the AFSL, and ongoing support, professional development, education and networking opportunities. However, when talking to other AFSL support groups, they didn’t offer the same full solution, like ongoing governance, which we would have been required to do ourselves.
“For our business, BT provided and end-to-end solution with our AFSL and our ongoing needs as a self-licensed business. And, importantly, just like Macquarie VAN, there was absolutely no requirement for us to use any of the BT products, which, along with the end-to-end solution, was a significant factor in our decision to join this community group.”
It’s a decision she doesn’t regret, adding that governance has been the biggest benefit to the business since joining the Community.
“We have a quarterly Responsible Manager’s forum with a dedicated governance person to ensure we are on top of our obligations and checking off against them. These forums provide us with real structure around our regulatory obligations, which are documented, in the event we are ever audited by ASIC.
“The forum also allows us to look forward to what’s on the horizon and what we need to be thinking about over the next 12 months as Responsible Managers. We get great value out of these forums because it’s something we just can’t do ourselves.”
But it’s not just about governance. Simone extracts value from the insights and shared experiences of other self-licensed businesses.
“Within this community group, we’re networking with other high quality businesses that we admire,” she says. “It’s been invaluable to have our business benchmarked against those other practices, where we can assess what we are doing and what improvements need to be made.”
It was a similar story for Rodney, who, when undertaking his due diligence of the BT Principals’ Community, was impressed with the structure and organisation of it.
“This provided me with a lot of comfort,” he says. “The compliance and licensee support teams were consummate professionals. They knew exactly what I needed to do, when I needed to do it, and were very clear in their advice to me.”
Rodney says the group seamlessly helped his business navigate the 300 steps to getting its licence.
“Belonging to this group is like being part of a much larger licensee, but you’ve still got the end control and flexibility to choose what to do for your clients and business,” he says. “As a support group for self-licensed businesses, it’s a compelling offer that is quite affordable.”
Whether it’s with BT, Macquarie or any other service provider, Rodney doesn’t downplay the advantages of belonging to an AFSL support network when transitioning to a licence and beyond as a licensee.
“There is significant value in networking, sharing your collective experiences and building relationships with like-minded peers in an open forum. I’m benefiting greatly from these shared conversations, which include how others are executing their growth strategies and the type of technologies they are using.
“And, of course, there are the updates on industry developments, regulation and corporate compliance that would be hard to access for an AFSL if you didn’t belong to a support network.”
Rodney concedes he would feel very uncomfortable running his licence today without the help of a support network, “because it provides me with the infrastructure and collaboration I need to successfully operate my business”.
With the ‘old guard’ of planners either retiring or leaving the profession, the future of financial planning squarely rests with the new cohort of graduate planners.
According to Kon, the BT Principals’ Community is working with universities and specialist groups, like Striver and Kaplan, to build pathways for new planners and connect graduates with financial advice businesses.
And while Annex Wealth is currently not looking to use the Community to recruit any new practitioners, Simone is using the group to provide her team with networking opportunities with other non-aligned practitioners.
“We’ve also subscribed to professional development content from the Community, which enables our planners to access training that is beyond what they can source elsewhere in the market,” Simone says.
“As a business, we are all benefitting from this professional development and it means we are not missing out on the types of resources enjoyed by larger dealer groups, due to the leverage of belonging to a network that supports AFSLs. This level of support makes our small business attractive to any potential new recruit who wants to join a non-aligned advice business,” says Simone.
“There’s definitely strength in numbers when you’re part of a broader movement, even when you’re small and go it alone as a self-licensed business.”