Why individual adviser licensing would have helped MLC advisers

If ever there was an occasion to reinforce the value of individual financial adviser licensing it was probably IOOF’s acquisition of the MLC Wealth business and everything that went with it.

The transaction is, of course, still on foot but what is abundantly clear is that financial advisers within both businesses are facing a period of disruption because the process entails the uncertainty which goes with the closure of licenses as part of a broader general and commercially sensible process of consolidation.

It is rare for a wealth manager of the scale of IOOF to acquire a business of similar scale in the form of MLC Wealth but what would have become immediately obvious to the strategists within IOOF is that many Australian Financial Services Licenses (AFSLs) were in the mix and that licenses carry with them legacy and risk. The fewer and newer the licenses, the less the risk.

As has been the case with all recent transactions in the Australian wealth management space and particularly in the aftermath of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, IOOF will be shouldering none of MLC’s burden in terms of legacy regulatory issues such as client remediation. That will be carried by the seller, National Australia Bank (NAB).

It has been a harsh fact of life for all the major banks that they would not have been able to negotiate their exits from wealth management without first agreeing to retain ownership and legal responsibility for their legacy regulatory issues and, in particular, their sizeable remediation bills. Such was the case when the Commonwealth Bank sold Count Financial to CountPlus and it has become commonplace in all such transactions.

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That is why, notwithstanding its substantial exit from wealth management, the Commonwealth Bank continues to field class action suits when the planning businesses concerned have either been sold or closed down.

It can therefore be expected that while IOOF is keen to use the MLC Wealth acquisition to become Australia’s largest financial advice provider, it will be closely scrutinising the compliance records of the financial advisers and planning practices which will move from MLC to what will be entirely IOOF licensing, given that NAB will be retaining ownership of its old AFSLs. Those advisers who IOOF deems to be high risk are likely to be filtered out of the migration process.

And that is why individual licensing/registration would have been beneficial for the financial advisers affected by the transaction. Such an arrangement would have given those advisers more options and, arguably greater choice. That greater choice would have come from individual licensing making them less reliant on their “authorised representative” status and more capable of taking their clients with them to new homes.

Of course, the story is somewhat different for aligned practices and the IOOF/MLC transaction is already proving to be advantageous for some. What is already known is that a number of financial planning practices operating under the old MLC Godfrey Pembroke license are already fielding overtures from other major licensees who have spent much of the past 12 months attempting to grow their businesses notwithstanding the general exodus of advisers.

Given the Government’s priorities and the fact that establishment of the single disciplinary body recommended by the Royal Commission is at least 12 months in the future, MLC and IOOF advisers will have time to settle in to their new arrangements and reflect on what might have been.