Can data integration resuscitate the licensee model?
In 2024, Australia’s resilient licensee community grapples with a seemingly unrelenting existential predicament that has persisted for some time.
The issue has recently escalated to crisis point with various well-placed industry commentators publicly questioning whether the AFSL/licensee construct as we know it today can even survive as a viable future model.
This ‘near death’ prognosis hints at underlying issues that continue to dog the sector and require a pragmatic and sustainable response. That is to say, any overhaul of adviser licensing requiring the potential removal of the licensee structure and a shift to self-regulation would not come without significant industry structural implications.
Considering this and other environmental factors, this article deliberately excludes small licensees (considered here as having less than 20 advisers). Small licensees enjoy greater freedom of choice and flexibility compared with the challenges experienced by their larger counterparts. Such relative freedom at the ‘small end of town’ might also help to explain the current growth of practitioners self-licensing, or joining smaller operations within the advice profession. Therefore, for the purpose of my observations, the following targets the dynamics that most impact the mid-sized and larger licensee groups (ASFLs) as defined by ASIC.
It’s no secret that the basic issue for licensees is also their raison d’etre – that is, executing the obligations of advice licensing and accountability under the Corporations Act. This has translated (some say devolved over years) into operating compliance-heavy businesses faced with seemingly never-ending additional regulation, layered on top of a swathe of existing legal and fiduciary burdens.
Licensees also face the converging issues of zero or poor commercial profitability, a lack of common industry tech standard(s), and the ongoing battle to wrest control of the advice process from various other parts of the advice/ platform/ software/ product value chain. For licensees, success comes from focusing on the model itself, rather than scale.
It’s a struggle that has been exacerbated in a post-Hayne era. Yet with roots that pre-date the Commission’s findings, it is far from dissipating. Licensee models, operating on skeletal margins, face increasingly dim prospects for survival. Put bluntly, if the licensee structure is to be removed – or even if it’s here to stay – the imperative for businesses seems clear: evolve or cease to exist.
Faced with this reality, two crucial lifeline options emerge. Each, I believe, has a common foundation in exercising the simple idea of data integration.
The first option involves diversifying income streams into alternative service offerings, while the second centres on bolstering balance sheets via equity participation in a network, or perhaps a strategic combination of both approaches.
Data integration is the key
At the base of this strategic pivot lies the critical role of high-quality data integrations.
Whether examining the core licensee proposition, exploring avenues for enhanced financial performance, or addressing the need to eliminate double handling of data, all roads lead to better integrated technology; not just technology alone.
The implementation of such integrations promises much-needed profitability gains, notwithstanding the benefits of improved operational efficiency, better data quality, the capacity to deploy equity into a more focused range of practices, back-office centralisation, and, above all, standardisation.
It comes down to whether licensees are willing to simply look at integration as a priority. It makes little sense that some licensees still deploy manual, paper-based methods that are highly labour intensive, costly, and carry unwarranted risk. Data double handling is no longer necessary and is easily removed from the licensee task list.
It is evident that the immediate and pressing debate surrounding the viability of the core licensee model hinges on addressing key structural elements to diversify revenue streams, despite regulatory and compliance headwinds. There are key structural intricacies that will characterise the industry moving forward, but the real opportunity is simply getting the data integration right.
Profitability
We know licensees must find a way to revive profitability and continue to deliver critical support services for advisers. Yet a core success metric of sustainable profitability has evaded all but the most innovative operators in this space.
On the cost side of the ledger, scale itself does not help the licensee bottom line. However, scale benefits do exist for larger players to negotiate preferred pricing for their networks on SaaS adviser offerings, for example.
In reality, profitability gains extend beyond traditional models to embrace equity participation from adviser practices, centralising back-office operations, and leveraging integrated technology solutions. As advice practices increasingly show a willingness to pay for valuable services, the integration of technology becomes a linchpin in deploying equity effectively across a more focused range of practices.
Tech stacks
If the industry took a clean sheet of paper to design its supporting technology, it would not build what it is today: complex, siloed, and inefficient. The tech stack of the future would prioritise the dual goals of integration and efficiency (interoperability).
At the licensee level, a critical challenge lies in the limitations imposed on the tech advisers can use. Driven by the dual needs for transparency and oversight, it’s no wonder that many advice practices are forced to opt for a standalone legacy system.
What the future demands is a shift toward integration, where all systems are interconnected to provide complete freedom and flexibility for advice practices, whilst also supporting central oversight for regulatory and compliance purposes. The demand is for a middleware solution that doesn’t force the use of a CRM and can enable sophisticated cross stack automation.
Such a universal approach makes sense: in the post QAR world we expect to see these new models adopt this approach to significant effect. So, in lay terms, we advocate for a new definition of tech stack as a model where barriers to make changes are removed, there is seamless data communication across the stack, double handling of data is a faint memory of the past and licensees maintain oversight of necessary
data.
Sounds easy, right? Do this, and we move a long way to overcoming the malaise of tech inertia faced today by the licensee community. Otherwise known as ‘choice paralysis,’ this dynamic alone has stymied the tech-enabled progress of licensees for years. Such uncertainty about choosing the right tech stack also has a measurable flow on impact for these businesses and their advisers where simplicity, choice and ease are the obvious and preferred approach.
Think future, not legacy
It’s difficult to divert our gaze away from the rearview mirror. As it currently stands, too much attention continues to be devoted to legacy issues, reflected in a retrospective focus on monitoring and outcomes and a debilitating reliance on versions of tech systems of the past.
To truly thrive, there needs to be a shift. Licensees must redirect their focus towards investing in the future, breaking free from the constraints of past systems and practices.
A licensee model of the future – that is, one with quality data integration and a flexible open technology environment – is a worthy thing to imagine, for the mutual benefit of advisers, the AFSL-holder and the millions of Australians needing the certainty of high quality, reliable and cost effective advice services.
Shaun Green is founder and chief executive of Elemnta.
AUTHOR
Industry Expert
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I still wonder why we are even operating under a licencee structure. Everything would be so much more cost effective to be individually registered straight to ASIC, just as accountants are registered straight to the ATO.
The current regulations are completely unfit for purpose and were written when licencees acted as distribution channels for their own products. Irrespective of what these endless government reviews come up with, until the regulations are changed to suit advice, not product flogging, nothing will ever change for the better.
Take advice out of the corps act completely (as has been suggested by various people over the years) and have a Financial Advice Act. Then every planner has to comply with that and there is no need for a licencee at all. If every planner has to sit a test to prove they understand their obligations, similar but far better implemented than the ethics test, so be it. That is something that will definitely lower the cost of advice.