Advisers seek own AFSL

Greater flexibility and independence, increasing dealer group fees, and concerns around fulfilling a fiduciary duty are some of the reasons why more advisers are applying for their own Australian Financial Services Licences (AFSLs), according to compliance consultants.

Managing director of Gold Seal Risk Management Services Claire Wivell Plater (pictured), Brett Walker of SMART Compliance and AFSL Compliance founder Stewart Chandler said there were a number of reasons why more advisers were looking to go it alone.

Wivell Plater said some advisers were concerned about fiduciary duty, believing that working for institutionally owned dealer groups would raise questions about how they could act in the best interests of the client if they were required to achieve certain inflows for the dealer group.

Walker agreed, saying he believed the vertically integrated business model “is in all sorts of trouble due to uncertainties around fiduciary obligations” and sole traders could offer greater transparency.

Greater flexibility was another common reason, and Wivell Plater said advisers wanted to be able to better tailor Statements of Advice to their clients’ needs. Chandler said advisers did not want to be limited to advising products from the Approved Product Lists while operating under a greater compliance burden than demanded by law.

Economics also played an important part in advisers’ decisions to get their own AFSL. Wivell Plater, Chandler and Walker agreed that many advisers felt they were not getting value for the fees they paid dealer groups.

“If you’re paying a certain percentage of funds under advice, once you get past a certain level you can be paying a lot more than it would cost you to actually do all the compliance yourself,” Wivell Plater said, adding that outsourcing may be more cost-effective.

Chandler said some dealer groups were actually increasing fees and the proposed ban on volume rebates and commissions would therefore lead advisers to look more closely at the actual cost of the services the dealer groups provided.

Wivell Plater and Chandler were at odds when it came to the value of dealer groups.

“The biggest risk for independent licensees is product selection, because they often don’t have the same resources to do the level of research that the big dealer groups have,” Wivell Plater said.

Although Chandler conceded that business development managers provided valuable practice management support, he argued that the other services provided by dealer groups could be cost-effectively outsourced — and being under a dealership did not necessarily mitigate risk. He said small licensees often got a good deal on professional indemnity insurance and were often more risk-aware when it came to product selection.

Walker said that the Future of Financial Advice reforms might make dealer group support around remuneration processes more important, but he was confident that the trend of more advisers getting their own AFSL would continue.