Is ASIC in a ‘cold war’ against self-licensing?

Ensombl CEO Clayton Daniel believes the rise of self-licensed advice practices is making it more difficult for ASIC to monitor the financial advice industry.

According to ASIC’s recent REP 797 Licensing and professional registration activities: 2024 update, the total number of approved Australian Financial Services Licensees (AFSLs) has risen from 3,853 at the end of FY 2004 to 6,349 at the end of FY 2024. This equates to a growth of 64.8 per cent over the past two decades.

The AFSL regime was introduced in 2002 with a transition period of two years to 2004.

Out of these 6,349 AFSLs, a quarter (1,587) are single authorised representatives, according to the Financial Advisers Register, mirroring the number of advice practices that are self-licensed.

Clayton Daniel, CEO of adviser community platform Ensombl, has argued that this trend towards self-licensing and the greater percentage of single AFSLs has made it more difficult for ASIC to effectively monitor the financial advice sector.

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“In professions such as medicine and law, professionals are often licensed individually, and it is likely that the financial advisory field will follow this trend. However, large AFSLs provide ASIC with the ability to monitor numerous advisers simultaneously,” he explained to Money Management.

“From ASIC’s perspective, the objective of enhancing the quality and reliability of financial advice is best served by encouraging a consolidation of licences into fewer, more robust entities. This approach is seen as a means to simplify regulatory oversight and elevate industry standards, ultimately ensuring better outcomes for consumers.”

Despite this, the number of AFSLs has continued to rise over recent years rather than decline through consolidation, Daniel noted. As a result, the corporate regulator’s enforcement spotlight is spread across an ever greater number of licensees.

The CEO continued: “As the market fragments and more advisers align with smaller licensees, it becomes increasingly challenging for ASIC to monitor the field effectively. This [self-licensing] trend does not align with ASIC’s regulatory objectives, and the agency has yet to address this shift towards smaller licensees.”

Last month, Money Management contacted ASIC to understand if self-licensed practices are a growing concern for the regulator. A spokesperson said at the time: “Irrespective of the size of licensee, the same legal and regulatory requirements generally apply. ASIC’s focus, including enforcement activities, covers the whole range of licensees in terms of size.”

Although ASIC didn’t flag self-licensed businesses as a concern, Daniel believes the regulator will likely need to provide clearer guidance on the matter.

“This situation will eventually create a response, possibly requiring ASIC to implement stricter regulations to discourage the proliferation of small AFSLs or to devise a strategy to manage the emerging landscape effectively,” he said.

“The market, including product providers, is also feeling the impact of this shift and is poised to see how ASIC will respond. While there is no direct confrontation, the industry is in a state of uncertainty akin to a ‘cold war’.”

Money Management previously explored the advantages of going self-licensed as an adviser, with one of the key reasons being the desire for freedom and flexibility. However, this comes with the added responsibility and time commitment of maintaining compliance, meaning it isn’t necessarily the right path for everyone.