ASIC concerned about fast licensee growth
Rapid growth of some financial services licensees has caused regulator concern due to many of them lacking support systems for larger numbers of advisers.
Speaking at the Association of Financial Advisers (AFA) National Conference last month, the Australian Securities and Investments Commission (ASIC) Commissioner Peter Kell said the regulator had seen problems emerge recently with respect to the so-called aggregated business models.
"We've seen a number of licensees grow rapidly via acquiring financial advice businesses, and there are some specific concerns we have with the operation of the one-size-fits-all approach and different advisers operating in that sort of model," Kell said.
Licensee growth at such a pace could result in inadequate or poor-quality compliance resources and inadequate dispute resolution processes across the business, he said.
"We'll be looking closely at those sorts of models to make sure that they properly deliver the right results for their advisers."
According to Paragem managing director Ian Knox, there is merit to ASIC's concerns. Knox previously owned a licensee services business and is now head of a dealer group.
"From my own experience, a business can take on one practice every two months," he said. "Otherwise, there would need to be significant increases to headcount, risk and cost structure, because every authorised representative should go through a thorough transition period."
Former head of Professional Investment Services Graeme Evans said this issue was about small licensees becoming too large too quickly.
"The knowledge of requirements when you're running an Australian Financial Services Licence - whilst it's the same whether you're one person or one hundred people - the complexity of complying with that becomes much greater as you get larger numbers, because the control is not limited to yourself," Evans said. "You've got to rely on lots of other people and therefore need to make sure that the systems are in place."
This would require investment and expertise which smaller, rapidly expanding groups generally don't have, he added.
Both Evans and Elixir Consulting's Sue Viskovic agree that businesses with plans to grow should build the foundations first to avoid "playing catch-up".
"They should build their foundation strong, know what they've got to do with their compliance structure, where to place additional resources if they need them if they'll acquire more people," Evans added.
Viskovic said: "If you've got your efficiencies in place, you know the process involved across the business, you know the software that you're using, then that's scalable as you bring on more business."
However, she had not seen this trend, saying practices usually properly prepare for growth.
She said there were so many consultants in compliance now that there was really no reason why it wouldn't be able to be done well.
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