Financial advisers questioning practice ownership
With remuneration models under scrutiny in the face of significant regulatory overhaul such as the removal of volume rebates due to Future of Financial Advice reforms, advisers are increasingly questioning the ownership models of advice practices.
Volume bonuses have traditionally been used by larger licensees to subsidise practice support services, but more financial advisers are beginning to question how their licensee fees will be subsidised if they don't support the products of the Australian Financial Services Licence (AFSL) owner, according to Elixir Consulting managing director Sue Viskovic.
The consultancy is hearing a bit more reflection around the ownership of their licence from individual advisers.
"There is some concern that licensee fees will increase for practices that don't place significant amounts of [funds under management] into in-house products.
"Advisers are scrutinising the tools and investments they use to implement their advice for clients, and those who would prefer to place their clients in investments that are not owned by their licensee are more likely to consider getting their own licence as they analyse the costs and value received by their licensee," she said.
However, the support that is available from a larger licensee could be an incentive for advisers to stay put. It is more the advisers that have been in business for a longer period and don't need to tap into those resources as much and feel they can manage the practice with their own staff that may be considering it, Viskovic said.
Pathway Licensee Services general manager Kate Humphries said most of the enquiries Pathway received about self-licensing came from large bank-owned institutions, with lack of support being the number one reason for the enquiries.
"I would fear that perhaps the mid-tier groups have not effectively communicated to their networks what implications of losing volume bonuses mean because they are still coming to grips with it themselves," she added.
Gold Seal director Claire Wivell Plater said she is "absolutely" seeing enquiries from advisers looking at starting their own AFSL. "This has been coming for some time," she said.
With volume bonuses removed, institutions will find it harder to fund practices, and one way to cut expenses at the dealer level is to remove staff and services to practices.
"But they still want to charge the same to the advisers, that's where advisers get frustrated and think it's not worth it anymore," Wivell Plater said.
However, it is unlikely the removal of volume rebates would have had an effect on individual advisers yet, she added.
Director of broking firm Forte Asset Solutions, Steve Prendeville, said in mature, institutionally aligned practices advisers recognise that to seek the best outcomes for clients they may need to leave the institution.
"But I'm not seeing it," he said.
"At the moment, our industry is in a deep recession and very few are venturing out into the boutique world.
"What I'm seeing more of is boutiques handing in their licence and going back to the institutions for purely fiscal reasons, so that they can reduce their costs and in some ways enjoy the subsidisations that exist within institutions," he said.
They can immediately reduce professional indemnity insurance costs as well as other costs such as planning software, Prendeville added.
This was backed by MyAdviser managing director Philippa Sheehan, who said an adviser had recently joined that group from owning a boutique practice because ongoing licence requirements are very draining financially and resource wise, and he'd come to the stage where he needed the support in areas such as compliance and checklists and procedures that could not be accessed as a sole practitioner licensee.
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