Good compliance could help IFAs prosper
More financial planners may be getting their own Australian Financial Services Licences (AFSLs), but the real debate should be about fulfilling ongoing compliance obligations, according to Paragem managing director Ian Knox (pictured).
Knox agreed there was a trend of more advisers applying for their own AFSLs, yet he saw a real need in the marketplace for greater ongoing compliance and practice management support.
“From [the Australian Securities and Investment Commission’s] point of view, once a licence is obtained the key is to make sure you have the operating infrastructure to maintain it,” he said.
He said getting and managing an AFSL was not as onerous or as expensive as large dealer groups would have advisers believe, and could be achieved for between $20,000 and $30,000 a year for a sole trader.
“The risk is that once they’ve got their own licence they must make sure that they have the appropriate operating environment to maintain the licence in accordance with the rules when they applied to get it. There are onerous obligations after it’s been issued and that involves running a business in a particular manner and keeping records of meetings, governance, and product decision-making, and making sure that the financial management and modelling of the business is maintained.”
He said planners had to source planning support, compliance support, professional development, research support and practice management support — and yet the danger for small advisers was that they could be tempted to cut corners and cut costs.
However, Knox was confident that with the right support the independent financial adviser (IFA) market could remain competitive. He argued against opinion that 90 per cent of the industry would be dominated by the institutionally aligned dealer groups, adding that a natural rebalancing was occurring. He said if you considered small IFAs as small to medium size enterprises (SMEs), you got another picture of their future.
“You get a resilient business owner, someone who can tailor their business to market conditions, and who generally speaking does not want to be part of a large institution. You get flexibility and durability,” he said.
Knox felt that it was actually the mid-tier dealer groups that would struggle due to their dependence on volume bonuses from product manufacturers. Yet the IFA market would grow as the Future of Financial Advice reforms promoted greater transparency.
“The harsh reality about transparency is that people get embarrassed by conflicts of interest — paybacks, volume bonuses, buyers of last resort and kickbacks — so they move [from large dealer groups],” he said.
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