Over the past few years, many advisers who value their independence have decided to opt for the self-licensing model, seduced by the allure of fee savings, clean reputations and the ability to run their practice however they wanted.
Regrettably, for some of the advisers who have gone down this path, the perceived benefits have proved to be a mirage. Embroiled in administrative turmoil, their plights have become somewhat of a nightmare situation, according to Mr Steve Davis, Chief Executive Officer of Australian Unity Personal Financial Services.
“We have had a few previously self-licensed advisers join us recently, as well as a few others who are currently in talks with us, and they have all complained about the huge additional workload caused by the self-licensing responsibilities,” Mr Davis said.
“These advisers typically say they were spending nearly one-third of their time working on administration, compliance and risk management tasks just to maintain their licence, instead of spending time in front of clients or growing their business.
“The opportunity cost for these advisers was significant, and in addition to that they discovered that the direct costs of maintaining their licence were higher than the fees they now pay us to provide compliance and administration solutions for them.
“In fact, by handing back their licence and joining Australian Unity, they have not only freed up a lot of time so they can write more business, they still have access to a well-researched open architecture insurance and investment APL, as well as a broad range of platforms.
“In addition, they also gain access to a comprehensive range of high-touch licensee services that enables them to run a more efficient, compliant, client focused and profitable practice,” Mr Davis explained.
“Interestingly, our PI premiums are substantially lower than these advisers were paying previously, and access to our industry-leading adviser software is also much cheaper. These cost savings have been a nice surprise for these advisers,” he added.
This trend to self-licensing has accelerated lately with both advisers and accountants heading down this path amid increasing perceptions that it is simple, cheap and easy to operate your own AFSL, and as advisers distance themselves from institutions, and accountants look for options to help them comply with their new licensing rules.
But Mr Davis warned advisers and accountants who are thinking ‘I’ll try self-licensing for a few years and if it doesn’t suit me I’ll just relinquish my licence’ — they need to understand the back-end implications of liability and PI insurance.
“A big shock for advisers handing back their license is that they are still exposed to client claims against their licence for a further seven years. So they need to purchase PI run-off cover, and the cost for the required seven years run-off, if they can get it, in our experience is generally around the same as five years of typical PI premiums for self-licensed advisers,” he said.
“Obtaining your own licence can work for some larger practices but you really do need to do your research and understand the real risks and costs,” Mr Davis explained.
Australian Unity Personal Financial Services currently has 78 planning practices, 128 advisers and 22 mortgage brokers operating in all mainland states and the ACT.
