It may surprise you to learn that about a quarter of all financial advisers in Australia have engaged with a new licensee in the last year. About half of these advisers were new entrants to the industry, but the other half were existing advisers. What is driving these movements?
Last year, 2680 individual advisers, or about 13 per cent of the active advice market, moved to a new licensee (this figure does not take into account the influx of newly licensed accountants, rather those advisers who already had a licensee, then changed to a new one). Looking more closely at the data reveals that, over the last four years, there has been a substantial increase in existing advisers opting to find a new licensee. In fact, during this period, there has been an increase in adviser movements of more than 150 per cent.
So, what is driving these movements?
Self-licensing: There are 1600 licensees operating in advice, a number that has grown recently with the tendency for more advisers to become self-licensed. On the surface, this would indicate that an increasing number of advisers are finding the idea of self-licensing, which gives greater control over products lines, attractive. It’s also an indicator of the increasing dissatisfaction with the offerings from many of the current licensees in the marketplace.
In this environment, there would seem to be a great opportunity for licensees that wish to grow to take heed of these trends.
Competition: There are 165 licensees that have 20 or more advisers under their banner. They are in different stages of their growth and development and are offering different services and propositions to retain and win advisers. In our dealings with various licensees, we are seeing an inclination towards heavy investment in technology and compliance, yet a reduction in practice support.
What advisers want
To understand what advisers are looking for, we continually converse with them as part of our recently launched Adviser Connect service. In addition to this service, we also engaged in research to understand the key reasons behind the motivation to change licensee.
Alignment: The top issues for advisers were around alignment. Not being aligned with a major institution – and also not having access to an open approved product list with multiple superannuation, investment platforms and insurance products that give choice to clients – is a deal breaker for advisers.
Simplified advice production: A second reason for switching was the provision of simplified advice production and a client-friendly Statement of Advice. It would seem that what goes into the key advice document and how this ends up being presented to the client has many advisers frustrated. Any licensees that can simplify this process and make the end product more client-friendly would be well on their way to attracting new advisers.
Technology and training: Advisers also indicated that they moved to licensees that embraced the idea of a virtual/digital advice business that concurrently values education, training and compliance support.
Anecdotally, many advisers were also keen to indicate what other qualities they would like to see in a licensee. These included tangible operational imperatives such as “great practice development support”, “easy and fast transition process with one contact who takes care of the whole transfer process from start to finish” and “smooth client transition to new licensee”.
Advisers also mentioned there were reputational imperatives such as “great public image” and “directors who are highly ethical and morally sound, longstanding and committed capital investment” and the need for longevity, so an adviser can be sure their licensee would not put practice succession in jeopardy.
Adviser Ratings’ managing director Angus Woods believes choosing a licensee is becoming increasingly important in an even more regulated space. There are licensees taking advantage of this movement so it’s essential advisers know what they are getting into when they switch. Licensees’ ability to stand up to the scrutiny of clients and the regulator is key. Advisers should be focused on reputational risk and value for fees.
The numbers of advisers transitioning to alternative licensees creates an opportunity for licensees who want to capitalise on the disparity of value propositions in the market. The message for licensees is clear. Advisers have never been more willing to switch. If you have a strong value proposition and you are looking to expand your network, you will be in a better position to capture some of the many disaffected advisers out there who are unhappy with their current licensing situation.
Rudi Loggenberg is head of growth at Adviser Ratings, an online platform that connects consumers with financial advisers.