When it can cost as much as $80,000 to properly establish an Australian financial services licence (AFSL), financial planning businesses contemplating the own-licence option need to have all the facts at their fingertips before taking the plunge.
The founder of financial planning groups Associated Planners, Genesys Wealth Advisers and Fortnum Financial Group, Ray Miles, says advice businesses need to understand their options and the risks they face in obtaining a licence, and at the moment “the only way to [do that] is to get one”.
“For a lot of people, it’s the right decision, and there’s no question about that,” Miles says. “But you want to be sure it’s the right decision before you do it.”
Miles and Geoff Rimmer, a former head of ANZ-owned licensee Financial Services Partners, will hold “Australia’s first AFSL masterclass” in November. Miles says the GreenZone Australia masterclass will tell practice owners “everything about running their own AFSL and whether it’s right for them”.
“They’ll have a framework for it, they’ll understand the costs of it, and they’ll know what it entails,” he says. “They’ll know stuff that [some] people currently running an AFSL don’t know – because I reckon most of them don’t know all the things they need to know.”
Rimmer says that in the past financial year, the Australian Securities and Investments Commission (ASIC) has issued about 440 new AFSLs, but almost 200 businesses handed back theirs. In many cases, this was because the holders had underestimated what it would take to run a licence effectively. For those businesses, the decision had proved to be costly.
“When you add in the disruption to your staff, your business and particularly to your clients, there’s got to be a better way,” Rimmer says. “When we had a look, [we saw] there’s nowhere you can go where you can find out all there is you need to know, certainly what you might want to know, to go about setting up your own AFSL, and then to know whether it’s right for you or not.
“We’re not advocating one way or the other. All we’re saying is there’s got to be a better way than diving in first and then finding out you’re caught in a rip or a set of circumstances you should never have entertained in the first place.”
Miles says the cost of obtaining an AFSL can run to about $25,000, including pre-assessments and paperwork, compliance manuals and anti-money laundering requirements. It can cost another $25,000 to establish an advice framework.
“That can often come through your technology,” he explains. “There are some suppliers that will set up your XPLAN and advice framework, but that’s about $25,000. So it’s about $50,000 to get you started, and then you need [professional indemnity insurance]. And it doesn’t matter how big or small you are, you start at $30,000 – we haven’t found anybody paying less than $30,000.”
Clearly, the own-AFSL route is not for everybody, and the financial risk of getting it wrong – principally by going into it uninformed and ill-prepared – is high. It’s vital to be fully informed before making the decision. And Miles says a group setting is the best way to give practice owners and principals the information they need.
“You need to do it in this format, and allow people to sit back, think about it and make their own decisions,” he says. “They normally will go and talk to people who have a vested interest in wanting them to get an AFSL. The own-AFSL market is a very lucrative market for everyone who supplies services to it.”
Rimmer says that due to the complexities of the issues, the event will run over two days, to fully address two main motivators for businesses wanting the get their own licence.
“One, they want to get a better outcome for their clients,” Rimmer says. “Two, they want to take more control over the destiny and direction of their business. But if you’re inside a dealer group, you … can’t really have these types of discussions with your existing licensee, because they’re conflicted, and it would be a real reach to do that. That’s the reason we want this to be objective.”
Rimmer says GreenZone is agnostic as to the best licensing solution for individual practices. But whatever path a practice opts for, the decision must be well informed.
“We’re not saying you need to be doing one thing or another,” he says. “There are going to be some really good business-building outtakes from it. We’ll be talking about what is a good business structure, what the next-generation value proposition looks like, and licensing is really only one part of it. But it’s an area where you can make some big mistakes.”