The best, most viable and sought-after licensees in the country will demand advice practices pay what’s considered top dollar and above to be in their networks, Peloton Partners chief executive Rob Jones says.
These top licensees, emerging now, will have a completely revamped fee and revenue-sharing model and will offer aligned practices a menu over and above the existing “traditional licensee sanitary services”, Jones says.
Licensees – like advisers – will need to start freeing themselves from revenue-sharing arrangements that are unlikely to continue if policymakers and regulators act on findings from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
Traditionally, licensees have covered their costs – and some have made a profit – through revenue splits with their advice practices and deals they’ve done with technology providers and platforms, Jones points out.
In contrast, the emerging model will have licensees deriving the vast majority of their revenues from fixed fees charged to representatives; deals with technology companies and other service providers will account for the relatively small remainder, Jones reckons.
“Licensees need to look at the real cost of supporting a representative and add a 30 per cent margin to price their offering,” Jones says.
The need for licensees to rethink their pricing was a topic of interest among licensee heads at the Licensee Leaders Forum co-hosted by Professional Planner at the end of last year.
Revolution in thinking
“It does need a revolution in thinking from a lot of these businesses; we have to get away from the model where licensees are sharing in revenue splits and turn them into genuine professional services firms that are profitable.”
Based on benchmarking studies he’s done in the past, Jones notes it costs licensees between $38,000 and $45,000 to support a practice, per rep per year.
“Licensees need to start recouping the majority of these costs by charging a fixed fee,” he says.
The subsidisation of aligned licensees by institutions using rep/adviser networks to distribute product has been called out before for warping the model.
Licensee businesses – especially those banks are discarding in light of the tough stance the royal commission has taken – will need to think about their value propositions if they want to stay viable, Jones notes.
The new breed of licensee will emerge with a menu of services their aligned practices can acquire [read: are happy to pay for] as needed, Jones says.
These additional service offerings should be focused solely on delivering outcomes that these firms need, he adds.
“Some claim to offer this now, but they don’t span the areas practices need or don’t go deep enough if they do,” Jones says.
Key areas include: project management support; redesigning upfront and ongoing fee structures; putting together, and training around, an authentic client value proposition that can be delivered; adviser remuneration options; Board of Advice guidance; succession options that work; and fintech options that can be implemented. These are all highly sought-after offerings that successful and ambitious advice practices are willing to pay for, Jones explains.
He emphasises an “overwhelming” need from practices in this country for project management capabilities.
“Most practices cannot afford a full-time project manager but they can [afford one] temporarily,” he says. “This is often the difference between the great businesses and the others in the advice world.”
In the same world
While much of the focus on transitioning away from conflicted fee models has been put on the advisers, Jones highlights that the same dynamic is apparent in the licensee world.
“It is clear that in a new era of advice giving, licensees must also look to convert to becoming professional service firms, which should include a change to their own aligned fee structures,” he says.
Fixed fees that are transparent and linked to a clear value-add are where licensees can participate to expand their own revenue base –substantially if they can deliver on the above, Jones notes.