What a time to be having a discussion about the future of the licensee model.
Licensees have long been the endangered animal of the financial services industry – the entity carrying all of the risk, yet little of the return. The entity responsible for governance of a fiduciary system, yet largely owned by product manufacturers, and propped up by subsidy systems.
The subsidy systems that have propped up many dealer group and licensee businesses I’d argue have been destroyed. FoFA took care of the upper levels of the subsidy systems with the banning of future commissions and opt-in. The Hayne royal commission and ongoing reputational damage to licensee owners seems to have finally finished off the foundation of the system. Large institutions appear to be abandoning or shrinking their B2B licensee models. Some of this we know already, although I suspect there is more to come.
We are now left asking ourselves not only whether licensees can remain relevant or even prosper, but in fact whether they can survive.
It’s not all bad news, of course. Barriers to entry are going up with FASEA, increased regulation and cost and capital requirements; simultaneously competition is reducing as many advisers, licensees, and other players head for the exits. When these two trends co-exist, it’s usually a time of great opportunity… to take the opportunity, however, you just have to say alive.
Some licensee models believe they have what it takes to survive and are front-running the disruption, in many cases by transitioning their models where advisers are shouldering the true costs of providing a license to operate. In this scenario, the licensee cannot simply be a means to an end, but a valuable sought-after partner.
Some other licensees, meanwhile, have their heads in the sand and are continuing to operate outdated models as long as the sun remains lingering on the horizon.
Licensee leaders are working out now how to price their services and figuring their genuine value propositions – many are doing this for the very first time. Before joining a new licensee, or leaving an old one, advice practices should give real thought to their own value proposition and what they’re looking for in an advice partner.
If it comes down to investment implementation, where do you as an adviser see the role of investment advice heading? Do you think its viable to offer product within a vertically integrated structure?
When it comes to using technology, are we really at a stage where technological advancements will enable efficiency, or do we still have a way to go? And how much of a role will compliance and the regulator’s oversight play in your practice?
Ponderance on the future of the licensee model will almost certainly lead to advice practices asking themselves questions about their own future and where they’re heading as well.