There are three phone calls to make before a practice submits an application to ASIC for a financial services license, according to Tom Reddacliff, chief executive of Encore Advisory Group.

The catch, however, is that they need to be made in the right order. “There’s a sequence to it,” he says.

Reddacliff, whose firm specialises in advisory and consulting services, says the first and most important thing to get right is compliance. Get yourself a good compliance partner, he reckons, and you’ve probably got someone that can manage the entire licensing application project. He calls this first phone call “mission critical, number one”.

“Pick someone that’s going to do the application for you because you’re going to have to submit information about your compliance and risk framework, your financial stability and your approved product list,” Reddacliff explains. “A good compliance partner is essential because they’re going to be demonstrating your competence and stability.”

The application itself, he warns, will be ASIC’s first indication of your capabilities.

“There’s a lot of things that I wouldn’t leave to chance,” he says. “Applications are being read with far greater scrutiny these days, so you’re taking a huge risk if you don’t get a trained professional to help you.”

There are plenty of compliance and governance partners out there, Reddacliff explains, from the bigger players like Holly Nethercote, Catalyst Compliance, Assured Support and The Fold Legal to some of the smaller compliance professionals that have broken away from institutions and set up their own firms.

Once you’ve settled on a compliance partner, he says, sit down with them and figure out who your professional indemnity (PI) insurance broker is going to be. The PI broker will be your second call, he advises.

“The PI broker call should happen immediately afterwards,” Reddacliff says. “It’s probably the toughest part of the process at the moment.”

He explains that the PI insurance market is tightening, with tougher terms – including more exclusions and rising excesses – becoming more common.

“PI insurers also really want a sense of security and clarity around the approved product list process,” he adds. “They’re insisting on a tight framework around associated product risks.”

Having your compliance manager involved in the call to a PI broker is important because compliance and risk are interconnected, Reddacliff says. A good compliance partner will have “two or three” PI brokers on stand-by, he adds.

PI insurance is one of the key elements discussed during the ‘Path to self-licensing’ session at this year’s Best Practice Forum in Sydney and Melbourne, where there are limited tickets available – you can register here.

The third call should be to a technology partner that can help transition from the previous financial planning software environment.

Here, he reckons firms should avoid changing too much, too quickly. If a particular software platform worked well at the previous iteration, make things easier on yourself by doing a direct transfer, he says.

Firms can go direct to the providers themselves, Reddacliff ventures, or they can make one call to a technology partner that will assist with the entire technology shift.

It’s also advisable to select a partner who supports an open API environment, opening up options for the broader technology stack in the future. “XEPPO is a good example of these providers,” he notes. “They’ll set up the transitions and support multiple data connectors and open source software.”

A bit of luck

Reddacliff says applications to the Australian Securities and Investments Commission for a licence generally take six to nine months. “But I’ve seen some go through in six weeks and I’ve seen some take a full year,” he adds.

“It depends on the nature of the application, and I think a bit of luck comes into it as well.”

He says ASIC is paying close scrutiny to who the responsible manager is, and key dependency on one RM “makes them uncomfortable”. Adding managed discretionary accounts to an application will also cause delays, he advises.

ASIC itself don’t provide the biggest roadblocks to applications, however. PI insurance, he warns, is the real issue, and the reason why the flow of advisers to self-licensing will slow.

“I think it will level off,” he says. “There are a few issues, but PI insurance is the one that’s going to matter.”

Tahn Sharpe is a Sydney-based financial services journalist with a background in financial planning. He writes on advice, superannuation, investment, banking and insurance issues, is a certified SMSF Adviser and holds an Advanced Diploma of Financial Planning.
One comment on “The three critical calls in self-licensing”
  1. Excellent practical and informed advice as always, Tom! Prospective licensees have confirmed to us that these issues are top of mind, and they are also thinking about outsourcing non-core business functions – who to choose/what to look for in a provider. A good example is revenue management which can distract them from servicing their clients.

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