My brief for this column was to share insights on business valuations and merger and acquisition (M&A) opportunities in the accounting and financial advisory space.

However, that’s not the biggest issue concerning advisers right now. For many, their number one concern is which licensee to join.

I’m asked that question daily and it’s hard to respond because there aren’t many top quality options. Probably no more than a handful. The majority of licensees operate unsustainable business models, dependent on payments from product manufacturers and other subsidies. Their way of (not) addressing their imminent financial doom is to squeeze product manufacturers for more sponsorship dollars or try to build in-house products to secure margins.

Advisers should avoid these licensees.

They don’t have the foresight or resources to invest in the only area that really matters; compliance and quality assurance (QA), which increasingly hinges on having the right technology. Rather they thinly spread their limited resources across non-core areas like practice development, product and investment management.

Paul Barrett, AZ NGA

In my experience, related-party products, and slick practice development and business growth programs can be a red flag. They’re often an indication that scarce resources are not being allocated effectively.

Advisers are generally affable people (as I discussed in my last column) so they are naturally attracted to other affable people such as practice development managers representing licensees.

Ancillary programs can sound appealing so it’s hard not to get sucked in but licensees don’t, and can’t, transform businesses. They can’t boost client engagement or solve succession planning issues.

What they’re for

Licensees should provide two incredibly valuable things:

  1. A license to operate; and
  2. Quality assurance.

The licensees who do this the best are the ones worth joining and paying a reasonable fee to. They invest in QA because it is in their DNA.

For most licensees, QA is not in their DNA because this industry hasn’t grown up with the client at the centre of everything it does.

This is in stark contrast to other industries.

In my other role as Chairman of 4 Pines Brewing Company, I can tell you that compliance, or QA as it’s referred to in the food and beverage industry, is taken extremely seriously because the health and safety of consumers is paramount.