Last week, MLC boss Geoff Lloyd issued an emphatic statement of support for advisers in MLC-owned networks. Lloyd announced an amnesty on licensee fees as advisers contend with the impact of the global coronavirus pandemic on their ability to service clients. And he called on other licensees to follow suit.

That was a bit cheeky. Lloyd knows the financial advice industry well and he knows that not all licensees are in a position to waive the fees they charge advisers. Just as some advice practices may find themselves on a knife’s edge as revenue evaporates, so some licensees have severely restricted scope to support their advisers in the way Lloyd has called for.

In fact, many licensees are in the process of increasing the fees they charge advisers and if they’re not in the process of doing it, or about to do it, then it’s only because they’ve already done it. For some, it’s a matter of survival.

In CoreData’s Licensee Research last year, almost six in 10 (56.6 per cent) advisers said they were paying more in licensee fees now than they had been one year before; just over six in 10 (62.5 per cent) said they were paying more than they were two years before; and almost six in 10 (59.4 per cent) said they were paying more than they had been three years before.

When we asked them how much of an increase in fees they could stomach before it would make them consider switching licensees the answer was, on average, 24.4 per cent.

A year ago, the average fee paid by an adviser to their licensee was about $41,000 a year. But there was a significant range of fees reported by advisers in the survey, from $9500 in one case (for a limited licence for an accountant) to more than $86,000. Most advisers in the survey reported that they paid between $24,500 and $29,500 a year in return for the services their licensee provides.

Vertical integration is also this

Lloyd’s announcement of a six-month suspension of licensee fees is an example of how a larger, well-resourced licensee can support its advisers – and it is possibly a move that is beyond the means of smaller, less financially robust licensee businesses to emulate.

That may be something worth thinking about more deeply, as increasing numbers of advisers leave institutionally branded and institutionally affiliated licensees and move (not always voluntarily, it should be said) to smaller, non-aligned groups.

It’s been suggested that MLC’s move is just another example of advice being subsidised by a licensee that’s part of an organisation that also manufactures investment products and operates platforms. Vertical integration was a root cause of some of the advice industry’s fundamental problems, which have rightly resulted in regulatory reform and public enquiries. But MLC’s move is another dimension to vertical integration, and one also highlighted recently by the head of IOOF, Renato Mota, who told The Australian Financial Review that “vertical integration was seen as bad, but now people need size and security”.

“The environment we are in now is not an excuse to go back to ways that have let us down,” Mota said. “Regulation has had a particular emphasis on removing conflicts and rightly so, but we can’t lose sight of the fact that what we’re trying to do here is allow people to get financial help.”

Adequate capitalisation of licensees and support for advisers should not be contingent on a licensee being part of a vertically integrated organisation, and there are examples of well-capitalised, independently owned licensees that prove this point. Even so, the capitalisation of licensees will be a critical issue in the next six months as they contemplate what they can do to support advisers and advice businesses.

Once again timing is everything

There’s never a good time for a pandemic, but this one has struck at a moment when the advice industry is in a period of reconstruction, and it will place considerable stresses on advice and licensee business models that have not yet fully transitioned.

Until relatively recently, the true cost of running a licensee business was cloaked in subsidies and cross-payments; as those subsidies are wound back and eliminated the true cost of running a licensee is becoming clearer. The fees advisers will be asked to pay – or have been asked to pay – should enable the licensee to deliver first-class services, adequately price the risk embedded in the advice practices it supports and be profitable. It was always likely to be a tricky transition for some, even if everything went right. Throw in half a year of substantial business disruption and the task becomes more difficult again.

Whatever else MLC’s move may be, it is fundamentally an example of practical assistance extended to advisers who are doing it tough out there, caught as they between dealing with the needs of concerned and often stressed clients, and the adviser’s own set of personal concerns and issues. If the typical licensee fee paid by an adviser is $41,000 and that fee is suspended for six months, it represents a saving of around $20,000 per adviser. Let’s be frank: every little bit helps.

What’s going on with your licensee?

In partnership with Professional Planner, CoreData will undertake the 2020 version of its annual licensee research and all advisers are invited to take part.


Responses to the survey are anonymous and confidential, but they all go towards painting a picture of how licensees are supporting advisers, and what advisers value (or don’t value) in the services their licensees provide.

We’re asking questions again in 2020 about the fees licensees are charging, and when the results are in we’ll know just how much the fee pressure on advisers has increased in the past 12 months. This year we’re also asking advisers with their own Australian financial services licences (AFSLs) how much of a change there’s been in the cost of the services they buy-in to support their licences. The results of the research will form part of Professional Planner’s coverage of the state of the licensee market, to be published in June this year.

Licensee fees are generally on the rise, for well understood reasons. Services that licensees provide to advisers can no longer be as easily subsidised by payments to the licensee from products and platforms. In other words, licensees are being forced to charge advisers a fee that reflects the true cost to deliver services, plus a margin. In exactly the same way, advisers are being asked to reprice services to clients to reflect the true cost of advice (including higher licensee fees and – inevitably – compliance costs).

Ultimately this is all part of a realignment of the wealth management value chain that started with the Future of Financial Advice (FoFA) laws and which was given a kick-along by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.

Please click here to take a quick survey regarding your licensee preferences. Findings will be published in the June edition of Professional Planner.

6 comments on “What Lloyd’s announcement didn’t say about the state of licensees”
  1. Avatar
    Jason McFadden

    If MLC licensed advisers are not paying fees, therefore for any adviser to recommend MLC products it surely would be a conflict of interest, a clear breach of FASEA’s codes of conduct.

  2. Avatar
    Matt Ritchie

    Get rid of APLs (in their current form) and see how vertical integration fares.

  3. Avatar
    Neil Swindells

    So now Michael Downey wants to speak up for MLC, advisers and licensees.
    Let me point out that Michael has mainly had product had product distribution roles. These are valuable roles. But it means once again someone at MLC is talking about licensee without deep knowledge.
    Contrast Michael’s statements with this from Jeremy. Without even checking it is obvious that he is a financial planner who genuinely cares about clients. He has things to say that I agree with, including pointing out things I should have started to fix when I controlled licensees many years ago.
    From Michael we get a bit of a homily and from Geoff we have seen a challenge about giving up money.
    I tell you what. I believe in advice. I believe in licensees. If Geoff and Michael will agree to it, I will donate 6 months of my salary as a chairman of a licensee to a worthwhile cause of their choosing if they will donate 6 months of their salary to one of my choosing. I have figured out that Geoff’s donation on its own will allow futuro to waive fees for advisers for a few months, so he should be happy with doing this.

  4. Avatar
    Michael Downey

    Thanks Simon a good article, it’s a pity some Industry Experts can’t see the “good” when its right in front of them. The Prime Minister said we are not “red or blue” we are all Australians in this together. At the heart of our MLC Adviser and Client support package, is our goal to assist our small business partners who are running advice firms in the middle of a one in a hundred year event. If our package allows one of our advice firms to keep employing their 2nd or 3rd LOA to continue to provide quality advice when their clients need it most, and not stand them down, then we have done our bit to support our fellow Australians. If our package allows one of our advice firms to keep all their support staff employed, then we have done our bit to support our fellow Australians. They say small businesses are the backbone of this country and many of these are those that provide quality financial advice. Only today I had an e mail from one of our advice firms, who had waived their clients fees for 6 months, as their client had lost their job due to COVID 19 factors. Their client asked them how could they do this and was extremely grateful for this relief, the adviser pointed out that MLC had waived their Licensee fees which had allowed the adviser to support his client who was doing it tough. It may surprise some, but the staff who work at MLC and in the Advice business are proud to work here. We all believe in Advice and we all believe in supporting Self Employed Advice firms. Importantly we are proud to support the package that Geoff Lloyd took to market to support our Advice firms, many who are proud to be licensed through the MLC network. Stay safe everyone and look after each other. Regards Michael Downey GM of Advice Partnerships at MLC.

  5. Avatar
    Jeremy Wright

    I would like to portray a different argument to what has been, a concerted push to change the way advisers are paid and in turn, how Licensees can charge advice practices for their services.

    With change, comes consequences. The changes that were pursued and what has come to fruition, was a UTOPIAN world that never has and never will exist for the vast majority of Australians.

    It is all very well to state that Australians should not have to pay for advice indirectly, ie; conflicted payments and in an ideal world, that is correct.
    However, we do not live in an ideal world and never have, therefore, the blinkered and almost fanatical approach to how a client should pay for advice, has led us down a path where the entire fabric of the financial planning Industry is unraveling and it did not need to go this way.

    There are very few people who have the experience and wisdom in the Financial Planning Industry, who could see what would occur and unfortunately, those who were pointing to a world of a declining, rather than increasing ability for most Australians to be able to have a Financial Adviser to guide and mentor them, due to the restrictive regime we were heading down, were ignored.

    It is basic economics. Always was and always will be.

    If an advice practice cannot generate sufficient revenue per client to cover costs and make a profit and this becomes a continuing issue that spreads to more practices, then the solution has been to isolate the better clients and remove the other non profitable clients.

    In a perfect world, this makes total sense, however when you throw in continual disruption, regulatory restriction, increased costs, financial and job uncertainty, then the pool of ideal clients who can afford advice, reduces.

    We now have around 80 percent of Australians who cannot afford advice, the remaining 20 percent who are starting to question why their fees keep rising and an army of compliance / audit teams, regulators and other providers of services to advice practices, that need to be paid from a diminishing pool of revenue.

    Then throw in the Licensee who is also going through the same
    scenario as advice practices and who are looking to ramp up their fees to be able to comply and cover their costs in the brave new world we live in today.

    And the merry go round continues.

    This ongoing pursuit of a perfect advice world is leading the entire Industry into decline and unless things change, it will become terminal for many thousands of great advice practices and advisers who for years have provided valuable services to millions of Australians.

  6. Avatar
    Neil Swindells

    Simon, a good article that makes important points. There is a difficult balance between the Capital strength of the vertically integrated model and both the real and perceived independence of stand alone licensees or large advice practices. I have run the full mix. There is no right or wrong model.
    I do wish to pick up two points.
    First, Geoff Lloyd while an experienced and successful leader in the financial services industry is not an expert in licensee services. His experience and success is almost exclusively in investment/product/platform management and private client advice. This is not the same thing as providing licensee services.
    Secondly, while many MLC advisers will no doubt appreciate an extra $20,000, the money would be better spent in supporting advisers in supporting clients. If you asked AMP advisers if they wanted AMP to not them charge them $20,000 each – $50m all up – or for AMP to get their support services right, I know what they would say. Not to mention how they would rather AMP honor the bolr contracts.
    An investment of $20,000 in each advice licensee should be the choice. Geoff has chosen the easy and public relations friendly way to spend money as he is not an experienced licensee manager. He will learn.

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