When the cost of something goes up it’s natural for consumers to revisit the question of value and ask whether the price they’re paying is still worth what they’re getting. Financial advisers may have started to ask themselves that question about their licensee, as further evidence emerges that licensees are charging more for their services today than they were a year ago.

As fees rise, there’s greater pressure on licensees to justify the increase by ensuring advisers remain satisfied with the services and support they receive. That’s what CoreData’s annual Licensee Research measures. So far, it seems, so good. On most measures, adviser satisfaction with licensee offers has increased since last year and it remains below 2018 levels, an increase in adviser satisfaction year-on-year is good news.

The days of an authorised representative paying $10,000 or $15,000 a year are rapidly passing. CoreData’s latest Licensee Research reveals advisers say they pay on average around $38,500 a year for the services provided by their licensee.

Even this figure may not accurately represent the true cost of delivering licensee services, which depends in part on the economies of scale a licensee is able to harness. Relatively small licensee networks charging relatively low licensee fees may attract attention and be asked to explain how they manage to deliver such low-cost services to small numbers of advisers.

Source: CoreData 2020 Licensee Research

In some cases, the licensee fee reported by an adviser includes costs such as professional indemnity (PI) insurance and technology; in other cases it does not. Where advisers pay for PI on top of the licensee fee, the research shows the average premium is around $6,000 a year.

There are variations in all fee figures depending on whether a licensee is institutionally branded, institutionally affiliated or independently owned, on the scale of the licensee and whether there remains any subsidisation of licensee services within the network.

A significant number of advisers switched to a new licensee after last year’s research was conducted, although most of those moves were involuntary and very few appeared to be in pursuit of a lower licensee fee. Around 16.9 per cent of advisers in the 2020 Licensee Research say they moved to a new licensee in the past 12 months, and fully 50 per cent of them moved because their previous licensee closed down. Fewer than one in 10 of the advisers who switched said an increase in licensee fee was a reason.

According to CoreData’s research, most advisers who moved went to an independently-owned licensee. More than half (57 per cent) of advisers who switched – to any kind of other licensee – say they are paying a higher fee to their new licensee than they were paying their old one. For those who are paying more the average increase is reported to be $17,800 a year. Where advisers have moved but are paying less, the average decrease is reported to be $14,000 a year.

Across the industry, more than six in 10 (62.2 per cent) advisers, irrespective of whether they switched licensee or not, say they are paying a higher licensee fee today than a year ago.

Last year, advisers told us they could stomach a roughly one-quarter increase in their licensee fee before they’d think about switching to another licensee.

Can advisers stomach another rise?

Licensee fees for most advisers have risen in the past 12 months, yet they are still saying they could tolerate another roughly 25 per cent fee increase before they’d think about looking elsewhere, based on the cost of services alone.

Interestingly, most advisers who say they’re likely to switch licensees in the coming 12 months still have not yet whittled down the shortlist of potential new licensees. That represents an opportunity for enterprising licensees out there to catch the eye of the advisers and advice practices they think fit their network profile.

There are a certain elements of a licensee service offer that advisers rate more highly than others, and if delivered exceptionally well could be a trigger to make them switch. But that’s an issue for another article.

Simon Hoyle is head of market insight for CoreData Research.
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