Practical, flexible compliance parameters, clear segmentation and a high level of transparency will be key tenets for licensees looking to thrive in the modern advice arena according to Alan Logan, the former general manager of MLC’s Godfrey Pembroke dealer group, which is now in the hands of IOOF.

In a research paper on licensee relationships to be published under the name of his consultancy firm Marcona Partners, Logan – who ran MLC’s flagship brand between 2015 and 2020 – outlines the challenges licensees face and what it will take for them to thrive in a fractured market.

Chief among these issues – the paper outlines 10 – is the need for licensees to take a pragmatic “partnering and coaching” approach to compliance, something Logan believes advisers are placing a premium on in the post-Royal Commission era.

While it’s expedient for licensees to take a consistent approach to reduce cost and mitigate risk, advisers want compliance balanced with flexibility and common-sense.

“It’s a challenge that all institutions have, we had it at MLC when we had a number of different brands,” Logan tells Professional Planner. “On the one hand you want one way of doing things is scalable and reduces risk. On the other hand if you don’t have a really deep understanding of how that plays out in an adviser’s business you get a disconnect.”

He cites the expanded breach reporting obligations that are due in October as a litmus test for how well licensees manage this balance.

“It has the potential to create an onerous process that doesn’t work on one end. or not enough support on the other, which could create a really basic framework that actually increase risks for all parties.”

The consultant also cites a clean, well-capitalised and transparent operating model as the hallmark of an attractive, successful licensee.

“The licensee offer must be priced sustainably and not cross subsidised by platform or funds management revenue,” the paper states. “Sharing the licensee balance sheet, shareholder composition, ROI targets and demonstrating ongoing viability and capacity to invest are all central.”

That level of transparency can be problematic for large, vertically integrated institutions with complex balance sheets.

“I was often asked for the Godfrey Pembroke balance sheet, advisers really wanted to understand it,” he says. “But we were in a cross-subsidised insto’ model so we didn’t run a separate balance sheet to, say, Garvan. It was all in one combined advice licensees business and that was a subset of the broader MLC business which was a subset of the NAB business, so there wasn’t really a clear set of financials. That’s an issue in any large vertical whether it’s AMP, IOOF…”

Larger licensees need as much transparency as possible within the constraints of an institution, he says.

Among the other elements to licensing Logan identifies, he believes segmentation will be key. Whether it’s mass market, “salary earners on the rise” or HNW clients, licensees need to know which type of advice businesses they’re focussing on.

“You can’t be all things to all people. Be very clear about what financial planning business you’re targeting.”

Culture and community will also play a part in setting licensees apart, he says. But talk is cheap – the real challenge is to identify the unique culture within licensees’ specific cohorts and preach to it.

“Culture is idiosyncratic,” Logan says, adding that the cultural identity brewed by Countplus CEO Matthew Rowe is clear and instantly identifiable.

Reflecting on the paper, Logan says he spoke to a number of practices after leaving Godfrey Pembroke and wanted to reflect on what the advice market really wants from its licensees.

“I wanted to see clearly the synergies and disconnects between what advice businesses see as value and what was possible and doable from a licensee perspective,” he says.

With the spectre of individual licensing hanging over the AFSL system, Logan believes the margin for error with licensees is as slim as ever.

“The stakes have risen now that cross-subsidisation is being taken out of the industry,” he says. “Licensees have to ask themselves – is this a business or not?”

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. Contact at [email protected]
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