Three years ago, I penned an article for this publication on the rise of the financial advice super firm.
This new breed of firm will be akin to the mid-tier in accounting and professional services.
Over the years, I’ve received some flak for promoting the formation of large, multi-disciplinary super firms, mainly from people who don’t like the inference that super means big.
Of course, being super is about so much more than size and scale.
It encompasses myriad factors, including compelling employee, client and shareholder propositions, a defined enterprise architecture, and a healthy culture. By that definition, firms of every size can, and should, be super. Interestingly, they do tend to be on the large side.
Licensees should be super too.
That’s because operating a successful financial advice business has never been more demanding, complex and risky. Advisers need more from their licensees than ever before, so much so that the term licensee barely reflects the breadth and depth of services they increasingly provide.
Yet, despite the broader role of licensees and today’s changing operating environment, there has been no meaningful decline in the number of boutique and self-licensed firms. According to Adviser Ratings, more than 80 per cent of AFSLs are privately-owned and have fewer than 10 advisers.
While some take their obligations extremely seriously, it’s hard to imagine all 1518 of these AFSLs have the necessary skills and experience to run a complex licensing operation, let alone the ability to continuously invest in systems and processes, and help advisers grow their businesses.
But this is exactly what advice businesses need.
They need an experienced partner with the people, skills and capital to help them efficiently deliver quality advice, to manage existing and foreseeable risks, and to grow for the long-term benefit of employees, clients and shareholders.
It’s a big mandate and it’s only getting bigger, as businesses face new and emerging threats including digital disruption and cyber-attacks.
In many ways, the role of a licensee is akin to the safety system in a modern car. Safety systems are visible but they largely fade into background. At times their accident prevention features, such as automatic braking, speed control and blind-spot monitoring, interfere with the driving experience but, for the most part, these systems work quietly.
You know they are there but you don’t fully appreciate their value until they help you avoid a crash and save lives. While most AFSLs will have robust systems and processes for standard tasks like auditing files, documenting conflicts and complaints, and breach reporting, few are adequately investing in other critical areas, such as:
- Human resources and employee wellbeing: advisers need to understand and adhere to increasingly stringent HR obligations such the workplace psychological safety rules.
- Cyber security: financial services companies are prime targets for cyber criminals because of the personal financial information they hold. Clients, regulators and the community expect businesses to have the systems and expertise to safely collect, store and destroy personal and private information.
Advisers also need greater support in technology, marketing and M&A. ‘Super licensees’ will own this space.
They will be sustainable and profitable, and their services and solutions will be highly sought-after. And I’m not talking product. ‘Super licensees’ will achieve margin expansion through services.
(It baffles me that some licensee leaders are still looking at margin expansion in product lines to drive growth and profitability. It’s as if they have been on a decade-long holiday to Mars.)
Forget about the past
In order to secure their future, licensees must forget about incumbent business models.
They must identify the needs and wants of advice businesses and set out to build, buy or partner to deliver solutions that advisers value and will pay a fair price for.
Arguably, the biggest challenge will not be building and delivering exceptional services, it’ll be getting comfortable with risk.
For decades, the licensee value proposition has been deeply-rooted in compliance and risk management. This has built a defensive, risk-averse culture.
While this mentality can’t be dismantled overnight, the time is right for licensees to play more offensively.
They need to leverage their position to help advisers gain a competitive advantage. If they don’t assume this role, others will.
Right now, there are two industry cohorts moving at two very different speeds: those on the path to becoming ‘super licensees’, and those operating a boutique licensee and possibly an advice business at the same time. To the latter I say: make sure you have the right partners to help you build a dynamic, real time safety system.