Almost half of licensee fees include technology costs in their provided services, but the sustainability of this practice has been called into question.
An Adviser Ratings report by consultant Ben Marshan revealed only 40 per cent of licensee services are combining technology costs with license costs. The other 60 per cent of advisers must pay for those services separate to the licensee costs.
The research showed the core costs for advisers come from licensee services, professional indemnity insurance, regulatory costs and the levies for ASIC and the Compensation Scheme of Last Resort, but licensee fees are the biggest expense.
“Licensees probably have to weigh up whether or not it is more cost efficient for them to bundle those things up, or whether or not you let the practice pay for it,” Marshan tells Professional Planner.
Figures from the past few years show an increase in licensees offering tech in their provided services from 31 per cent in 2022 to 42 per cent in 2023 and 40 per cent last year.
“The 2022 to 2023 jump will have two factors, one being the reduction in advisers versus the fixed cost in software license fees, the other impact will be the software costs,” Marshan says.
He explains the small decrease between 2023 and 2024 is due to the different responses each year.
Verse Wealth head of operations Daniel Donovan says while both licensee fees and tech costs are a significant cost for the firm, tech costs “have grown at a faster rate than our licensee fees” over the last few years.
“This has been in part due to the need for more tools needed to deliver a truly tech enabled client experience, including CRMs, advice generation, modelling, compliance systems and automation tools,” Donovan says.
“It has also been compounded by higher costs to manage the cyber security aspect of the technology and software used to ensure client data is protected.”
Donovan agrees with Marshan’s research that tech software is becoming more expensive year by year.
“This could be due to enhanced regulatory requirements in recent times calling for more robust and secure tech solutions and therefore platforms increasing their pricing,” Donovan says.
“In looking around at other solutions to find a cheaper alternative, we’re finding that the increase in price is consistent across the industry.”
Caboodle Financial Services co-founder Peita Diamantidis says her firm’s overall spend on technology has increased but this hasn’t resulted in higher costs to the firm.
“I don’t see this as an issue as it has meant we haven’t needed to expand the team nearly as much as we otherwise would have, and that’s a trade-off I’m certainly happy with,” Diamantidis says.
Expensive framework
Marshan does not anticipate a drop in these costs under the current regulatory framework, whether its for self-licensed practices or for ones in the larger license groups.
“I don’t expect these costs to change massively while we still operate under a Corporations Act, while we still operate under a model where the licensee is responsible for the advice being provided.”
Diamantidis says while Caboodle are self-licensed, the cost of running the license exceeds adviser tech costs.
Marshan says that a larger licensee is more likely to have stronger processes in place to protect the business.
“[If] you have a lot of advisers that you’re authorizing, you start to have to put more processes in place, and more steps in place, and more compliance in place, and more audits in place to make sure that people are following them,” Marshan says.
The flexibility around licensee costs are around extra services and benefits such as technology additions.
Variation in numbers
Marshan’s research reveals overall costs of between $35,000 and $80,000 for advice practices dependent on what is included in their licensing cost.
“There’s very little standardisation that’s happening across all the practices. That’s why you’re getting the variability [in costs].”
The research produced an average cost per client of $449 prior to the CSLR levy, but Marshan says this is averaged across a wide range of numbers.
“Some advisers, they’ll be paying more like the $80,000 but they’ll have a lower client base. And so, it might come out at nearly $1000 per client in in those licensing costs,” Marshan says.
“Whereas somebody who’s hyper efficient and has a lower licensing cost in the $30,000 to $35,000 range, but has a higher number of clients, it might come out at $100 per client.”
The CSLR levy is included in Marshan’s research as a main cost, as it adds another $1286 per adviser.
“I absolutely don’t want to diminish the CSLR costs going up and being significantly higher one year to the next on an industry wide scale, but ultimately, on a per planner scale, [it isn’t] problematic and big.”
Marshan says even if the CSLR levy doubles, it would still be less than 10 per cent of the lower end of licensing costs.
“That has an effect, but in the scheme of things as well. It’s not a massive cost jump. It’s not a massive cost compared to everything else that sits within those licensing costs.”
