Licensees will have to focus on restructuring how they operate and improve their risk/return profile to fit the needs of a changing advice industry and more closely align with the risk they are accepting.
CoreData Research consulting director Grahame Evans tells Professional Planner research shows there will be a “reset of the advice industry” which will notably affect licensees.
As bigger players have departed the industry, such as AMP, Evans says there has to be “a complete restructure of how the licensees world operates”.
In August 2024, AMP announced to the ASX that Entireti would acquire its advice licensees and self-licensed service provider Jigsaw, not long after Insignia Financial had divested most of its licensees.
“In the past, we had big institutions who had the money to train and develop people and bring them through,” Evans says.
“These days, that’s not actually happening and that’s being passed down to smaller licensees. It’s quite interesting to see how people are navigating through the reset.”
The challenge is now how the licensees are restructuring to “improve their risk/return relationship” to create sustainable businesses with equitable profit margins that reflects the risk they are taking on while also continuing to drive the profession forward.
“Advisers are looking for much more from their licensee that the licensees actually have got to then manage the risk/reward relationship and make a dollar as well,” Evans says.
Licensees’ offerings have changed from only standard matters including paraplanning, compliance services and research to more services.
“How are they going to improve the offer they have to the advisers so that they work in tandem [in] resetting the advice industry,” Evans says.
Additionally, Evans says what CoreData is seeing is advisers want to feel more of a partnership with their licensee rather than an “employer/employee relationship”.
“They want to see that their licensee is developing offers is providing services that actually are going to enhance their business and their efficiency.”
Evans says CoreData is conducting research around this topic which will be discussed at the Professional Planner Licensee Summit, which is returning to the NSW Blue Mountains on 23-24 June.
Following the annual presentation from CoreData founder and managing director Andrew Inwood, there will be a panel session reflecting on the findings and discussing the sustainability of the different licensee models in the market.
Licensees have different ways to promote themselves, such as including tech costs within their offering.
Ben Marshan, a former Financial Planning Association policy manager who now consults for Adviser Ratings, revealed that currently only 40 per cent of licensee services are bundling technology costs with license fees and the other 60 per cent of advisers have to pay for tech services on top of the licensee costs.
Evans says including tech costs as part of a licensee offering is possible as long as it’s not “window dressing” which advisers can see through – they need to see the arrangement actually works.
Evans says while there is not a lot of money in existing players, they have to figure out how they are going to “reset to take advantage of what is still a very buoyant market”.
“We’ve lost all the people with the money. We’ve got some new people coming in with capital.”
Some of these new people are in private equity, which is a source of capital but also presents challenges for licensees and advisers.
Evans says private equity has challenges because “at some stage you need to pay the piper and that comes down [with] different requirements”, meaning the investors expect a return on the invested capital.
Self-licensing always remains an attractive option to advice practices, but Evans says it’s not always an option to leave licensees in the current state of the industry.
Becoming self-licensed adds its own problems to the industry from a risk perspective, Evans says.
Instead, advisers should question what they are looking for.
“That’s probably the biggest challenge for advisers is knowing what they like about their licensee,” Evans says.
He recommends advisers question what they want from a licensee, what they don’t like about their licensee, if anything, and how they can communicate better with their licensee.
