Show your worth: the new licensee value proposition

Ben Power

By

May 23, 2018

The ongoing Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry is a searing experience for the advice industry. Yet many players are still finding time to look ahead and envisage just how the landscape will appear when the smoke clears.

Many are obviously betting on the end of vertical integration and the subsidisation of licensee services. Director of Australian financial services at CoreData, Sean Allen, says the royal commission will lead to a detachment of product manufacturing from advice, though the process could take years.

“It’s a safe bet that the separation will continue, and the perceived bias that occurs when a product manufacturer owns a distribution arm will either need to be addressed or removed,” Allen says.

One of the biggest effects of the end of vertical integration would be its impact on the viability of the licensee model.

As Fortnum Financial Group executive chairman Ray Miles says, “It means they will have to start pricing [licensing] properly. It then becomes an issue of what the dealer group delivers and what it costs.”

If licensees are to survive and thrive in that new environment, they will need to not only deliver a compelling value proposition to advisers, particularly around client engagement, but also ensure that value is communicated and fully used.

“I think that [after] the outcomes of the royal commission, being absolutely clear on your point of difference as a licensee or dealer group is going to be critical,” Centrepoint Alliance chief executive Angus Benbow says. “If subsidies do move away, and there is a much clearer link between service and value, advisers are going to have to feel they can generate value in their business to be willing to pay for those services.”

There has been talk about the rise of self-licensed advisers but as Allen notes, while the number of self-licensed advisers almost doubled recently, from 110 in 2016 to 207 in 2017, “self-licensing is still not a significant number yet”.

“Many don’t want to go out and become self-licensed,” says Benbow, whose company provides both licensing and services to self-licensed advisers. “Licensees do provide a service to the industry.”

The proposition spans a number of areas over and above compliance, including technology, education and research.

Miles says licensees allow advisers to focus on advice.

“Licensing is a distraction,” Miles says. “If you look across all industries, the most successful people tend to do one thing really well. In this industry, that should be advice. Good licensees give advisers a home and provide them with all the resources so that they can focus on building great advice businesses.”

He adds that dealer groups should be a leverage point for the practice, from two perspectives. The first is buying power. He says Fortnum has some of the sharpest rate cards on the market for the top four platforms.

“This gives practices a fair amount of choice in terms of these platforms and significantly helps them comply with best-interests duty for their clients.”

The second leverage point is managing risk. “A really good licensee will spend a significant amount of money and resources on risk management, so that the practices don’t have to spend as much time on it,” Miles says.

CoreData’s Allen says one of the biggest values of licensees is community – peers sharing their best initiatives, ideas and practices. “Licensees allow that co-operation to occur through training, conferences and professional development programs. You’ve got that co-operative nature of like-minded advisers getting together and sharing best practices; it would be a lonely place for ‘stand-alone’ advisers.”

Benbow agrees that community and relationships are among the most powerful value propositions that Centrepoint offers.

“It really comes down to a sense of community and the strength of trusted relationships,” he says. “Everybody can go out and offer XPLAN services or tech services and marketing support, business coaching, etc. The thing that wraps around that for us is a sense of community to share and learn within, and trust across our adviser community and between advisers and our staff.”

Assure Wealth managing director Patrick Casey says when it comes to his licensee, Alliance Wealth, part of Centrepoint Alliance, he values independence from the big four banks and AMP, which clients increasingly value as well. But he also likes the compliance coaching, including post-audit coaching from a compliance expert who provides feedback for improvement and “coaching on current advice quality trends they have seen with other practices”.

Casey agrees community is extremely valuable as well. “I am part of a peer group of like-minded business owners who share business challenges and wins. This allows us to learn from each other and share ideas and IP in a safe environment where everyone is invested in the success of their peers and building a more professional industry. No one sees their peer as the competition.”

New services

So licensees do offer value, but they still must evolve if they are to remain viable in the future advice environment.

“The value proposition for licensees will have to dramatically change from what it is today,” Deloitte Australia assurance and advisory partner Andy Abeya says.

Licensees will need to focus on three things, he argues. Firstly, they will need to protect advisers’ reputations. The second priority is for licensees to understand the new world of advice; for example, around educational requirements. Abeya explains: “What is going to be their approach so they create a value proposition for advisers? Are they going to cover educational costs? How are they going to upskill advisers and support those who may not want to transition into that new world?”

The third priority is to invest in technology to make it easier to interact with customers, from an efficiency and risk-management perspective. GPS Wealth managing director Grahame Evans agrees that licensees must change. That will include, as Abaya says, creating new services.

Evans says licensees with technology, including fintech and regtech, will need to use it to make compliance more efficient, including applying machine learning to check documents such as Statements of Advice.

The purpose of any new service or deeper value proposition is helping advisers better understand and engage with clients, Evans argues. “Any value propositions that help the adviser engage with clients and understand clients better, and enable [planners] to empower clients to be part of the financial journey – they’re going to win.”

Benbow says new services Centrepoint is developing will also include support for advisers unrelated to financial services, technology and platforms, such as business coaching, human resources and marketing.

Assure Wealth’s Casey says the things he would most value from his licensee in the future would be access to shared resources, such as office space, meeting rooms, administration services and IT consulting.

Spreading the word

The work for licensees will involve more than just offering new services. They also must communicate the value of existing and new services.

CoreData’s Allen says some licensees aren’t articulating all they’re delivering and that means only a small portion of what they offer is in use at some practices.

“If you only use a small portion of something, you have a lower view of its value,” Allen explains. “What licensees could be doing is constantly reminding practices of the total value they bring, rather than components that the practice might be using.”

One underused service area is client engagement, GPS”s Evans says. He notes that advisers have often created their own process through trial and error and are stuck with it. That process often “has had no thought around the psychology of what they’re doing; and no thought of understanding clients individually”.

He argues that increasing the use of undervalued processes and systems will require “ongoing training, ongoing evidence of success, ongoing demonstration of a need, ongoing demonstration of clients’ changing views of the world. You’ve just got to keep at it. You can’t just say to advisers, ‘Take it or leave it.’ ”

Centrepoint’s Benbow says underuse is a symptom of bundling and subsidisation. “[Advisers] haven’t [seen various services as] separate items they’ve had to pay for,” he explains. “If you see something as a stand-alone service…that’s a very different thought process. You’re more likely to say, ‘Hang on a sec, I’m paying for that, I need to derive value in my business to justify paying for that.’ ”

Compliance still counts

Licensees in the future, Benbow says, will offer advisers a menu of services. That may be a small bundled package of non-negotiables, including certain compliance tools and processes, plus additional offerings around technology services. Even after the royal commission, compliance will still be a source of value.

In fact, Fortnum’s Miles believes it will become even more critical following the inquiry.

“What I think will come out of this royal commission will be much stronger supervision across all parts of the market,” he predicts. “To date, ASIC has not been sufficiently resourced to work through and supervise parts of the market apart from the big dealer groups. If they are resourced properly, they will become more deeply involved in supervising small and medium-sized licences.”

If you’re running a small business – a few million dollars turnover and four to five authorised reps “the last thing you want is a visit from ASIC,” Miles says. “If they come calling, you have a real problem. You’re probably going to be out of business at the end of the call.

“The real benefit of dealer groups is a go-between for the regulator and your advice business. They’re also first line of defence in relation to any client claims and PI [professional indemnity] claims. The dealer group has its balance sheet on the line before the adviser. I think that’s a pretty valuable thing, from an adviser point of view, going forward.”

Despite all of the challenges and changes, many are confident that licensees will adapt and evolve and provide advisers with a value proposition compelling enough to buy.

“I do absolutely see a role for licensees in terms of providing quality and consistency of advice for the end customer or end clients,” Centrepoint’s Benbow says. “But I also see that model is going to be disrupted in terms of how we price that, charge for it, and bundle or unbundle it, which is separate to the cross-subsidies between licensee services and product of the past.”

Allen agrees that licensees do have an ongoing role. “Even though we’re going through the royal commission, I see huge value in a co-operative licensee providing services and co-operative pricing across research, technology, technical, and so on, on behalf of small buyers who wouldn’t be able to get access to that pricing or support.”


TOPICS:   Australian financial services (AFS) licensees,  CoreData,  Fortnum,  licensing options,  royal commission into banking and financial services

Share your comments and feedback with the editor

Sponsored content

Playing Now: