Calls for individual licensing of financial planners may have merit, and are certainly growing in volume, but they often overlook or undervalue the benefits of being authorised by a licensee that is properly set up to support the development of advice businesses.
That means licensees must ensure their value proposition to advisers extends well beyond just the licensing element. Centrepoint Alliance chief executive officer Angus Benbow says it is simply good business practice to diversify and broaden the range of services and support offered by the licensee.
In any case, the changes licensees may need to make to remain viable won’t necessarily be of their choosing, and how they have delivered value to advisers in the past may not stand up in future as other service providers also rethink how they tackle a changing adviser market.
“For a platform provider to get a return on the enormous amount they’ve invested, are the [traditional] licensee and white-labelling arrangements going to deliver them the return they need?” Benbow says.
“Licensees have driven price down through scale advantage, but going forward in a post-royal commission world and a need for greater transparency in pricing relationships, what happens with those arrangements?”
Benbow says vertical integration may not be removed from the industry, but it could be that platforms “go out with naked pricing in other ways that can drive competition and drive a direct-to-adviser relationship”.
“Especially if we get a move to individual licensing, platforms could play into that space,” he says.
“They’re incentivised to do so, because they don’t have to go through a licensee to a captive audience. I don’t know if that’s how it’s going to play out but it’s a possibility. And in that environment, what’s the role of the licensee? It can’t be just around your platform pricing arrangements – it has to be much broader.”
Five reasons licensees must adapt to prosper
1. Too many licensees and dealer groups have their value proposition anchored in licensing and platform pricing. Demands for greater transparency means that must change.
2. Licensees need to change anyway, to compete with a shift towards practices self-licensing already underway.
3. Licensees should see themselves as what they really are: support service providers for SMEs.
4. Forward- thinking licensees must build more robust customer value propositions and more relevant service propositions to support modern advice firms.
5. Advisers, advice businesses and consumers of financial advice will benefit.
Benbow says advice businesses are, fundamentally, still small to medium-sized businesses, facing the same issues that all SMEs face, and requiring the same support.
“That’s the role of the licensee, and what we’re playing into,” Benbow says.
“We’re less a licence or a dealer group than a wealth services business or an advice services business. It’s a service-led business versus a license-led business.”
Where some licensees have relied heavily on their proposition being related to platform or product pricing and alignment, they may need to re-think aspects of their business model, Benbow says.
He says if licensees can’t convince advisers of the value of their services, and advisers won’t pay what it costs to deliver the service, then licensees simply won’t exist.
“The return on capital just won’t be there so people won’t bother and you’ll see an exit,” he says.
“That will be detrimental to advisers and detrimental to the industry.”
As licensees broaden the range and depth of services and support they offer to advisers and their businesses the gap between self-licensed firms and licensed firms will become more stark.
“You need to look at that business as a whole, and the difference between what a licensee can provide and a self-licensed business is the licensee can do a lot of those things, at scale, at a lower price point and probably with a higher level of quality because they can bring their capability and scale advantage to that small practice,” says.
Benbow says Alliance Wealth will begin in August to implement a new strategic plan. And while he’s reluctant to reveal too much of the plan too soon, he cites as an example of the underlying thinking the work the licensee is currently doing with advice practices to develop better websites and online presence.
“If I’ve got an arrangement with a leading agency who can help with digital tools and website development and graphic design that’s market leading, and I can take that to an adviser at a price point because of my scale advantage, they can’t get that [on their own],” he says.
“They can’t get that from the local digital guy down the road at that price, or at that quality.”
Benbow says advisers who go the self-licensed route can get support through dealer services businesses, like Centrepoint subsidiary Associated Advisory Practices (AAP), but even in this scenario there’s a benefit to a close association with a licensee.
“We don’t discriminate between whether you want to be self-licensed or licensed [by a licensee] because we support you in a consistent way within that community,” he says.
“We provide more compliance and pre-vetting and support to self-licensed businesses than licensed businesses. There’s 240 practices under AAP, and about 1500 advisers.
“It’s cheaper for them for us to provide those services. They can draw down the learnings from a business like us who are providing the same services to a lot of other self-licensed businesses and to our own licensed businesses, versus than building that capability themselves.
“The cost of compliance is going up,there is more technology that needs to be considered to support business owners. It is becoming more complicated than less, given the range of options and applications out there with fintech and regtech.It’s very hard for a small business to say they’re going to build themselves an ecosystem of technology to support their business when they just don’t have the capability.”