The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, in particular its focus on conflicted remuneration, has led financial advisers to reconsider their Australian financial services (AFS) licencing arrangements (licensees owned by or aligned to the major financial institutions lost more than 2400 financial advisers in 2019). Many advisers aligned with institutionally owned licensees are now questioning this business model and whether it suits their business or meets their clients’ needs.
This article considers some of the key benefits to financial advisers who get their own AFS licence.
One of the key benefits to financial advisers applying for their own AFS licence is they are able to market themselves as being independent from any large-scale licensees or dealer groups. The Royal Commission saw many examples of licensees incentivising advisers to recommend products affiliated with the licensee regardless of their suitability.
Advisers with their own licence are no longer constrained by the licensee’s approved products list. This is a benefit to clients as they are being provided with truly independent financial advice. As a result, financial advisers are no longer running the risk of receiving conflicted remuneration for advising clients to invest in products issued by the licensee.
A bi-product of this increased independence is that advisers with their own AFS licence also have greater flexibility. Financial advisers that have their own AFS licence are free from the restrictions imposed on them by dealer groups. In contrast, advisers who are an authorised representative of a dealer group often face rules and restrictions from the licensee regarding how and what financial services are provided. This includes restrictions regarding the way financial advice is provided including product recommendations and the systems used by the adviser.
Advisers that have their own AFS licence have more control of their business and the way they offer advice. It also allows advisers to tailor advice for clients based on their needs, free from licensee restrictions.
Advisers who have their own AFS licence often find they are able to implement more efficient and effective compliance procedures than the procedures imposed on them by large corporate licensees. Large corporate licensees maintain onerous reporting obligations on authorised representatives and have detailed processes and procedures. This is because their regulatory programs are required to fit a large-scale operation. Similarly, advisers who are authorised representatives often find they are required to attend training programs that have little relevance to their own practice or the advice they provide.
In contrast, advisers who maintain their own AFS licence can simplify and tailor their compliance programs to better reflect their operations. Similarly, advisers are not required to attend training programs for products they will not offer. This results in efficient and effective compliance which in turn means better advice is provided to clients. It also contributes to an efficient, honest and fair financial system.
How we can help
Whilst there are many benefits to applying for your own AFS licence, it can be a complex and time-consuming process. Hamilton Locke’s Funds Management and Financial Services team can help simplify the process for you. Please contact Brendan Ivers or Jack Peterson at firstname.lastname@example.org or email@example.com for more information.