Licensees can be profitable

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One year in, Advice Evolution is claiming success in its licensee model, which has proved profitable without relying on volume bonuses or product rebates.

The three partners that founded Advice Evolution previously worked for one of the bank dealer groups, but left when they couldn’t get equity in the licence. They created their own licensee, Advice Evolution, and now everyone that comes in gets equity in the licence via a unit trust.

CEO David Harris says, "It is the equity in the licence that makes all the difference to adviser attitudes. We talk to clients everyday about the differences between renting, and owning your home, but how many advisers apply the same philosophy to their right to operate?"

Harris says that there is too much waste in current licensee models. “They now have these massive big offices in Sydney, and cars and BDMs, and things that aren’t necessarily producing anything.”

“The big licensees tend to waste a lot of their money through paraplanning and tend to hide it all through their big buildings and staff...”

After changing licences, Advice Evolution outsourced most of its back office services. Harris says they take a small commission for day-to-day running, supplemented with income from on-going fees and interest on the trust account, and distribute the rest back to advisers. But he says 100% of the rebates from manufacturers go through to advisers. “In the smaller dealer group area it’s the rebates that keep those licensees afloat – they use that money to maintain the licensee. Because we run it quite economically… that allows us to pass all that money through.”

Harris is encouraging other advisers to think about the licensee model, and Chairman of the group, Grant Simpson, says that it will become more popular with FoFA reforms. Advice Evolution will also be looking to expand from 10 firms to 20, with up to 50 advisers.

  • Pat on 27/06/2013 3:22:21 PM

    Leadership Free Zone: we have been able to do what you suggest for almost a decade. We are largely indifferent as to our FUM except when our PI insurer asks. We talk to our insurance providers and they ask how much premium we generate - we don't really know. We are able to structure a profitable business model that doesn't rely on 115% commissions on insurance written; % of FUM or other FUM targets; platform rebates; mortgage brokerage or other conflicted advice models.

    It actually isn't that difficult, but if others need to build "vertically integrated business" models or take rebates to earn a crust, creating inherent conflicts, then we will never become a profession.

  • Leadership Free Zone on 27/06/2013 12:26:09 PM

    Why can't we just charge clients directly for services provided? Why do we continue to build businesses that are party or largely dependent on platform rebates or payments from third parties? All it does is mean we continue to focus on FUM and product sales as the key metric instead of client welfare because of how we’re remunerated; a focus which largely explains the mess and fall out we created and continue to deal with. Are we learning anything from the past or do we just a collective attitude of “next”? While I agree with the home/renting analogy, why not build a business that is unassailably sustainable from a client perspective? If we do that, the regulatory environment and changes to it that will continue to occur has virtually zero impact on your business. Be bold and innovate instead of clinging to the past.

  • Anthony on 27/06/2013 10:12:54 AM

    The proof is in the pudding here. There were many detractors at the time who said that the AE model wouldn't work. It has worked and is working spectacularly well.

    Isn't it refreshing that a dealer group who publicly says what it will do actually does what it says. No secrets, no spin. Just simply delivers on its promises.

    The gulf is widening between the vertically integrated institutionally owned dealer groups and dealer groups like AE.

    Informed choice is a wonderful thing

  • SB on 27/06/2013 10:06:13 AM

    There's "profitable" and then there's something that genuinely and significantly rewards dedicating 10 or 20-years of your life to.

    For the life of me, I cannot see why anyone would start a financial planning dealer group. Surely they're not in it for the money.

  • Pat on 27/06/2013 10:04:24 AM

    What, so they are pulling all these rebates from product manufacturers to pass on to advisers? Doesn't that create a teeny bit of a conflict of interest?

  • Innocent Observer on 27/06/2013 9:58:23 AM

    Best of luck to them, but comparing AFSLs to home ownership? It's a pretty poor narrative. Like saying we should all buy private jets to save on paying for airfares.

  • Val on 27/06/2013 9:49:36 AM

    I totally agree that in the big instituionally owned dealerships there is a lot of financial and time wasted, and in the end, the main focus by these dealerships is marketing group products and services, a cost which should not be born by the dealership and then passed to the advisers it should be born by the product manufacturer.

  • Val on 27/06/2013 10:03:08 AM

    To "Innocent Observer" ... you are correct, if we could afford it we should buy private jets and avoid the lousy service dished out by the major airlines ... if only I could afford it!!!

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