With a trend towards becoming self-licensed, advisers need to start asking some vital questions to decide if it's right for them.
Pathway Licensee Services, part of the Netwealth business, deals in the independent self-licensed space. They service clients from sole traders to those running large businesses, and general manager Kate Humphries says that despite what we may have heard, there is a definite trend towards becoming self-licensed.
With the introduction of FoFA, Humphries says that a lot of the support traditionally provided by large dealer groups, which is expensive and has been funded by benefits, may now be considered conflicted remuneration.
“We get feedback that things that have been supplied for free by the dealer services arm of the large institutions are either being trimmed back or advisers are being asked to contribute to it.” Humphries says that when that starts to happen, advisers need to start asking the next logical questions, including:
What value does my dealer group add?
Is my approved product list broad enough to service my type of client?
If a dealer group is charging much less, what is being subsidised, or what is the adviser not receiving that they should be?
Support with technology and financial planning software, compliance support, and monitoring and supervision should all be included in the licensee offering, she says.
“Advisers may think they don’t need that monitoring and supervision, but if you ask any adviser in a large dealer, they’ll always be able to name somebody else that they think should be being monitored and advised. That’s part of the bias we all have – when you have a driver’s license you assume you’re a better driver than everyone else on the road.”
However, professional indemnity insurance poses a significant cost to self-licensed operators, and the self-licensed route is not for every firm.
People who act as a sole trader – without any administrative support – would find it difficult, as they have to wear three hats at once: Positioning themselves as an adviser, a responsible manager, and a director of a company, says Humphries.
PI premiums create the biggest difference between the on-going costs of running a license and being an AR, but she argues that most advisers in large dealer groups are having their PI subsidised, and with the end of rebates, Humphries is interested to see what happens with their contributions to premiums.
There is also a policy to make PI premiums significantly cheaper for licensees who agree to be a member of SPAA and adhere to their code of conduct.
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