As advisers wrestle with increasing costs, three-quarters believe their licensee does not offer enough value for the fee they pay, our survey found.
The results may not be surprising to many advisers, especially as practices face significant profitability pressure, along with ongoing expenses, such as the ASIC levy, education fees and insurance.
Figure 1 – Does your licensee offer enough value for the fee you pay?
Source: Adviser Ratings poll of verified financial advisers.
In light of what advisers told us, we also took a look at last year’s licensee revenue and found 54 per cent of smaller licensees had increased theirs by more than 15 per cent. Meanwhile, a third of larger licensees (with more than 20 advisers) had lifted their year-on-year revenue by the same proportion.
Fewer than one in 10 licensees reported a drop in revenue of more than 15 per cent across the year.
The vast majority of the licensee revenue mix is adviser/practice fees for most AFSLs, but two-thirds of licensees also get revenue from cost recoveries, such as with professional indemnity (PI) insurance and paraplanning.
Figure 2 – How licensee revenue changed in 2021
Source: Adviser Ratings licensee survey. Reference period is 2020.
What’s on the licensee menu in a changing market?
It is no secret advisers have shifted en masse to privately-owned licensees in the last few years, as the banks have exited the market and the larger licensees’ footprints have shrunk. Data from last quarter shows almost two-thirds of advisers operate under private licensees, up from less than half in 2017. Meanwhile, in the past year, about 2400 advisers have moved to a new licensee.
Amid these shifting sands, we’ve also seen changes in the licensee service offering. As the pandemic brought protracted lockdowns in two states last year, licensees made their biggest service cutbacks in Australian credit licences, business/cashflow management technology and community programs.
Over the same period, licensees made their biggest investments in direct-to-client communication and education. Business financing (debt) and growth support on the practice management side were also top areas of expansion.
Figure 3 – Licensee service offerings: 12-month change
Source: Adviser Ratings
When we asked advisers what services they received from their licensee, PI insurance, APL investments and compliance support rated as the most used, while slightly fewer practices turned to licensees for business growth support (40 per cent) and a minority business debt financing (4 per cent).
In an inflationary environment, where cost is becoming even more important for most businesses, we expect advisers to continue to demand greater value from their licensees – and switch when they are not receiving it.
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Comments4
"Why do advisers still need Licensees? They clearly offer little to no value, as per the data. I have been in the industry for 8 years and been with three licensees, let me explain how it works. They take huge proportions of your revenue, often between 10-25% of total revenue and they take additional fees on top (insurance etc). They will check three files a year say they are all good and offer no other value to the business. I completely second Sceptre's comment, if advisers are required to deliver value and offer opt-ins so should Licensees. It should be optional to use them and the fact is if it was, there wouldn't be any left."
Alex 16:59 on 24 Aug 22
"Still waiting... My licensee receives a cut of my profit. If I have a good year they get paid more. But their services are always the same. I don't always value the services they provide though. Nor do I ask for certain services. Sometimes the services I receive are below my expectation too. So I am still waiting... WHERE IS MY FEE DISCLOSURE STATEMENT FROM MY SERVICE PROVIDER SHOWING THE FEES I PAY AND IF SERVICES WERE DELIVERED?? I might also want an OSA/OFA from them too.. just saying what's good for the goose is good for the gander. "
Sceptre 16:41 on 24 Aug 22
"Yeh i agree, this makes no sense, 75% of advisers dont get value from their licensee, why not focus on that. Where are the licensees falling short. I don't think a single person gives a sh!t how much their licensee makes at the end of the day unless its insolvent. As an adviser I care about feeling like I get value for money from the fees i pay, and there are categories where a licensee can add value, and other where they detract value, that should be the focus of your article. "
Declan 16:23 on 24 Aug 22
"Why not ask the advisers, how and where does the value for money equation fail? Surely, this is more relevant than whether licensee revenues increased; that outcome could have arisen from new services provided, adviser numbers growing, adviser revenue growth, could be product/platform/SMA margins ....licensee revenue growth is hardly the cause to deliver the effect of advisers not feeling they get value for money."
Peter Mancell 15:46 on 24 Aug 22