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An eyes-wide-open approach is best for self-licensing

Anne Graham.

Anne Graham has a clear message for any advice firm thinking of getting its own Australian financial services licence: Understand the responsibility, be willing to meet that responsibility, and be willing to do it well.

Now 10 weeks into operating under Story Wealth’s own AFSL, Graham says that even though she went into the process with her eyes open, the volume of work and the time it took to prepare an application and transition to a new licence was still immense. It wasn’t even a path Graham necessarily wanted to head down.

“I agonised over that,” she says.

“Leading into the end of last year, I thought why on earth would a bank want to stay in financial advice? What’s the outcome? So you start thinking of options and before the [Westpac] decision was made to get out of advice, and wind up Securitor, we’d made a decision to move. We wanted to be in control, rather than being told what to do.

“It was always the case we knew we are going, [but] who do we go to? Do we go to another licensee or self-licence? We never wanted to go self-licensed, ever. I’m foremost a financial adviser, then I’m running a business, and now I’m an RM [responsible manager]. Who are you, what are you doing, how many hats are you wearing?”

Graham’s advice to other firms thinking about doing the same thing is to be prepared for the time and the resources it will take to get it done.

“Everyone tells us it’s a good decision and we won’t know ourselves, but that’s yet to be proved.”

Anne Graham

“You really need to know what the cost of it is going to be,” she says.

“Our estimate was probably 10 per cent out – everything is going to cost more than you think. You need to have the fat in your budget to do it. But it’s the resourcing. You need people.”

Graham says that when the dust has settled and she looks back over the first 12 months of Story Wealth’s own-AFSL history, the benefits will be clearer than they may be right now.

“It would have been much easier, less costly, and less time consuming had we chosen a different option,” she says.

“We haven’t made any significant changes to our operations, policies, documents at this stage as we’re focusing on getting familiar with the framework and setting up processes to manage the AFSL. Everyone tells us it’s a good decision and we won’t know ourselves, but that’s yet to be proved. 

“Having said that, I’m extremely hopeful that once we get our training wheels off, we’ll embrace this new world we find ourselves in and make the most of it. So in a nutshell, yes, I’m happy with the decision.”

Look deeper than the superficial appeal

Above all, Graham says, an advice firm should not go down the own-AFSL route for the wrong reasons. Self-licensing might appeal superficially as a way for an advice firm to set its own rules and to avoid what might be perceived as the overwhelming and perhaps overbearing scrutiny of a licensee, particularly a licensee that itself is under pressure from the regulator to prove its advisers are delivering competent, compliant advice. But obtaining an AFSL in an attempt to hide from scrutiny would be a mistake.

“I was speaking to a guy yesterday who goes, ‘I’m thinking of self-licensing but I want to outsource all that stuff like the soft-dollar register or the professional development stuff’,” Graham says.

“I said to him, how big is your firm? And he said there’s me and an admin, but I’ve got some other colleagues in the same boat. So I said, you’re going to apply for a licence where you’ve got five different businesses, in five different locations – where’s the oversight coming from? Because that’s what ASIC wants to know.”

“I don’t think firms can say it’s banks that did all that [bad] stuff, and we’re fine now because [they’re out].”

Anne Graham

It would also be a mistake to assume that ASIC has its hands full just scrutinising the top-end of town. It is clear that advisers operating under licences of all descriptions are potentially in the regulator’s sights, and operating its own AFSL will not absolve an advice firm from meeting the same standards that ASIC is demanding of institutionally branded and institutionally affiliated licensees.

“It’s about understanding the responsibility, being willing to do it, and do it well – it’s not a part-time thing,” Graham says,

“I don’t think firms can say it’s banks that did all that [bad] stuff, and we’re fine now because [they’re out]. The regulation goes down and down and down, and we could very well get a knock on our door [from ASIC] saying we want to do an audit. You’ve got to be ready.”

A decision born of a desire for independence

Even though the future of Story Wealth wasn’t always obviously as a self-licensed advice business, Graham’s decision to move away from an institutionally aligned licensee was driven by a desire for greater independence. 

“Looking at the licensee landscape, I didn’t want to be aligned with anyone, because you need some sort of independence, so who’s out there?” she says.

“There were a few that we would have looked at, and what swayed us was more a bit of not wanting to be in that position again. And because we did merge, if we hadn’t merged [with Thinc Wealth] we wouldn’t have had the resources to do it. If it was just the five or six of us – David [Graham] and I and a couple of staff, we couldn’t have done it, plus the costs would have been prohibitive.”

Graham says a critical step in transitioning and running its own licence was the appointment of a dedicated compliance and governance manager, who is focused on the task, managed the transition and ensured Story Wealth’s advisers could continue to focus on their most productive roles during the process.

“Looking at the licensee landscape, I didn’t want to be aligned with anyone, because you need some sort of independence, so who’s out there?”

Anne Graham

Leaving an institutionally affiliated licensee meant Story Wealth had to arrange its own professional indemnity (PI) insurance. Previously, its licensee would negotiate cover, and the cost to the firm would be wrapped up in the licensee fee. There are pluses and minuses to each approach.

“With the policy we’ve got, because we’re a smaller group and we’re in one location, I think our excess is actually lower than it was under the old policy,” Graham says.

“And we go through a broker, so there’s a lot of information we give them and they shop it. But there’s such a small pool of insurers around.”

Graham says the insurance issue was complicated by an issue with a reinsurer, and when the regulator rejected the initial cover the firm had obtained. That came as a surprise, because it was a standard policy wording. Story Wealth had to approach another insurer, and the second policy was more expensive but accepted by ASIC.

“The original quotes were 1.5 to 1.8 per cent of revenue, and it turned out at the upper [end]” Graham says.

According to plan – more or less

It took less than four months for Story Wealth to get its licence, having applied in March and gone live on July 8. Graham says the transition has “gone the way you’d expect”.

“It’s not been completely smooth, just dealing with providers and IT,” she says.

“And the timing of it all, too – we’ve had just normal BAU stuff; the royal commission things, so a lot of changes coming through form the dealer group that you’re in while you’re trying to transition out; in the practice we had one partner on [maternity] leave, so she was gone from February until two weeks ago; from the dealer group perspective because it was an [institutionally] aligned group it had the ASIC notice…so they’re trying to get information from us at the same time, so a massive distraction; and just end of financial year. And an election.”

“I just thought you’d flick a switch – ha, ha. It’s like going from a PC to a Mac, but it’s still Xplan, so you’ve got to get the data over and you’ve got all the downtime there.”

Anne Graham

Graham says the leap from institutionally aligned licensee to own-AFSL is bigger than the jump from one licensee to another.

“Going to your own licence, you do everything. You’re the one ringing up Chant West saying we want to get a subscription; Kaplan; all that sort of stuff.”

Story Wealth used BT Open as a consultant on the transition, but Graham says the firm “pretty much” did everything itself.

“They’ll introduce you to providers, so we had someone do our licence for us,” she says.

“Your PI insurer, you’re dealing direct with the broker; we had IT so we ended up with Xplan again, but it’s a transition. I just thought you’d flick a switch – ha, ha. It’s like going from a PC to a Mac, but it’s still Xplan, so you’ve got to get the data over and you’ve got all the downtime there; then your payments system, you have to hook all that up again.”

Pros and cons – and archaism – of transition

Every licence transition has its own quirks and its own complexities, and Story Wealth’s was no exception. Elements of the process were positively archaic, Graham says.

“Every single provider, whether it’s the platforms, or you may have one policy with AIA or one with Zurich or something, every one [of them] has to be told there’s a new licence, and here are the new advisers’ codes,” she says.

“We had scanners coming, for four weeks they were in the meeting room doing our files. But now we’re completely paperless, which is great.”

Anne Graham

“All the codes have to be reset, and it’s all paper-based. We use platforms a bit so [for] the bulk of our clients it’s fairly streamlined, but you get legacy stuff. And none of the forms are the same, and paper-based. All paper. And a lot of them wanted wet signatures. Just dealing with all that stuff.

“And in the meantime on top of that, the licensee wanted all paper files uploaded into the old version of Xplan or at least electronic [copies made]. They organised scanners so we had scanners coming, for four weeks they were in the meeting room doing our files. But now we’re completely paperless, which is great.”

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