Some self-licensed advisers are choosing to give up their AFSL in favour of joining a large dealer group as a form of de-risking amid growing compliance and operational complexity.
According to Forte Asset Management founder and director Steve Prendeville, a significant portion of current advice practice transactions involve advisers who want to remain client-facing but no longer wish to carry the responsibilities that come with business ownership.
The trend highlights how succession planning in advice is increasingly being driven by lifestyle and operational considerations rather than retirement alone, particularly as firms grapple with ongoing compliance obligations, technology investment requirements and rising business management demands.
Prendeville said many advisers are now reassessing whether owning an AFSL remained the right fit for their personal and professional goals.
“Probably around 30-40 per cent of my sales are actually advisers who love advising but have realised that they just don’t have the energy for all the compliance elements to it, the HR, IT, all of those that come with being a business owner,” Prendeville told Money Management.
“So, they’re selling the business, they’re de-risking, but they’re selling to groups that they actually want to stay and work in, purely as an adviser. They’re simplifying their lives because it is a trying environment.
“You’ve got to be constantly looking forward, you’ve got to be really constant and looking at all of the trends, the technology risk factors, and so many are coming back from being business owners to employees, but they’ve de-risked.”
The comments suggest consolidation across the advice profession is not solely being driven by acquirers seeking scale, but also by advisers actively seeking to remove operational risk from their working lives.
Over recent years, the profession has been forced to navigate the removal of grandfathered commissions, the transition to fee-for-service models, increased regulatory scrutiny and continuing technology investment requirements.
Prendeville said that environment had elevated the importance of business management skills, rather than simply being a good adviser.
“It does need to be a focus on business management rather than being the best adviser. You need to be the best business owner and grow that business and be focused on that, which is a different mindset.
“Yes, they overlap because every decision is made also for the benefit client, but it is different skill sets, it is different lens that you need to look at making a decision through.”
The distinction between being a successful adviser and being a successful business owner has become an increasingly common theme across the profession.
Rebalancing period
Prendeville said the surge in advisers seeking exits over recent years appears to be easing, with transaction activity returning to more normal levels.
“The latest stats that I’ve seen is that last year somewhere around 24 per cent was seeking to sell. This year it’s 10 per cent which, over the last 23 years, has been about market average.
“It accelerated over the last two, three years, mainly because everyone had to go re-engineer their businesses. With the loss of grandfathering revenue and all the legislative changes, moving to fixed fees, moving to new gen platforms.
“There’s been a constant change – either enforced or proactively sought – and so people will have deferred retirement, but I think that that lump of has gone through now, and I think we’re back to normal market conditions.”
One of the consequences of the royal commission in 2019 has been the fragmentation of the advice business landscape with new, large dealer groups emerging alongside a strong trend of micro AFSLs. Recent years have, however, seen a consolidation in the market as mid and large-size licensees absorb smaller businesses.
Not only does it allow those licensees to grow despite a stagnated talent pool, small and micro firms then benefit from compliance and operational cost savings only available to scalable businesses.
“Small businesses – the sub $500k revenue – really need a dealer group for cost efficiency, for education, but also business planning assistance as well, so I think that the large to medium licensee provides a substantial amount of services for small businesses.
“They’ve got the infrastructure that you can leverage from their size, yeah, so discounts on PI, and potentially technology, education, that type of thing.”
He added that advisers should not automatically view larger groups negatively when assessing their future options.
“I think that the big doesn’t mean bad by any means. It could be the best choice to be with a larger group, depending upon your business needs.”
However, Prendeville also pointed to the growing influence of investment platforms and trustees, which he said was creating additional pressure on advice businesses and reinforcing the value of dealer group support structures.
“We’ve also seen the actions by and growing influence of trustees and platforms – liability or responsibility that’s being acted on there.
“Platforms now have substantially greater influence, particularly, they can close you off, there’s those that are seeking, let us understand the SOA, the advice component, and so I believe that’s the duty of the dealer group, rather.”
The recent high-profile Shield and First Guardian collapses have shone a light on some of the risks that come with being part of a large licensee.
Sequoia Group’s InterPrac licensee is a perfect case of this with several platforms blacklisting new business from any adviser operating under InterPrac’s license at the end of last year as pressure turned up for the embattled firm after it was served a lawsuit by ASIC.
Speaking with Money Management earlier this year, Jaxon King, Scion Private Wealth founder, said his desire to become self-licensed was partly driven by a need for reputational control, wanting to remove the possibility of being tarred by poor decisions that he had no part in.