Individual licencing BOLR & platforms


Whether it be the start of a new financial or calendar year, the issues confronting the financial services industry, especially the advice sector, are all the same and actually increasing and intensifying with the vacuum of leadership and direction so clearly evident said Connect Financial Service Brokers CEO Paul Tynan.

  • Paul Tynan
  • Monday, July 17, 2017

Commenting further, Paul Tynan said the long-term role, viability and relevance of licensees has been under constant question and scrutiny since the inception of the advice model. “No matter how often excuses are spun, it’s the potential and perceived conflict of interest of institutions that simply can’t be avoided”.

“From its inception it has been impossible to defend and claim the process is in the best interest of the consumer and provides unbiased / uninfluenced advice when institutions are both the product manufacturer and owner of the licensee. It’s a situation that first evolved from the development of platforms in the 90s that laid the foundation for the current business model.”

However, as the advice sector moves to a ‘true profession’ the only way forward and test for the validity of non-institutional influence is through the eyes of the public – and it is inevitable that individual adviser licensing will be the preferred model.

Ironically the individual adviser AFSL concept will not only be resisted by the institutions because they will lose influence and control of their distribution networks – but also regulators fearing a resultant massive escalation in their workload.

Within the financial institutions the shockwave would literally be deafening as they have always operated in a culture and model driven by control…control of products, clients and advisers with the outcome being the current-day industry dominated by a handful institutions that in turn has seen the demise of competition and product innovation.

Paul Tynan continued, “Yet individual AFSLs would immediately lift the public perception of advice, the industry as a whole and be the catalyst for a revolutionary change to the dealer group model. In order to compete for individual licensees, dealer groups would be required to restructure into ‘best of breed’ support businesses”.

Although there is growing groundswell for self-licencing an unfortunate casualty will be the disincentive for new advisers to join the industry from the resultant non-availability of client bases and the ‘hands on’ experience and expertise that is required to navigate the now immensely complex world of advice. Many institutions still have in place a buyer of last resort (BOLR) provision; and these too will be hard to defend under conflict of interest / client best interest scrutiny. Then there are the institutions shareholders that are becoming more sceptical and concerned of the real worth of the BOLR to the organisation and if another option would serve their interests better!

“BOLRs by the very nature restrict the movement of advisers and clients from licensees; however, it does give advisers a certainty for the value of their business and lifetime of effort,” said Paul Tynan

“Although the institutions have been constantly chipping away at the rules, for several of the larger industry players their business models are very dependent on the BOLR. Unfortunately, again it is the would be new generation / entrant that is impacted the most by these BOLR rules that has institutions requiring them to buy businesses / books of clients at inflated prices that do not reflect true market valuation.”

The institutions have invested heavily in platforms and have been rewarded by attracting the majority of investment funds inflows…not to mention they are a great control mechanism that supports their ownership of dealer groups.

“However, times are truly changing and the disruptor across all industries and sectors of the economy is technology that relentlessly challenges business models and out-dated conventions. Platforms and their institution owners continue to be slow to change and advisers are already embracing innovation moving to seamless technology that cuts out the platforms.”

“Smaller nimble players and entrepreneurs have always been the quickest to respond to change and adopt new technology and innovation. It’s hard to see how (and if) the institutions can respond to the new era of change that is driven by client centric business models and technology…unfortunately time is not on their side,”concluded Paul Tynan.

Issued by Connect Financial Service Brokers

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