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Getting your own AFSL: Should you take the leap?

For many financial advisers, particularly those in the non-aligned space, the option to apply for their own Australian financial services licence (AFSL) is a daunting prospect. It certainly isn't an activity that should be taken on lightly. 

Firstly, you should consider what ASIC will assess when you submit your application. In this regard, it comes down to three points that will be assessed, whether you:

- are competent to carry on the kind of financial services business specified in the application;

- have sufficient resources to carry on the proposed business; and

- can meet the other obligations of an AFSL (such as training, compliance, insurance and dispute resolution).

You will have to think long and hard about whether you will be able to meet the above conditions and what resources you are prepared to direct in that regard. These are ongoing requirements and you should not look at an application as a means of cutting costs that you currently pay your own licensee for those services. 

That being said, it can be a commercially positive decision, particularly as clients look to engage independently owned financial advisers in the wake of scandals within the banking sector. What could be a better expression of independence than owning your own AFSL? (Tip: Remember you have to be careful about the use of the term independent, see ASIC Regulatory Guide 175 for more information.)

For experienced advisers with established practices, the ASIC considerations will be able to be met with some changes to their operating model. Although those changes, and the application itself, will incur some costs up front they will not often be significantly difficult to implement in the grand scheme of things. 

That is not to underestimate the changes that moving to your own AFSL will have on your business. 

In my opinion, the most significant consideration will be professional indemnity insurance. Your annual costs for professional indemnity insurance may end up in the tens of thousands of dollars each year. Add to this the limited number of underwriters that will take on financial advise professional indemnity insurance and you are looking at potentially significantly increasing costs each year. 

You also need to consider the amount of time the process will take from start to finish. Currently, you are looking at a period of between 150-240 days, if not longer, for ASIC to fully assess an application. This is also for a complete application and does not take into account if ASIC requests further information from you during the course of initially assessing your application. 

All up, you are looking at what is a year long project from commencement to grant of an AFSL. This can be a significant disruption to your business. Don't forget, that after you are successfully granted your own AFSL there will be further disruption when any changes are implemented.

This article is not to scare anyone of from obtaining their own AFSL. Indeed, it is a strategy that makes sense for many advice practices. 

However, the exercise should not be undertaken lightly and it is also one where you should not look to cut corners. 

If you are considering obtaining your own AFSL, first I would recommend you discussing it with some colleagues who have already taken the journey. If you don't know anyone who has obtained their own AFSL feel free to contact us and we can introduce some successful advisers who may be able to have a quick chat with you and give you some insight. 

 

 

 

 

 

 

Liam Young