Large AFSL vs self-licensing – FSC canvasses tiered regime
The Financial Services Council (FSC) has canvassed a tiered licensing framework for the financial advice profession to reflect the size, risk profile and service scope of AFSLs and the capital invested.
The FSC, which represents a number of the largest financial advice AFSLs, has used a new green paper to canvass “a recalibrated AFSL regime involving a “simpler and more flexible framework that tailors regulatory obligations to the size, complexity and risk exposure of each licensee”.
“This approach would ensure that the regulatory burden is commensurate with the licensee’s operational scale, the sophistication of its services, and the potential risks to clients and the financial system,” it said.
The green paper noted that “while there are benefits to self-licensed practices in terms of independence and flexibility, ASIC data suggests that smaller licensees may come with compliance capability risks”.
“For example, ASIC reported that in FY2024, 81% of licensees with $1,000 million or more in revenue lodged breach reports in that year compared to 10% of licensees with $50 million or less in revenue.
“Whilst this may be due to smaller licensees not having breaches, ASIC noted that the percentage of licensees reporting breaches remains significantly lower than expected and indicates that some licensees may not have in place the systems and processes required to detect and report breaches. This disparity reflects broader structural differences in how licensees manage compliance obligations,” the green paper said.
“Typically, larger licensees provide more extensive support to their practices for meeting compliance obligations, while self-licensed practices manage a greater portion of these responsibilities internally.”
The green paper pointed to the existing regulatory framework for licensees but said it did not consider “other factors that inform the potential risk of a licensee”.
It said these include:
The types of products on their approved product lists, particularly if they include high risk or complex investments.
- The qualifications, experience, and specialisations of their personnel, which directly impact the quality of advice provided.
- Situations where a licensee operates as a “licensee for hire,” providing licensing to third-party advisers with potentially limited oversight or accountability.
- Smaller-scale AFS licensees, which often rely more heavily on third-party service providers and carry a higher client remediation risk.
“Furthermore, any recalibrated regime should also consider the growing role of third-party service providers in the financial advice sector. These providers, such as compliance consultants, audit firms, and technology providers, are becoming integral to the operations of many financial firms, particularly those with fewer resources,” it said.
“A well-structured regime could introduce a government-led or industry-endorsed accreditation framework for third-party compliance service providers. This framework would require these providers to meet defined standards of competency, education and qualifications, governance, and accountability, ensuring that they can offer high-quality support to AFS licensees.”
The FSC represents product companies that abuse the current flawed licensing system to coerce advisers into recommending their products. As honest professional advisers have pushed back against this model, the FSC is lobbying to tilt the power balance more in favour of product companies so they can regain control over advisers.
The reason there are more breaches and greater requirement for remediation from larger licensees, is because they give worse advice. They are inherently conflicted. Advisers in large licensees are more likely to be pressured to act in the interests of their product company licensee, than the best interests of their client.
Yes, the licensing model needs reform. But not to further favour the interests of product companies rather than the interests of consumers.
Spot on Anon, the bigger AFSL always end up product owners and thus force advisers to flog their own products.
Of course the FSC is also just trying to divert attention from the multiple MIS product frauds and failures to continue to avoid CSLR for MIS.
The FSC is an effective paid product flogger and Canberra loved paid product floggers, as money also flows to Corrupt Canberra.
Absolute rot that self licensed gives better advice, the reason there is less remediation is that self licensed govern themselves and don’t raise issues
Blake Briggs commenting for the FSC hey
FSC members are responsible for nearly all of the issues facing financial planners over the past 15 years, including the Hayne Royal Commission, FOFA changes and CSLR. Now they are coming to “save us”. I’d rather put myself out of my misery than trust this lot.
I have had a concern for years regarding self-licensing and the issue around reporting. We have seen a rise of advisors moving to self-licensed models. We now have over 53% of all advisors in a self-licensed models. Why? It is cheaper and also they don’t want to be hassled with all the compliance requirements e.g., cut corners. It is hard enough managing yourself and your clients. Now we expect individuals to regulate themselves…that is just asking for trouble because most people’s ethical framework and moral compass are based on current societal trends which is to think about oneself before considering others…that is why we had to introduce laws around ethics and behaviour…we had to make it law to put others first, before ourselves. For many people, putting someone else first is no longer the norm and so laws instruct them to do so.
This recommended model is flawed. The issue is not about scale and money but around accountability and reporting. ASIC needs to implement a regime similar to tax Auditors and SMSFs. SMSF auditors can lose their license when it is found they have not performed their duties. However, a compliance officer is not registered directly with ASIC and they themselves are not audited to make sure they are doing the right thing by ASIC. There is no requirement for them to report breaches directly to ASIC. Currently, self-licensed businesses hire compliance officers and those compliance officers report directly to the responsible person running the self-licensed business – after all, as I was told by a law firm that provides compliance services, “we represent the business and not ASIC”. It is then up to the self-licensed owner/responsible person to report the breach to ASIC. Human nature is about preservation and not putting oneself at risk…asking someone to report themselves is like asking someone to punch themselves in the face…it is possible but hard to do. I don’t believe enough breaches are being reported by self-licensed businesses. If I was ASIC and I want to find advisors doing the wrong thing then I would start with those running their own self-licensed businesses. You might think that I am being harsh but you would be surprised how many self-licensed advisors I keep coming across who do not seem to have the client’s best interest at the forefront of their business. Just to be clear, I am not saying ALL self-licensed advisors are doing the wrong thing. What I am saying is that there would be more advisors that are self-licensed doing the wrong thing compared to those who are ARs of large AFSLs. In short, I would argue self-licensed operates carry more risk and should pay more – it is not about size but about the model e.g., self-licensed vs non-self licensed. If ASIC were to simply implement a requirement for compliance officers to be directly registered with ASIC and audited I believe we would see a dramatic increase in breaches and a further clean up of our profession.
Just like the FSC press releases, this comment chooses to completely ignore the primary reason advisers become self licensed. It’s not to reduce costs, or reduce compliance, or get away with something dodgy. Quite the opposite.
It’s to avoid being pressured into acting contrary to client best interest and adviser professionalism. That is ultimately why large licensees exist. To coerce advisers into selling more of the licensee’s product. Self licensing is a way for advisers to escape that pressure and influence. In the vast majority of cases it leads to better quality advice for consumers.
“What I am saying is that there would be more advisors that are self-licensed doing the wrong thing compared to those who are ARs of large AFSLs”.
Yeh ok – so the big banks FFNS scam for a decade mainly caused the RC = Many big AFSL’s owned by banks with criminal fee theft.
Banks only ever cared about vertically owning more in the financial product chain and forcing Advisers to flog multiple bank owned products.
Up to the latest mess from Sequoia as a big AFSL and its dodgy reps like Venture Egg with Shield & First Guardian MIS disasters.
Reality does NOT back up your comments. What you are saying is rubbish.
From my experience, self-licensed advisers are typically good operators who run sound businesses. Certainly well above average. More and more advisers are waking up and realising it is easy to run your own license if you have a reasonable business. There are significant cost savings and efficiencies. So what we are seeing is a brain drain, where the best advisers are drifting away from the big AFSL’s, leaving them with the lowest common denominator.
So in that context, I am not surprised at all with the FSC figures.
in my experience self licensed individuals have less oversight and do what they want to do. like inmates running the asylum
What most of them want to do is provide good quality professional advice, without pressure to sell their licensee’s managed fund or SMA or SMSF service. They are leaving the asylum of conflicted vertical integration, to work in the sane and sensible world.
The paper floats requiring individual advisers to carry their own PI insurance, presenting it as a potential government reform to “create a more direct form of accountability.” While not making this a firm recommendation, the FSC suggests government should “assess the appropriateness” of mandating that advisers be covered individually rather than through their licensee. This proposal fundamentally misunderstands how financial services achieve affordability through scale. AFSLs currently negotiate group PI insurance rates and pool compliance costs across multiple advisers, saving practices $70,500 annually according to the paper’s own data. Individual PI insurance would be prohibitively expensive for most advisers – destroying the cost efficiencies that make advice remotely affordable and forcing thousands more advisers out of the industry. New entrants would find it particularly impossible to obtain affordable coverage without an established track record, further constraining the already diminished adviser supply.
Despite claiming to reduce regulatory burden, the paper calls for extensive new government intervention: a tiered licensing framework, accreditation systems for compliance providers, expanded adviser registries, proactive PI insurance oversight, practicing certificates, and revised capital requirements. These proposals would create additional bureaucratic layers, monitoring oversight bodies, and compliance costs in an already over-regulated industry that has lost nearly half its advisers.
The paper’s most glaring contradiction uses large firm failures like Dixon Advisory to justify concerns about micro-licensees. Dixon was a substantial firm, not a micro-licensee, yet the paper illogically uses such failures to argue for restrictions on small firms without any evidence linking firm size to failure risk.
The compliance evidence directly contradicts the paper’s narrative. Only 10% of smaller licensees reported breaches versus 81% of large ones, and self-licensed firms successfully manage their own compliance with 93% valuing the flexibility. Yet the paper frames the growth of 450 micro-licensees as problematic rather than a market response to adviser needs.
Most damaging is how the proposals would worsen the accessibility crisis they claim to address. The paper acknowledges advice is unaffordable, adviser numbers have collapsed, and regulatory burden drives 70% of client onboarding costs. Yet it proposes fragmenting the efficient licensee model and adding more regulation, which would inevitably increase costs and accelerate adviser exodus—achieving the opposite of improved accessibility. The paper never explains how adding layers of cost and complexity would somehow improve access to advice; it simply assumes more regulation will help.
The paper’s comparison to accounting and law professions reveals a fundamental misunderstanding of financial advice as a service. Unlike lawyers who charge $400-800 per hour for discrete transactional work, or accountants who perform annual compliance tasks, financial advisers provide ongoing relationship-based guidance covering investments, insurance, retirement planning, and life transitions over decades. The average Australian cannot afford legal services precisely because of the individual practitioner model—most people only engage lawyers for crises like divorce or crime. Financial advice, by contrast, aims to be a democratized service helping ordinary Australians build wealth and security. The paper ignores that lawyers and accountants serve primarily businesses and wealthy individuals, while financial advisers aspire to serve teachers, nurses, and tradies planning for retirement. Furthermore, legal and accounting work involves standardized procedures with predictable risks, while financial advice encompasses unpredictable market outcomes and long-term projections where client losses can occur despite good advice. Law and accounting built their professional models over centuries of evolution, yet the paper expects financial advice to transform overnight. Forcing advisers into an individual practitioner model would transform financial advice from an accessible middle-class service into another elite profession available only to those who can afford to pay lawyers’ rates—completely defeating the purpose of helping everyday Australians achieve financial security.
I’m not sure that the best metrics for advice quality is self-reporting of breaches…would it make more sense to look at actual loss and themes across the industry? I think all licensees, big and small, have experience of inappropriate advice and costly mistakes.