Obtaining Your Own Licence versus Being a Representative

When deciding whether to obtain your own AFS licence or become a representative of an AFS licensee,  you should consider the benefits and disadvantages of obtaining your own licence.  We have included a brief summary of the advantages and disadvantages of holding your own AFS licence.

Advantages of obtaining your own AFS licence

  • Control:  The biggest and most obvious advantage to holding your own licence is the control that you will have over your business and professional practice.  Essentially,  you are free to run and direct the business your own way. 
  • Revenue retention:  You do not have to share your revenue or pay ongoing administration fees to a third party (i.e.  your AFS licensee).  Your professional indemnity insurance fees may also be cheaper as the insurer will not have to bear the risks that large licensees may have.
  • Cost effective: We find that the additional or marginal costs of operating a financial services licence in addition to an accounting practice are relatively low since most of the overhead and fixed costs are already being paid in relation to the existing accounting practice.  Importantly,  since you will have control over the nature and scope of the work and clients many costs can be controlled.  For example,  your professional indemnity insurance premiums with your own licence may be comparatively cheaper since the insurer will not have to bear and price the risks that large national licensees experience with geographically spread and diverse practices.  In these circumstances,  insurance premium pricing must factor in the highest risk practices,  which your practice will inevitably cross-subsidise.
  • Professional independence:  In light of some of the experiences of the GFC and recent media scandals,  a large segment of the public are looking to accountants as the bastion of the independent professional,  providing independent advice.  Subject to your licence authorisation,  you will be free to choose the financial products and services that you will recommend to your clients.  Operating your own licence can remove actual or perceived conflicts of interest of being an authorised representative of a large licensee,  which may be owned by a financial institution.  There should be no doubt that accountants acting under authorisations issued by large institution-owned (mainly bank owned) licences will typically have their operations,  financial services promotional activity and approved product lists determined by executives of these financial institutions. 
  • Own compliance arrangements: You will be able to structure and deal with the compliance arrangements yourself.  While the requirement to comply with the financial services laws is a self-evident obligation.  Many large licensees have additional compliance requirements to protect their corporate/commercial interests.  Having your own licence reduces that additional layer of compliance rules set by large institutional groups that are designed primarily for their benefit. 
  • Handling of complaints: If or when you are faced with a client complaint,  you are able to resolve the complaint directly with the client.  Many of your financial services clients will also be accounting clients with who you may have long standing relationships.  Arguably,  the last thing you would wish is a manager from a financial institution dictating how you resolve your client complaints and relationships.
  • Branding: Operating your own licence,  under your own name,  can enhance your brand.  While accountants operating as authorised representatives can still trade under their own business names,  the Corporations Act disclosure obligations require them to identify interests,  associations,  relationships and payments/benefits that can influence their conduct.  This can dilute the business branding.  Up to 80% of Australia’s financial advisers (including many accountant/advisers) act for an entity that is related to,  or controlled by,  one of the big 4 banks. 

Disadvantages of holding your own AFS licence

  • Need for specialist infrastructure and supportBeing part of a larger licensee business by acting as their representative would typically mean that you are provided with the support and infrastructure needed to run your financial services business.  It is not uncommon for licensees to provide support in relation to IT and software,  initial and ongoing technical training,  marketing support,  product and technical research and compliance and legal support.  However,  as discussed above,  such support comes act a direct cost to your business and it may be preferable (and much more cost effective) for your business to source these facilities from professional service providers.  You can easily make that determination for yourself.  Considering the indicative costs of running a licence using support from independent professional service providers in the tables below.
  • Brand presence and marketing: Large licensees tend to have a large industry presence and marketing budgets.  As a small business,  you may be unable to allocate large sums into the marketing budget and promote your services as widely as you need.  However,  a large presence in the industry may also have a negative impact on your business,  especially where other advisers acting for the same licensee attract adverse media attention.  Clients may not be sufficiently aware to distinguish between the practical separation of your business from a rogue business that operates under and is badged under the same licence. 

Costs of having an AFS licence

Below are the costs that an AFSL is likely to incur on a yearly basis.  Please be aware that the figures below are only an estimate and the running costs could vary dramatically from business to business depending on the scope,  scale and nature of the business. 

Small practice with 1 – 2 accountant advisers with a limited AFS licence:

Mandatory costs

Annual costs

PI insurance

$2,000 - $4,000

EDR scheme membership fee

$500 

ASIC fees for lodging financial statements with ASIC

$563

Discretionary costs

Annual fees

Compliance support

$4,400 - $7,000

Training

$1,000

Total

$8,463 to $13,063

 

Small practice with 1 – 2 accountant advisers with a broader AFS licence:

Mandatory costs 

Annual costs 

PI insurance

$8,000 - $15,000

Auditor’s fees

$4,000

ASIC fees for lodging financial statements with ASIC 

$563

EDR scheme membership fee

$500 

Discretionary costs

Annual fees

Compliance support

$4,400 - $12,000

Training

$2,000

Total 

$19,500 - $34,000

 

Other discretionary fees such as software and research providers have not been included in the estimates above.  If you require further information,  please feel free to contact us.

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