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Tied Agency 2.0 – spelt out

Jon-Paul Hale on why you need to get your transitional licence sorted asap. 

Wednesday, August 5th 2020, 12:01PM 3 Comments

I've said this before, and I've been told from "not possible" to "you're crazy", but am I?

Crazy, yes, I think that has long been established, no contest there. I choose to become an adviser and deal with the crap we face on a daily basis.

However, Tied Agency 2.0 isn't the pipe dream many think it could be.

What I am seeing with the numbers published to date on licensing is suggesting my ideas from 2-3 years ago aren't so far off.

There is a second aspect that I hadn't considered until recently, and this adds an additional piece to the puzzle, BOLR, buyer of last resort.

Now for those that don't know BOLR is something in many agency agreements where the insurer buys the clients from the adviser if they are unable to find a suitable buyer for those clients.

Now if we look at the numbers published by the FMA on the August 4 update, we have 949 trans licenses, covering an estimated 6,996 advisers captured by those licenses, and an additional 372 authorised body businesses that sit under them.

I expect a significant portion of those will be the institutions, and the majority of "independent" advisers are yet to get their transitional licence. (I've had a few comments from good sources that this is where it's sitting.)

From my anecdotal discussions with advisers, and people that work with advisers in the industry, there are a considerable number that are yet to move. And, before the change in April to extend the deadline, they should have been done by now.

And we do have a camp of advisers that are hoping that this all doesn't come to pass on the basis that not enough are licensed. Yeah, good luck with that, the legislation is done and dusted, and it's all lined up to go in March 2021. Will it be immediately enforceable? Maybe not, but the FMA will get there reasonably quickly is my guess.

Where am I going?

A common question at this point in my writing. If we have 7,000 advisers accounted for, where are the other roughly 18,000 of the 25,000 advisers understood to be operating in the industry?

What makes up that 25k bodies are 400 and something AFA's, 4,500-odd RFA's and the rest are QFE advisers. The QFE advisers are likely to become either nom reps or removed from advice roles by their institutions. Though with 8,746 nom reps also registered to date we have a good idea of what that is looking like. So we're looking for about 9-10,000 people yet to be accounted for.

I say not accounted for as the institution numbers dwarf the RFA numbers, so it's easy to look at the numbers and go, "not too bad ... a bunch in the institutions aren't being registered".

Except we are starting with crappy data and we have not such crappy data in the latest report. It doesn't tell us how many RFA's and AFA's have licensed; it's just an arbitrary number representing a pool of licences.

I'd put money on the FMA having a view of who has licensed in some shape or form and those that haven't. Part of that is we haven't had an announcement saying what a great job the industry has done with getting organised, quite the opposite is the message I'm hearing.

Which leaves us with a significant gap of people that are not captured with the current trans-licensing programme.

And if there are 50% of RFA advisers not licensed, 2,250, I think it's higher, but let's keep it simple and less dramatic for a change. We have an issue where the remaining licensed 50% aren't necessarily in a position to buy those client bases from those exiting.

Yes, right now it seems like there is a feeding frenzy on buying bases out there, however, that comes with a caveat. Who's going to service them?

But before we get to that, when we have 50% of adviser businesses for sale and those advisers are not able to operate because they missed the boat. What are their client bases going to be worth?

Fire sale values and likely struggling to attract serious offers above one times, if that at all. They have become a liability if there is no one to service them.

Looking forward, when we have a significant portion of the adviser force supplying insurers not able to trade, we have a developing situation where the insurers' new business operations are going to be impacted.

Which suggests that they are going to have to bring on orphaned advisers under their own FAP licence to maintain their new business flows.

There is a secondary piece to this – if base values plummet then the BOLR clauses are going to be enacted.

Which is going to mean that the insurers are not only going to be paying over the market for these bases, they also have a regulatory problem in being responsible for the servicing of those bases.

And the added risk that values will be further impacted if insurers do what Aussie did and pull the carpet by removing BOLR with agreement updates they can inflict on us.

Enter the disenfranchised adviser who has had to sell up, doesn't have a home, and insurers in a position where they need to service existing orphan clients and shore up new business production.

Welcome to Tied Agency 2.0

You think it's impossible, nup, it is now quite probable.

And all of this for the sake of not getting off one's tuft and paying $1,200-$1,500 to register your company on the FSPR and apply for a transitional licence.

As I have said over, and over, and over, and over, go get your damn transitional licence and give yourself some wriggle room on what happens with your future, your business and your clients.

Get your TL, and you have two years to figure out where to from here.

If you don't, you have been warned. ;)

 

For reference, the following companies have a BOLR: Accuro, AIA, AMP, Asteron Life and Fidelity Life.
The following companies have a first right to buy your book: nib and Partners Life.
The following companies are silent: Cigna and Southern Cross.

Where Cigna renewals continue after termination and Southern Cross tell you to go fish. Yes, SX stops paying comms once the agreement is terminated. See my previous articles on this subject.

Tags: insurance Jon-Paul Hale Opinion

« Some sense with regulationLevel five isn't the big issue for advisers; It's something else »

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Comments from our readers

On 6 August 2020 at 9:00 am JPHale said:
Filling in a couple of background points from off-line conversations.

while it may be possible for you to get your transitional license in 14 days this is as an individual and I strongly recommend you do not do this as you cannot mitigate, minimize or sell off your liability personally and directly, this responsibility will go to your grave with you.

on the time frames for your transitional license, if you have to register your company, on the FSPR and then apply for a transitional license this could take you 60 to 90 days depending on FSPR volumes and the timeliness of your own replies.

also with the numbers I have quoted but there is a little reading between the lines that needs to be applied as I have insinuated ;)
On 6 August 2020 at 2:01 pm gavin austin adviser business compliance said:
Great stuff JP if BOLR is taken up by institutions who a) don't have a home or b0 when the TL advisers exit they "will" have a huge issue complying with the obligations they will have for "orphaned" clients. It's always been an issue. For thos that don't have BOLR or first option they may well be up s creek without a paddle. Economis 101 - supply and demand influenes price more sellers than buyers. The lower the quality of books will aslo haqve an effect (some books) and I've sen them recently are still 90% reliant on paper based records. Who would buy that - maybe someone but definately only at cents in the dollare. JP - the lates poll, from RiskInfo indicates that a very large % will be a FAP on thier own. I not aware of the number of subscibers that get the RiskInfo news letter or waht % have done the poll but it might be a reasonable indicator. My motto, for some time now, has been stay ahead of the pack get in early and beat the rush.
On 6 August 2020 at 2:45 pm JPHale said:
Thanks Gavin nice insights. I’m aware of the comments on intention and quite a number have expressed that to me as well however as one colleague put it to me today when it came to your wedding your wife didn’t buy the wedding dress on the morning of the wedding.

much the same thoughts here if it’s done and dusted well before the deadline it removes the risk of unexpected surprises particularly with the FSPR.

That's not say that some of us aren’t already on the FMA radar either.

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