Brokers could be forgiven for thinking that appointed representative (AR) status is the Holy Grail for advisers. The ranks of those distributors proposing to offer AR status is swelling on an almost daily basis, with most raising concerns that the cost of remaining directly authorised by the Financial Services Authority (FSA) will be too high for the average broker. But at the time of going to press we have not had any concrete figures from the FSA as to the cost of this. In CP180 we have been told that the application costs can be reduced by applying early, but while brokers need to be fully conversant with the issues before they make their decision, they should not be rushed into anything.
There is a danger that this could become distribution in the guise of regulation. Some parties are concerned (quite rightly) that their distribution channels may be under threat and are thinking about how they can counteract this. Some packagers are worried that if brokers join networks they will lose distribution and so they are looking to offer AR status to prevent this. Some lenders will also be concerned about the potential strength of networks if a majority of brokers become ARs and are tied to them and their lender panels. Lenders could find they are competing to get on these panels as their absence could prove very costly in terms of their own distribution. This has happened in the life industry already. Some say this could be a good thing because the power of the networks could increase procuration fees and exclusive products, but it could also damage the reputation of the industry and advice in particular as lenders may consolidate, leading to less innovation and choice.
So, do not be fooled into thinking that the industry has suddenly become altruistic. The issue for brokers is to try and siphon out the scare-mongering from the reality. While AR status may be a relief for some it is not a panacea for the broker industry. If these groups are going to be responsible for brokers’ compliance needs then the question is whether they will all be able to deliver on their promises. The largest players should be able to, but some of the smaller players may not be able to.
Brokers will have to try and balance the information they receive and work out what is a sales pitch based on distribution needs and what is going to fit in with their needs. Advisers have got to act before February next year if they are to save money on application fees so there is not a huge amount of time. Yet this is not a decision to be taken lightly.
Ben Marquand, editor
