With just 18 months left on the RDR stopwatch, advisers are running out of time to decide how to operate their businesses post-2012. For some, the support of a network is the most appealing option. But others are choosing to go it alone and become directly authorised (DA).
The advantages of this option include: having more control over the business; receiving payment directly; and streamlined regulatory costs.
Fears of a long and expensive process put many advisers off the idea, however commentators agree it should not be an arduous task. A common response is to employ the help of a compliance consultant.
Chris Kilner of SimplyBiz, one of a number of specialist consultant groups in the market, outlines what advisers should expect from the process:
1. Charges: There are a number of costs involved. Initially, there is a £1,500 FSA application fee and a standard variation of permission (VOP) of £750.
Annually, there are permissions of between £850 and £1,000 for each adviser. There are also various payments to the FOS, ranging from £50-£80.
FSA transitional fees are taken pro rata, with the first bill received within three months of authorisation. AIFA members get the option to pay fees monthly.
2. Giving notice to a network: Once the FSA has checked the application it is passed to a committee which will request permission to obtain a reference from the network. At this stage, advisers must resign from the network so they should be confident there is an authorised firm to move to.
Confirmation of DA status will be approximately two weeks from the committee stage. Once confirmed, advisers can begin operating.
3. Outstanding commissions and PI charges: Following resignation, advisers are unlikely to receive outstanding commissions until any unearned indemnity commission liability is less than that due to them. This may also apply during the network’s notice period, so make sure to check.
In terms of PI cover, advisers need to be aware this is taken by networks monthly and deductions will continue until the end of the policy year. This varies for each network so advisers must ensure this information is confirmed with theirs.
4. Client files: In case of a subsequent complaint, networks have a contractual right and regulatory obligation to retain original client files once an adviser leaves. On resignation, the network will provide a list of requirements for this. While some client information should be handed to the network, some must be kept. A compliance consultancy will help advise on this.
5. Novation agreements: In setting up new agencies with product providers, novation agreements are important. This allows the transfer of potential liabilities, due to claw back, from the network to the adviser’s new practice. It also means future commission due, including renewals, will be paid without delay.
Find out how and why two IFAs made the move from AR to DA
IFAonline spoke to two IFAs who took the plunge – and have never looked back.
Colin Palmer, principal of Colin Palmer Financial Services
I’ve been in the industry since 1990: four years as an appointed representative (AR) and 17 years in a network. Why did I stay with a network so long? I put it down to inertia and uncertainty about what I wanted to do with my business.
Three years ago, a serious illness and the coming of RDR forced me to look at my business. I had two choices: get out, or reshape to meet RDR.
I decided to continue trading but that meant completely changing my business. As a result, I’ve spent the past two years completely turning it around and central to this was to leave the network and become directly authorised.
I found network membership to be like a drag anchor and realised my business model was incompatible with the network’s. The network model cannot live in its present form with RDR, and the only way it can retain control in a fee-based environment is to become even more controlling.
Of the organisations I looked at, SimplyBiz allows me to be a free agent and provides the compliance support I need. With its assistance, I applied for DA status and after six months I was able to advise on this basis.
Now I use processes and risk analysis, asset allocation and cashflow forecasting tools that have improved my business output. In Q1 this year I’ve written business almost in excess of my median year’s output – all of it fee based. With the help of SimplyBiz and the NMBA training programme, going DA has enabled me to avail myself of a structured route to diploma.
Stewart Jones, principal of Oakwood Financial Services
When I started in the industry, being with a network provided me with the security and support I felt I needed at the time. Then, after a few years my network was sold on. I was unhappy with the new arrangements so I made the decision to leave and become DA.
I felt networks were over cautious – possibly hoping to reduce their risk of censure and/or fines – and this was making it difficult for me to perform certain types of business. It seemed to be a one size fits all approach with no flexibility for individuals. In addition, fees were constantly increasing and the required support was not always available.
With the help of Accord Compliance Consultants, I left the network and became DA within three months. The application to the FSA (who were supportive and helpful) was relatively straightforward and my company was authorised within about four weeks, with relevant individuals taking a further week.
The most time-consuming aspect was actually being released from the network: the complicated process appeared designed to discourage members from leaving.
Now, I feel more in control of my business, the overheads are lower and there is less external interference. With the help of my compliance consultants I can get on with running my business knowing I have professionals checking my work and briefing me on regulatory changes.
There is the added challenge of administration and our preparation for RDR but it’s a good feeling having people I can talk to and get help from, rather than being fobbed off, as often seemed to be the case with the network.
Maria Merricks is features writer for Mortgage Solutions sister title IFAonline
Any IFA thinking about becoming DA should take the plunge; but make sure you have good compliance support and a leading back office system – we use True Potential.
