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DA vs AR: FCA network criticism highlights attraction of independence – Whitehouse

by: Phil Whitehouse, managing director of MCI Mortgage Club
  • 18/12/2017
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DA vs AR: FCA network criticism highlights attraction of independence – Whitehouse
The debate between being directly authorised (DA) or an appointed representative (AR) has been raging through 2017. Phil Whitehouse argues why brokers may want to go DA in 2018.

The Financial Conduct Authority (FCA) has issued a stark warning to mortgage networks about the need for greater responsibility over advice given by their appointed representatives and has highlighted the “inappropriate influence” that introducers can have over investment choices.

It has criticised some authorised firms and their ARs for failing to provide “adequate input or control over the advice they are ultimately responsible for giving to customers” – a damning indictment of the support which networks are supposed to offer their members.

Indeed, with doubts now being raised about network business practices and a drip-drip feed of FCA rebukes and penalty fines, recent industry research has suggested that a growing number of brokers are now favouring direct status – the industry benchmark for independence and freedom of manoeuvre.

With 2018 almost upon us therefore, let’s take a moment to consider the benefits of being DA.


Freedom of choice

The principal arguments in favour of direct authorisation have always been based upon the advantages of self-governance and the primacy of choice. DA firms can obviously shop around and use good mortgage clubs and support services, select from a wider range of mortgage or insurance products, tailor their processes to suit the needs of their customer base and avoid the high fees charged by some networks.

By contrast, most networks restrict the choice of insurance products to a panel, while some advisers are restricted in terms of the lenders they can advise through.

The biggest perceived disadvantage is that DA firms are entirely responsible for compliance, reporting directly to the FCA.



With regulatory changes becoming increasingly stringent in the past few years many network members have claimed that the necessary workload had doubled in that time, thereby decreasing the amount of time that brokers have to sell and increasing the risk of liabilities from advised sales.

DAs counter this by saying that networks present a deliberately distorted view of the regulatory work they do in order to maintain a level of control among ARs.

In fact, many DAs point to the inherent benefits of completing their own compliance work: they can substantially reduce unnecessary costs, potentially reduce indemnity insurance payments and get a better deal on tailor made compliance support, primarily because mortgage clubs don’t take the regulatory risks associated with networks (as the recent FCA missive illustrates).


Networks diversifying

In addition, with compliance changes now having had a chance to bed down, many DAs report their workloads have eased considerably and expressed a growing consensus that technological advances will soon dispense with the traditional methods of checking files and similar tasks, thereby changing the nature of compliance work and possibly reducing the value of the network model.

It is for these reasons that many networks have now also set up a DA proposition to run alongside their network model.

In 2018 therefore (and to adapt a famous speech by Franklin Roosevelt), the only thing that brokers need to fear is fear itself.

Freedom equals responsibility and the ability to exercise that responsibility as brokers see fit. Fear of freedom equates to an ever-tightening control by the networks and a neutered dependence.

Time to choose.

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