The market is cyclical and therefore there will always be a swing between networks and Appointed Representatives and then advisers who prefer to be Directly Authorised (DAs).
At the moment the swing is going towards networks and ARs. The reason is that if you’re a great networker and business writer it is likely that reading lengthy FSA/MMR documents and keeping up with regulation is not your thing; therefore such advisers are bound to be drawn to a network where all the compliance and regulation is done for them.
Similarly, when the market is very stable, there are fewer changes and advisers get the opportunity to understand the market and its regulations in depth, they may well get to a point where they think they can handle their own compliance and wonder why are they paying a share of their income to a network; at this point there is likely to be a swing in the other direction and more advisers will return to being directly authorised. It was exactly the same with IFAs a few years ago.
The decision is, do you look for a partnership with a network or do you go it alone? Both set ups have their pros and cons and it’s up to each adviser to decide what is important to them and their business given their own strengths and weaknesses.
Being with a network means the network takes on the risk for you but it has systems, controls and procedures that you have to follow. Most regulation is open to interpretation and how the network interprets the rules is the way you have to do it if you are an AR of that network.
DAs take the commercial and regulatory risk but then they are in charge of their own destiny. If you are happy to read the FSA papers then it’s up to you to interpret them yourself and put your own systems and controls in place.
However it’s not a case that if you’re a DA that you are completely alone, arguably, you’ll need a third party to help you and there are support packages available from mortgage clubs. However once you buy a compliance support package it’s up to you how you run your business and what decisions you make and what risk you take.
The added complication for advisers at the moment is the pressure exerted on the lenders from the FSA regarding ‘knowing your broker’. It becomes extremely difficult for a lender when they have a small sales team and 3,500 directly authorised brokers to get to “know”.
Fewer checks are carried out in the DA space, so a lender is faced with the decision of do they have the time and the inclination to do the audit themselves when they can potentially deal with a network with 500 brokers, which has relatively strict controls in place where the checking has already been done?
However mortgage clubs may well rise to the challenge to defend the DA space. This could simply entail carrying out frequent audit checks, or may range to a whole support package including visits, file checks and financial promotions. But will this be enough to satisfy the lenders requirements and indeed the FSA’s views? Furthermore will the lender seek the comfort of carrying out an audit on the mortgage club to satisfy themselves that the mortgage club is doing what they say they are doing?
One thing is certain, that in a market evolving as quickly as ours is, there will be as many different ways of doing business as there are people. I think there will always be room for both ARs and DAs and the organisations there to support them will continue to adapt to ensure that advisers get the support they need, whatever business model they choose.
