But some brokers are choosing to go in the opposite direction and become directly authorised, despite the imminent changes.
Edinburgh Mortgage Advice’s Mark Dyason is currently an employee of directly authorised firm MortgageForce but is now seeking DA permissions of his own.
I meet him in central London shortly after a grilling with the FCA and my first question is why, with the biggest regulation change in a decade on the horizon, he’s choosing to go it alone?
“I’m a bit of a control freak,” he laughs.
Dyason says he had considered becoming an appointed representative but was eager to keep full control of his business.
“I want to have a client rather than a transaction so being DA is more attractive. I have the ability to change the business and offer what I want to offer,” he says.
“I’m not dissing ARs but I see it as the difference between off the peg and bespoke, Marks & Spencer vs. Savile Row.
“Customer relationship is everything. Lenders talk about knowing your broker but for us it’s all about knowing our customers.”
Another mortgage broker, who we’ll call Jennifer Page, did not want to speak under her real name in case it jeopardised the move away from her current network. Currently an appointed representative, she made the decision to switch because her network was no longer providing her with enough support.
“I just came to find my network really suffocating from a business perspective,” Page explains.
“Just before I decided to move I asked my network for some compliance information. They have a huge compliance team and yet nobody could answer. I eventually found it out myself online but it made me ask ‘what the hell am I paying for?’.”
I ask why she hasn’t simply moved elsewhere but Page seems disillusioned with the entire idea of networks.
“After my experience here I just feel that they’re all going to be the same. I chose my current network because I thought they were the best but it hasn’t worked out and at the same time so many others have gone bust.”
One of the biggest disadvantages to going directly authorised is said to be the long and expensive changeover process and lack of compliance support afterwards. Should brokers not be making use of networks more than ever?
“There are still support mechanisms like SimplyBiz for DAs,” thinks Dyason. “I can see why people want to stick with networks though. As a broker, feeling safe has been very comforting in the past few years.”
“MMR doesn’t play on my mind, not at all,” adds Page. “If a broker is decent and does their research properly then they have nothing to fear.
“If there are problems I would much rather be having conversations with the regulator than through a middleman.”
Dyason says in his meeting with the regulator he was quizzed over the structure of his business, the support mechanisms in place, his specific role in the firm and the business plan going forward.
When I bring up the possibility of earning less money he is philosophical.
“Being AR brings the possibility of enhanced earnings but I want to offer the customer a bespoke experience. If there is any loss of earnings I think I can overcome that by running the business in the way I want.
“There’s no-one who can come round and tell me to run my business in a certain way.”
Page believes that while she will be faced with some extra fees she will make up for it in the long run by keeping all of her commission.
“Overall there aren’t really higher costs. My move will cost £1,500 upfront followed by annual costs to the FCA of about £500. There’s PI which you have to pay the network for anyway, same with all the other FCA and FOS fees. But I will no longer be losing 10-25% of my commission to the network.”
This streamlining of costs and direct payment of proc fees comes up time and time again. But if that’s really the case, why don’t more brokers make the move from appointed representative to directly authorised?
“I think the reason more don’t move from AR to DA is because the gain is so marginal. If business works well then why change? Brokers think how much income they could lose and not having the comfort blanket of a network.”
Research conducted by Mortgage Solutions found as many as two-thirds of brokers are ‘considering’ going DA in the near future with a further 19% actively planning a switch. However, Page believes brokers are often scared of the making the move because networks have created a fear factor around the regulator.
But she said: “I have found the FCA totally supportive. As you’re doing things the right way you shouldn’t have a problem. Just take things slowly and ask questions. Maybe too many brokers don’t want to ring and ask for help, so they’re creating their own fear.”
She also believes networks can try and intimidate brokers for trying to leave them, but urges brokers to make the leap.
“When you choose to leave they tell you so many people fail when they go DA.
“They say it’ll take 6 months before you can leave but when you speak to the FCA they tell you it will only take four to six weeks, and the majority of people can make that move.”