Clearly, when it comes to important decisions for mortgage and protection advice practices, one of the most fundamental at the outset is what regulatory status they should choose – appointed representative (AR) or directly authorised (DA).
That choice is crucial and will shape a great deal of how the firm will work, its compliance ‘shape’, the opportunities it will be able to access, its costs, and everything else that is involved in running a successful mortgage advice firm.
When the market talks about switching authorisation status, the tendency is to focus on the move from AR to DA. There’s an assumption that many firms use a network in order to build confidence in their proposition and the way it is run, before they elect to ‘fly the nest’ and take their regulatory compliance into their direct control.
Similarly, when we discuss firms moving to different networks, there tends to be an assumption these are existing AR firms making that switch, when the truth of the matter is that an increasing number of DA firms are choosing to change their authorisation route.
As a network, the reality on the ground is somewhat different and certainly listening to our network peer group, they are also seeing similar types of movement. There are many and regular examples of DA firms finding life tough at the moment, and while they can of course get support from clubs, distributors, perhaps third-party compliance partners, they are ultimately at the sharp end especially when it comes to dealing with some of the growing issues in our sector.
Take costs as a prime example of this. At the moment I think it’s fair to say, that costs are rising right across the piece for advisory firms. Whether it’s regulatory costs – and we’re all acutely aware of what is being proposed in terms of the FSCS levy and FCA fees in general, particularly when it comes to the Senior Managers Regime – or its increased PI costs which have risen considerably in our sector, or it’s the day-to-day costs of rent, marketing, lead generation, advertising, recruitment, tech, etc.
We all know that costs tend to move in one direction and DA firms will have to shoulder this burden by themselves completely, while those within a network may benefit from a sharing of these increased costs, or indeed in many cases, the network doesn’t pass on that cost directly and is able to spread it across its own business, absorb it completely or only pass on a smaller percentage.
Many advisory firms may have ended 2020 feeling like they are in a relatively strong place from a financial and business point of view, but we know there are some significant cost headwinds in 2021 and many of which simply can’t be avoided.
Being part of an umbrella organisation such as a network may make all the difference for this year, and the ones ahead, and it will certainly help the broker firm in terms of cashflow. How many firms might otherwise look at those rising operating costs and feel the need to make people or marketing cuts in order to mitigate them?
That’s not what we want our member firms to do, and I suspect a growing number of DA firms who find themselves in the above position may well be looking at what a network can offer them and thinking seriously about their authorisation structure in light of this.
Of course, being a network AR is not a free bet. Networks have similar but different funding models and ours happens to be predicated on a percentage turnover levy, the level of which has not changed in five years, and we believe that provides consistency, clarity and confidence to our ARs. We have no plans to change our core financial model, even with some of the major costs being forced upon our sector. We know that this allows our members to have certainty in their business plans and to prepare accordingly.
And network membership isn’t just about the absorption of costs – there’s ensuring business standards, meeting the regulatory levels required, training options, use of technology and systems, provider/lender and product opportunities, access to ancillary services, etc. The list goes on, and being part of a bigger group, with that level of support can provide a comforting and protective arm, and deliver access to economies of scale, that would certainly not be available to broker firms if they were flying solo.
DA firms considering their futures have plenty of options. It should not be seen as any kind of retrograde step to consider a completely new approach. Some of these models could well allow you to move forward at a much faster pace than you would otherwise be able to do on your own.
Rob Clifford is chief executive of Stonebridge