Back in December last year, the FCA introduced additional rules for Principals related to the responsibilities they have for their ARs.
Last month, the industry received feedback from the regulator, via its Annual Report, on how the new regulatory rules had been reflected in the conduct of firms, and the progress that was being made.
The FCA Annual Report stated there are now approximately 35,000 ARs – right across the financial services industry– and that number has dropped 19% from a 43,000 peak in 2020.
Reading between the lines of this information, the FCA appears to be highlighting the more stringent rules have had a noticeable impact in terms of the structure of the AR sector – between July last year and March this year, it says Principals terminated relationships with 153 ARs. And, according to the FCA & Practitioner Panel survey 2022/23, 56% of Principal firms surveyed think the oversight of ARs in their sector has improved.
Some commentators have murmured about the timing – given the regulator announced these figures, with a particular focus on ARs, just a week prior to the launch of Consumer Duty. Perhaps it does evidence a regulator focused on the Principal/AR space, and it seems to show the success of an approach which, as mentioned, rightly puts great emphasis on Principal oversight.
That seems especially important, given the introduction of the new Consumer Duty rules, and the expectations of both Principals and their ARs going forward.
And, in a sense, the FCA appears to be setting its stall out, perhaps for a more interventionist approach around Consumer Duty compliance, than many in the financial services sector would have assumed.
On this, I’m fully with Robert Sinclair of AMI and other commentators, who have suggested the mortgage/protection advisory sector need not be an early priority for the FCA in terms of determining embedding and success of the Consumer Duty rules, as it expects the FCA will focus on areas of the financial services marketplacewhich many regard as higher risk to consumers – some would assume to be investments, pensions, consumer finance and the like.
However, every firm in the sector has to comply with the Consumer Duty rules of course, and it seems obvious that ARs, particularly their Principals and how they have approached Consumer Duty, will be in focus and there will be an expectation of evidencing the changes and how they have increasingly protected against the risk ofconsumer detriment.
My own view is a significant regulatory focus, such as Consumer Duty, potentially makes the case for a greater number of firms to either move to AR status, or if they are just starting up, to begin their advisory firm journey within the established and proven structure of a successful network.
We talk to a lot of broker firms about their reasons for choosing Stonebridge, and there are some fundamental ones that very rarely change in terms of priorities – one of them is the ongoing support, insight, and resource they get from our Business Standards team in terms of meeting their regulatory responsibilities, and the supervision and oversight they get which allows them to be confident in the processes they are following and the systems they have in place. All to the good of consumers, even if sometimes onerous and tiresome for advisers.
When you ‘throw’ something as fundamental as Consumer Duty into the mix – and when there is the reasonable expectation that the industry fully adopts a regulatory regime which continues to seek to raise standards and where the resource and cost required to do this also continues to increase – then you can understand why many firms want the protection and support of a quality network that is going to be able to lead them through what is required and provide the structure they need in which their businesses can thrive.
You may well have seen the recently published network ‘league table’ which showed that Stonebridge saw the biggest growth in AR numbers in 2022, and has again for the first six months of 2023, and while firms are clearly benefiting from the commercial opportunities they get here, access to our stand-alone, proprietary platform, Revolution, and much more, it is clear regulatory compliance and business standards support is highly valued, alongside those other fundamentals that can make you stand out as a network in these changeable times.
In that sense, we should also not underestimate the certainty firms seeks from their network partner. They want to know we as their Principal are going to be around for a long time – for as long as they intend to be working – and decent networks like ours have the capital available to accommodate market and regulatory demands, and to keep providing these services, and much more, to member firms. We’ve been doing it successfully since 1989 and I know we will be doing so for at least the next 34 years too.
There appears to be some recent speculation in the industry that there may be a change of ownership at some networks including Stonebridge. Let me very quickly quash that notion and state that Stonebridge is not involved in any sale process. Our investors, senior leadership team and growth strategy are amongst the most consistent in the entire industry: we are proud of that.
We will continue to welcome appropriately experienced and well-run AR firms who are seeking the security, the oversight, and the resource and support we deliver, but also wanting a partner that will work with them to make the most of all market opportunities and give pragmatic help with growth of their business: that is our job.
Rob Clifford is chief executive of Stonebridge