The minimum fee for a DA broker advising only on mortgages looks set to stay at £745, but with mortgage transactions thin on the ground, this may feel like more of a stretch than last year, making the cost of network membership more attractive.
It is a tough decision but clubs and networks are vying for business and are keen to put forward the advantages of their own side of the distribution fence.
The Mortgage Alliance chief executive Phil Whitehouse says that by remaining directly authorised, advisers can “duck and dive” in the market and do whatever business they wish to, free from network targets.
He says: “By going DA, brokers will experience flexibility, independence and freedom. With networks there are volume targets and sales targets, but when you are on your own there is no network hammering on the door.”
Whitehouse stresses that by using outsourced compliance services, any regulatory strains can be relieved. He says there is nothing a network can offer that a DA club cannot.
He says: “Advisers do not realise that mortgage clubs offer a whole range of options and financial products, and so a DA offering should be equal to anything a network provides.
“It is a flight to quality – if the adviser is confident of their abilities and knows their proposition is strong, then DA should be the route they go down. Those who do not think they can handle sales and compliance alone choose AR but what does that say about the quality of some network members?”
A survey of 220 DA brokers by TMA found that 82 per cent say the services offered by a mortgage club are great value, 14 per cent are unsure and 4 per cent do not value mortgage club services.
Jonathan Clark, who is a partner at directly authorised IFA Chadney Bulgin, says: “In some ways, saying you are a DA is a matter of pride. It is tougher to be a DA and you have to jump through a lot more hoops for the FSA. If you can do that, then it shows your quality as an adviser.”
He believes this extra legwork required of DA brokers helps to create a good relationship with the regulator and also makes the adviser’s business stronger. He says: “We have a compliance firm regularly come in and crawl through all of our files making sure that we are fully up to speed and ready for any FSA visit.”
Although mortgage clubs set themselves up as champions of the DA, Clark says, from his experience, the support from them is minimal. “We use clubs as a channel for submitting business, they do not offer too much in additional support,” he says.
Some brokers argue that belonging to a network offers more security.
Pink appointed representative Capital Fortune Online Mortgage Services managing director Rob Kileen says the firm did consider going DA last year but preferred to remain under the umbrella of its network.
“We got provisionally accepted to go DA and put our head over the parapet last year,” says Kileen, “but we had a look and said no.”
He says his brokerage needs its network’s compliance support, its sourcing systems and its sales support. “The cost of being an AR is reasonable but even to hire a compliance specialist part-time is very expensive,” he says.
Kileen says having the buying power of a network significantly enhances his proposition. “Networks support all areas of your business, even helping you when you have trouble with lenders. We feel safe as an AR,” he says.
Personal Touch Financial Services sales director Dev Malle says: “In this environment, advisers are concerned about regulation, support and costs. A network can aid them with all of these concerns.”
Malle considers networks are best equipped to deal with the new stance of the FSA, which will demand tighter controls. He says: “ARs can find comfort in the support of a team that is versed and comfortable dealing with the FSA.”
He also says networks offer their members the chance to diversify their proposition fast. “Networks are either allowing ARs to tap into their different propositions through referrals or are putting in place the slick processes to get them straight into new business areas, as well as central marketing support,” says Malle.
He adds: “One of the most pressing issues right now is simply brokerages’ costs and incomes. In the AR world, there is more access to products and sometimes networks offer the only way of accessing certain lenders. This means there is more income potential for ARs.”
Handling compliance correctly, successful diversification and securing the best products and procuration fees have always been paramount for mortgage advisers. The question is which is the best route to access this support and at what price.