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Taking the plunge into direct authorisation

Three advisers share their experiences
of leaving the networks behind

Becoming directly authorised with the FCA is a major decision for advice firms. Here, three advisers share their experiences and top tips.

A helping hand

Red Circle director Darren Cooke went directly authorised in 2015 after the network he was with was sold and advisers began being driven down the restricted route.

“I wanted to stay independent,” he says. “I was happy to stay in a network that promoted independent advice and I found a few – generally smaller ones – but there was always a compromise somewhere in the process. You have to accept their systems and processes and I was never going to be happy with the way I wanted to operate.”

Once the decision was made, it took four months from the submission of the application to the FCA saying yes.

“Other firms may have everything in place and be frustrated by a four-month wait but I was still trying to run a relatively new business and needed that time,” he says.

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In Cooke’s experience, direct authorisation was not as hard as some networks would suggest, but three years on he concedes the capital adequacy requirements are higher.

“When I did it it was only £10,000, but it’s now £25,000, so you need the capital to do it,” he adds.

“Also, if you’re a smaller firm, don’t try doing it yourself. I’m glad I used support services provided by Simplybiz to put the application together – if I’d done it off my own back it would have been considerably more difficult. I’d have made more mistakes and the FCA would have had more questions.”

Allow for disruption

ISJ Independent Financial Planning director Lena Patel went directly authorised last year and found the process, which also took around four months, very smooth.

“Having been a restricted adviser through my banking career and at SJP and Intrinsic, I felt my clients were being disadvantaged by high costs and inherent bias towards recommending solutions on a panel to avoid jumping through hoops to arrange an alternative,” she says.

“I was at a networking event and met Tim Rodgers from [Leicester IFA firm] TM Asset Management. We spoke about our business models and becoming directly authorised. He helped me from scratch and still does when I have questions regarding any cases, systems and even GDPR. As a one-woman band, it’s crucial to have some extra support,” she says.

Patel says the perceived reduced cost of running a directly authorised business is a consideration that needs to be weighed up against capital adequacy requirements, additional compliance costs and the loss of structure or process that a network may provide. She suggests advisers considering direct authorisation should speak to a peer who has already been through the process.

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“They can talk you through it and highlight areas you may not have considered, such as how long will it be before income is novated across to the new company,” she says.

“Also make sure you allow for the disruption to your business, about three to six months. I have a fledgling business, so it was relatively painless for me. But more mature businesses might have to find a new back office system and inform all clients of the change in authorisation.”

Finally, Patel suggests spending time implementing robust procedures from the beginning to make Gabriel reporting and the Retail Mediation Activities Return easier.

“Case checks and compliance visits all need to be planned for,” she says.

Consider PI

National IFA LEBC became directly authorised last year, having grown to a size where leaving its network had become practical. LEBC chief executive Jack McVitie says it initially made sense to join a network, as it provided the compliance structure while the business was growing organically and opening new offices.

“The network also took on the capital adequacy responsibility and helped with access to professional indemnity cover, which can be attractive,” he says.

“Once we made the decision to go directly authorised, we had a long time to prepare. At that time, the capital adequacy requirements were uncertain and we didn’t want to go directly authorised, then struggle to meet the requirements two or three years down the line.”

Smaller advice firms taking the hit on PI costs

McVitie says the process ran relatively smoothly, although the firm’s target date of 1 April 2017 was missed by four months.

“It took 10 months from the date of application, but we are a bigger and more complex business, so it’s quite right the FCA should take time and make sure everything is done correctly,” he says.

That said, the four months’ slippage did have a knock-on effect on LEBC’s plans. “We deferred some things we were going to do as the network said there was no point doing them until we were directly authorised – things like putting a new adviser through the authorisation process,” he adds.

McVitie suggests anyone thinking of going directly authorised should think carefully about how they will fare in the PI market. “Cover is available but the market is tightening,” he says.


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