With the final mortgage rules now published and applications for FSA authorisation opening this month, everyone who receives enquiries about mortgages must be giving serious thought to their future status. Direct authorisation? Principal? Appointed representative? Introducer only? The choice will be influenced strongly by the question of how best to source compliance support, either in house or provided by a network.
Many businesses will be confident enough of their own compliance procedures to apply for direct authorisation but becoming an appointed representative also has major attractions. But how can mortgage intermediaries make sure they choose the best network, what are the core services that need to be considered and how soon should the choice be made?
The first course of action that springs to mind is to list all the networks you know about and compare their costs and services. However, there is one very important stage to go through before choosing either the status you want or the best network to support you. That first vital step is to analyse your business – how it functions and what its personality really is. Only then can you start to make properly informed choices.
Analysing your business may sound daunting but it is just a process of asking some basic questions about the business, writing down the answers and then seeing which solution matches the majority of your needs.
What sort of questions should you be asking? Here are a few to get you started:
How important to you is your complete independence to run your company? If this is at the top of your list, then you may find being directly authorised is the best route.
Do you have enough time and resources to get a successful application for direct authorisation in to the FSA by March or April?
Are you and your staff suited to bearing the responsibility of compliance? Do you have the right knowledge, skills and attitude? If not, becoming an appointed representative could be the best option.
Can your business afford the costs of direct authorisation, recruiting an in-house compliance expert and covering the capital-adequacy rules?
Do you meet the threshold conditions? Do you have compliant schemes in place for training and competency, complaints procedures and risk management?
If the answers to the last four questions tend to be no, then the appointed representative route could well be the best choice. In this case, a network needs to be found that best meets your needs. Mortgage networks currently fall into three basic sorts:
Established IFA networks now moving into mortgages.
Networks that were originally product-sourcing databases.
Networks that have their roots in packaging.
What are the strengths and weaknesses of these three types of network from a prospective appointed representative's point of view?
The IFA networks, for example, Sesame and Bankhall, have the advantage of experience in running networks but the downside may be that they have a cumbersome compliance infrastructure, with costs to match, that is not designed for lighter-touch mortgage regulation.
Networks that were originally product-sourcing databases, for example, Network Data and M2i, certainly have a sound background in mortgages and their technology expertise is strong. However, the downside of their strong IT focus could be lack of expertise in catering for non-IT issues such as risk-monitoring, technical mortgage issues and lending/customer management experience.
Networks that have their roots in packaging probably have a head start on the other two types because they are not encumbered by legacy systems and will be more nimble at adapting to evolving needs. More important, they tend to have more in-depth knowledge and practical experience in handling and developing relationships with broker partners. When it comes to the principal/appointed representative way of working, a good relationship will really make the difference between success and failure.
Some networks are aggressively marketing themselves in the hope of locking in members early but loudest is not necessarily best.
The golden rule to bear in mind is this. Choosing a network as your route to FSA compliance is not like buying the cheapest rail or air ticket to get you from A to B or buying something because it carries special offers. The key question to consider is which network will really deliver a robust compliance and support package that best meets the needs of your unique and individual business.