Around 67% of brokers are happy with their regulatory status but 26% are considering changing from appointed representative (AR) to directly appointed (DA), a poll has found.
According to the latest Mortgage Solutions poll, which asked brokers whether they were considering changing their regulatory status, only 7% are looking at changing from DA to AR.
If you are an AR, then you conduct regulated business on behalf of a directly authorised firm who is the principal. This can be a mortgage network or club.
A DA is a mortgage broker directly authorised by the Financial Conduct Authority (FCA) to offer mortgage advice.
There are advantages and disadvantages to both, with some saying that the DA route gives them more control and avoids network fees or cuts in commission.
ARs can give more structure, process and oversights, but there can be limits on what kind of advice you can give.
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Consumer Duty – along with the overhaul of the AR regime – by the FCA has led some to question their regulatory status.
Robert Sinclair, chief executive of the Association of Mortgage Intermediaries (AMI), said the data shows trends that it has seen for some years.
He explained: “As people and firms arrive in the industry, it is easier to start up with the support and guidance of a network. Some go DA with compliance support but most adopt the AR route.
“As they grow and mature, they can see the independence of being DA as attractive, particularly as some networks limit the types of business the firm can do.”
Sinclair said that any firm looking to apply for DA status would need to “carefully consider their application to the FCA and be able to demonstrate they have the required experience, systems and controls, compliance support, robust business plan and financial strength”.
“It might be that those looking to move to AR are finding the march of bureaucracy created by Consumer Duty just too much to handle,” he noted.
Smaller DA firms facing increased costs and oversight from Consumer Duty
Nicholas Jones, mortgage services and marketing director at Access Financial Services, said the “increase in costs and oversight required since the introduction of Consumer Duty has certainly impacted more, smaller DA firms”.
He said that while some brokers may be happy with their regulatory status, they “may not be particularly happy with the partner they’re with”.
Jones said: “We’re having conversations with potential new Access Financial Services advisers who are considering making the change from AR to DA. Gladly, we’re in a strong position of being able to reassure advisers that we have new technology and processes in place that support regulatory requirements, such as Consumer Duty.
“These help advisers grow their businesses while supporting our work with new lenders and new lead initiatives. It’s because of all this that we continue to experience growth in the business.”
He said that advisers who were considering changing their regulatory status “need to understand the time and costs involved”.
“It’s time-consuming and can typically take up to six months to change status,” Jones said.
“A major plus of joining as an AR or RI is that you form part of a larger organisation and can take advantage of the opportunities that go along with that, such as the propositional benefits for lending agencies, support on processes, compliance and administration,” he explained.
Phil Daffern, head of lender relations at SimplyBiz Mortgages, said those considering making the change to DA need to consider if the structure is right for them.
They need to consider that it can take up to nine months, or a number of weeks if things go to plan, and firms need to “consider this interim period and how they will manage during the transition”, as “preparation and planning are key”.
He noted that becoming DA potentially “liberates any technology shackles” but it is an “important consideration” and “consider your chosen partner as something of a long-term strategic partnership, working how you want to run your business rather than the other way round”.
Brokers will also become business owners, and need to take on other responsibilities. There are other costs such as personal indemnity insurance, technology and compliance support costs.
“As a DA firm, business direction and diversification is within your own control, opening up opportunities in all fields from commercial and specialist property finance all the way through to later life lending, allowing you to really embrace holistic advice and being truly whole of market,” he added.
Some firms wanting to ‘batten down the hatches’
Michael Street, founding partner of Word On The Street, said that, based on his experience, the findings were “not surprising”.
“There is a lot of available business to be won in the current market from prime buy to let, adverse credit, and all the way through to complex bridging and development finance that most people are toeing the line of, ‘do not fix what is not broken’, and it makes complete sense.
“In a world where the current political and economic landscape is changing rapidly, it is sensible but also prudent for firms to batten down the hatches and weather the storm until we know where the debris shall fall to rest,” he noted.
Street said that his company was “taking advantage of the storm and are riding the waves” as he intended to move from being a non-regulated broker to applying for full permissions from the FCA.
He said that there were a number of factors for this decision, but first and foremost was credibility.
“Not only do we want to act as a proficient broker that follows the right policy and procedures at all times, but we want to be clear to for our borrowers and colleagues that best practice always proves to be the only way in which to transact and becoming FCA regulated helps us to bring this to the fore of our business.
“In addition, it will help us to attract the very best talents within the industry, full stop,” Street explained.
Important for brokers to ‘consider each option before fully committing’
Matthew Poole, director of Poole Family Financial – an AR of Primis – agreed that the results were not a surprise, adding that he had not considered changing his regulatory status.
“As business owners we have enough to contend with, without the implications of the extra work that becoming DA involves,” he said.
Poole said there were pros and cons for each route and it would depend on the “goals and aspirations of a business to determine the correct regulatory status”.
“For us, we have a really solid support network with our current network, whilst also having the flexibility to run our business in a way that works for us. We have good compliance support, ongoing events and support in growing our business.
“The biggest perceived benefit of going DA can be an increase in revenue as you are ‘cutting out’ the middleman of a network. Looks attractive in theory, but… you are responsible for higher admin costs, which could include legal advice, auditing, PI insurance and possibly hiring compliance staff,” he explained.
Poole reiterated that when looking at regulatory status, it was “important to fully understand each option before fully committing”.
