Appointed representatives versus directly appointed

Spending years working as an employee of a DA and 18 months as an AR, I’d like to think I’ve seen both sides of the coin. Being an AR gives you the greater peace of mind your compliance is being looked after and you can spend more time focusing on business. However, with many networks they have to set their standards across the board for everyone and so if someone focuses on an ultra niche area then it could lead to additional challenges whereas being DA could give that broker greater flexibility. Personally, for anyone looking to start up their own firm, AR is the sensible route to consider. They give you guidance and assistance to make sure you're fully compliant along the whole way and it allows you to get up and running quicker. Going down the DA route, any new firm may not understand the additional work involved and with the long wait times on being authorised could delay businesses opening. The real concern for many in the years to come is the rising cost of PI insurance. Many DA brokers are now finding it harder to obtain insurance or seeing premiums skyrocket. With this in mind, I see more and more firms considering the network route.

There is actually less difference between an AR and a DA than many think. While a DA broker has no network telling them what to do, they will most likely have either an external compliance function that they contract to, or will have an internal compliance function. Both effectively tell the business what it can and cannot do, very much like a network tells its ARs. The main area of difference is in the resulting proposition; a DA can do business with (pretty much) whoever they like, whereas an AR will have this arranged for them by their network - sometimes this is a very small and restrictive panel of lenders or insurers, but in most cases it will be a wide and deep panel of lenders and insurers to give the AR a good range and scope to do business with potential clients. As the regulatory burden increases each year then the argument for being DA or AR alters, the time and energy required to maintain your Directly Authorised status and understand and implement the rules become more challenging, often resulting in businesses choosing to partner with a network of some description and move to AR status. The smaller you are, the more the incentive to become an AR and remove that burden, so you can get on with the day job of delivering first class advice and service to your clients.

In the past, I've worked with mortgage advisers doing business development for DA advisers and I tend to find that the route that suits the firm really depends on the size of the firm, the growth requirements of the firm and the ambitions of the firm going forward. I think that the advantages and support that you get within an AR structure can be exactly what starts to feel restrictive as firms grow. As a firm grows in size and confidenc,e they might find the AR model restrictive. Currently I'm an RI within an AR firm and that suits me at the moment as I want all the compliance support from the network and I want the marketing and branding support from the AR firm. If I was looking to grow and take on new advisers then this might become tricker for me to do so within this structure. Also, as a solo adviser, being an AR gives me access to lenders that I would not be able to access without being part of the bigger network.

I quickly listed the advantages of DA and AR to capture what are my unfiltered immediate thoughts; Directly Authorised: Autonomy Costs when at scale Appointed Representative: Systems Providers Compliance and Oversight Support Mentoring Business support Ancillary product options Being an AR is a good match for SME advisory businesses simply because all that you need to operate is provided for you, conveniently packaged. Most principals provide a turn-key solution. However, they are by no means the same and it is vital to make sure the businesses complement each other. For example, there is no benefit in being an AR of one of the larger "corporate" networks if most of your business is niche lending. Larger networks are able to offer such a wide reach in terms of headcount because they limit their risk through availability of providers, solution options and may restrict access to third party providers such as packagers or conveyancers. Pay very close attention to the contracts. You sign them when you are happy but you use them when you are not. So, look at data protection clauses, commission retentions, personal guarantees and notice periods. It is possible that a business may out-grow a principal or change direction so be sure you know how much effort it will be to unwind. Principals can have sharp teeth. Directly Authorised was once seen a the "Grown-Up" option, but, in truth, it is simply about what is right for your business plans and resources. Principal firms provide a service so it is a question of value: does the Principal offer you all the products you need, do their systems complement or enhance your own, are you receiving value for the fees you pay them?

I'm a big believer in the right network. Advisers have enough plates to spin to not have the added headache of compliance so I'd happily hand it off so someone else. That being said, choosing the right network is vital. What's their system like, is their social media policy based in the 21st century, is there great support and training? It needs to add value to your business. The biggest steer for me is what do other brokers say. If a network is haemorrhaging adviser numbers, steer clear, if they're growing, it's worth talking to them.