Directly authorised is by far the safest option

As group compliance director at the Simplybiz Group, who provides compliance and business support to directly authorised financial advisers throughout the UK, I have to say that the recent picture painted by Chris Smallwood, chief executive of 2Plan, of DA advisers struggling through the regulatory maze with no-one to turn to for help, continually and inadvertently exposing themselves and their clients to huge risk and detriment through lapses in compliance, is totally alien to me.

I can only assume that Chris has had a bad experience with direct authorisation in the past as his assertion that when things go “..a bit awry..” for DA advisers, they have nobody to whom they can turn.

However, having worked at both a network and a support services company, I can guarantee that the quality and breadth of guidance given, the expertise and level of qualification attained by the staff and, most importantly, the depth of relationship with the adviser, is no different at either.

There are both ‘good’ and ‘bad’ examples of networks and support service companies and I believe that is the key differentiator, not the model itself.

As Chris pointed out in his blog, networks (most notably Sesame/Bankhall) and their member firms have had a rough time of it recently and, without wanting to try to score points from this genuinely unfortunate situation, I think there are some issues that Chris didn’t mention which are worthy of advisers’ consideration.

An indisputable fact is that network membership presents ever accumulating liabilities. Increasing PI contributions bring a need for greater controls and fees; both of which will alienate advisers and cause more to leave the network, therefore leaving fewer ARs to foot the bills.

In terms of risk, becoming a DA adviser with comprehensive, reliable compliance support in place is by far the safest option. No AR can sway the recruitment policy of their network, yet they must adhere to rules put in place to govern the lowest/riskiest common denominator.

The larger the network, the more likely that they will take on both inexperienced advisers and those who conduct higher risk types of business

The larger the network, the more likely that they will take on both inexperienced advisers and those who conduct higher risk types of business.

Regardless of the quality of a single adviser within a network, they will be impacted by the conduct of others, both financially and in terms of the additional – i.e. above and beyond those required by the regulator – compliance hoops they will be asked to jump through.

To me, network membership represents the worst of both worlds – the risk and costs of being a business owner and the rigidity and lack of autonomy of being employed – and I think that the major bonus that direct authorisation offers is choice.

The choice to run a business model that suits the adviser and put compliant processes and procedures in place that suit the way in which they work; not just be forced to adopt a one-size-has-to-fit-all structure. They can choose the tools, systems and suppliers that complement the way in which they work, not the other way round.

I wholeheartedly believe that there are good networks available, and that some advisers will be best suited to network membership. There are good compliance support companies for DA members, and that’s the best route for some advisers, while others still will find the best fit for them is direct FCA authorisation without any external support.

I agree with Chris that advisers need to be armed with information about all of their options and the choice they make must be based on careful consideration and research, not railroading into the option most convenient for lining someone else’s pockets.

Clients are more in need of professional financial advice than possibly ever before and the most important thing is ensuring that they have access to that, through an adviser who is operating compliantly and professionally.

Gary Kershaw is group compliance director at SimplyBiz Group.