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Should you be directly authorised?

Should you be directly authorised?
Credit: Johannes Plenio from Pexels

Opting to shelter as an appointed representative under a principal firm or network’s umbrella can be a good option for new firms, but it is not without its limitations when it comes to autonomous decision making.

“There’s certainly no doubt – particularly for those start-up advisers looking to initially establish sound working practices and build a client bank – that being an AR can help smooth the way and help in getting established as quickly as possible,” says David Ryder, head of proposition at Paradigm Consulting.

However, a common denominator in advisers moving away from this structure is a desire to have the autonomy to make all of the decisions that matter in your business, Ryder adds.

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“Advice processes, choice of software tools, affiliation to mortgage clubs, to name but a few, are all down to the business owner and often the ability to be able to shop around and make these choices for yourself can lead to greater profitability.”

Richard Ardron, SimplyBiz’s marketing director, agrees that a decision to become directly authorised can be prompted by reviewing what advisers and clients need, and assessing whether the right infrastructure, skills, products and technology are in place to meet their needs.

“Networks will have certain requirements for its members in terms of operation and the type of products and services they are able to offer,” says Ardron.

“This is not a criticism, simply a fact of the relationship they have with firms and the regulatory responsibility that they take. Going directly authorised affords a firm the luxury of making their own decisions on how their business is run.”

Barry Martin, head of advisory sales at Threesixty Services, says the key business decisions that directly authorised firms have full autonomy over include: 

  • Whether they provide independent and/or restricted advice.
  • Their choice of investment proposition.
  • Recruiting advisers when it is desired by the firm but not agreed by the network.

An independent future

Martin also says a common reason for firms deciding to go it alone is that they outgrow their network.

“As their business and experience grow, it’s not uncommon for [ARs] to question whether they should be ‘steering their own ship’.

“We’re contacted by firms that feel their future and the direction of their business is being dictated to them. For these firms, a relationship which started out as being supportive, has begun to suppress their attempts to grow and innovate.”

Ardron also highlights the control that directly authorised firms have over the future direction of their business. “The market for ARs has been tumultuous in recent years, with buyouts, mergers and even, sadly, networks unable to continue operating,” he adds.

“As an AR, your individual business is linked to that of your parent company. Deciding to be directly authorised can be unnerving, but it also allows the firm to take control of its own destiny.”

Sanlam, for example, has confirmed it will be winding down its Sanlam Partnerships network, citing the “increased scale and systems capacity required” to grow a financial adviser network no longer fits with its business model. 

Meanwhile, amid an acquisitive environment in the IFA industry, Paradigm Consulting’s Ryder points to the growing trend of ‘buy to build’, with directly authorised firms being acquired as going concerns and capital injections to help business owners realise their firm’s full potential.