To be or not to be an Appointed Representative? That is the question

Whilst the network industry wax lyrical on what they see as the benefits of being an appointed representative, they omit to mention fundamental issues:

• Commission rates are often no higher than for directly authorised firms (of course from 2012 there can be no differential in rates due to RDR).
• All things being equal, the valuation on the sale of a directly authorised firm will tend to be higher than that of an Appointed Representative firm.
• The owner(s) of a directly authorised firm is in charge of how it interprets and applies FSA rules and regulations rather than the Network – as an AR control over advisory and promotional activity therefore moves from the business owner(s) to another unconnected commercial operation.
• Networks are subject to higher levels of FSA supervision. This higher level of supervision has a direct and indirect impact on its AR’s.
• It is difficult if not impossible for a Network to apply different compliance standards to different firms hence the compliance regime is based on the lowest common denominator (by that we mean AR!).
• An AR has little or no control over the services provided by the Network e.g. commission accounting procedures and personnel, administrative and compliance personnel, IT systems.
• Unless the ARs within the Network are of the same scale, complexity and culture there is a cross subsidy between AR’s for payments for services i.e. a well run efficient compliant AR is bound to require less work from the Network than a poorly run, inefficient and non compliant AR – how much of your Network fees go towards paying for other AR firm’s failings?
• For viable businesses, the costs of being directly authorised are almost invariably lower overall.

Whilst we feel that there may be benefits in certain circumstances to being an AR (persons new to financial services with low levels of projected income in the early years and also certain general insurance brokers) Swaines have never encountered any firms that have regretted the move from AR to direct authorised status – the same could not be said for firms deciding to be AR’s! Crucially the key issues are cost and whether a business owner wishes to be in control of their own destiny.

Swaines have a wealth of experience in assisting firms obtaining FSA authorisation and providing practical input into the transition process from AR to directly authorised. Swaines will provide a confidential, free and no obligation bespoke cost benefit analysis and assessment on your firm in order to determine if the move to direct authorisation is right for you.  All that is required is less than 5 minutes to answer some strategic questions about your business.

Please click here for a free Appointed Representative cost benefit analysis.