It’s important to give brokers choice

Every couple of months, the debate over whether firms should be appointed representatives or directly authorised comes up. Interestingly, at these times views are usually expressed by those organisations that only offer one route or the other.

A number of patronising statements are usually made, such as “All brokers aspire to be DA,” or “DA brokers will become ARs when the Financial Services Authority clamps down”.

But such commentators forget they are talking about successful business people who can weigh up options for themselves.

Last week, I had a meeting with a successful DA business in the process of looking at which option best suited it.

We looked at the DA model and the main attraction was retaining control of the business and how it conducts itself. Then we looked at the support we could provide, from technology to compliance. Needless to say, we discussed products and commissions payable on mortgages, life and general insurance.

It was clear that because we can sometimes pay higher commissions and pay for professional indemnity insurance and sourcing systems while not charging compliance fees, the AR route would be financially better for it.

But it was encouraging how much it also valued support functions that are not overtly income or cost-related – in particular, training in marketing and negotiation. The firm also said it felt lonely and that having access to forums, seminars and conventions would make it feel part of a family. One of its biggest considerations was having the correct support as it grew.

What did it decide? It hasn’t made up its mind. While the support and financials stack up for the AR route, it has to balance this against the bad experience a director once had with a network and the freedom of being DA.

Interestingly, we have open discussions with our AR firms too, and I recently asked a key account whether it aspired to be DA. The firm said its growth plan would become unworkable if it had to account for the time and costs of the functions it would have to cover if it wasn’t in a network.

The point of all this? It is essential that brokers have the right information to make a choice based on their business models. Networks that offer both DA and AR options are in the enviable position of not having to push brokers down one route or the other.