It may seem a little bizarre for the chairman of a network to say that mortgage brokers, facing the approach of the new compliance regime, should not join a network, but that is exactly what I now believe.
I should make it clear that I am not abandoning my IFA colleagues. I do feel that networks play a useful, if not vital role in the IFA sector. But it really is a different kettle of fish for mortgage brokers. CP146 makes it clear that the authorities do not regard the mortgage sector to be as risky for the consumer as the investment and personal finance sectors.
This, in turn, means that they will take a lighter and hence more manageable approach.
Of course, for many businesses networks will still be the answer but, where possible, I strongly advocate going for direct authorisation, either with your own compliance officer or with the support of a compliance service.
This is for three reasons. Maintaining your independence, maintaining flexibility and lower costs.
Independence is important to us all. That's why we do the job we do and are not working for some large, faceless organisation. Although I am the chairman of a network I also run my own IFA business. I started this business from my back bedroom, way back in the mists of time. It was hard going to start with but it is now a successful and, I like to believe, a well-respected company. I have worked hard to build it up and I really would not like someone telling me how to run things. But that is exactly what a network has to do.
A network takes on the responsibility for all its members. If anything goes wrong, the buck stops with the network. It is the network that the authorities will rap across the knuckles, it is the network that would be fined so, naturally, we have to have strict rules by which members must abide.
Of course, there are many different ways that members can carry on business in a compliant manner, but if a network has hundreds, or even thousands, of members it can only offer an efficient service if each and every one of them are singing from the same song sheet. However, while being a necessity for a network, such rules do not feel comfortable for those of us who want to remain independent in terms of both business and attitude. By going for direct authorisation, you can retain your independence and run a compliant business in your own way.
The second reason for direct authorisation is maintaining flexibility. I have already mentioned that networks tend to work to a template. They often restrict your choice to a panel of providers and insist that you attend a number of meetings a year (the Whitechurch network does neither, by the way).
They often insist that you use particular forms and expect you to do things in a particular way. Such things are inevitable in a large organisation.
However, if you retain your independence you also maintain your flexibility. You can do things your own way and make business decisions to suit your own customer base and own style of business. If you want to make changes you can do so without asking for permission. Of course, your business must be compliant, but as I said above there are many ways to run a firm in a compliant manner and you can chose the way that you feel is best for you.
I would also strongly suggest that you maintain flexibility by choosing the direct route at least at the outset. If for any reason you find that this does not suit you can easily join a network and drop the direct authorisation. However, if you join a network, it is a real hassle getting out.
Most networks require three months' notice. During that time they will retain all the commission that is due to you, be it on business already written, or written during your notice period. These days, most will ask you to take out run-off cover when you leave. This is professional indemnity insurance to cover the business you have written in your time under the network.
They will want this for ever and a day, even after you retire. I must say here that we do not believe that you need this and certainly The Whitechurch network does not insist on it. However, there is no case law to provide an absolute answer so it is probably best to avoid it in the first place.
Finally there is cost. I firmly believe that most firms will find it far less expensive to go direct. It's as simple as that.
But, a word of warning. A lighter regulatory approach does not mean a less rigorous approach. You must get it right. Your choice is to do it yourself, employ a compliance officer or employ a compliance service. Frankly I think the first option will be out of the question for most firms. Do not be fooled, compliance these days is a full time job and time you spend on compliance is time not spent on earning a living.
Employing a full time compliance officer at a total cost of some £30,000 – £50,000 p.a. will be out of the question for most businesses. So the best route forward will probably to employ a compliance service. These range from a local one-man band to large companies. The former will give you a personal service. The latter will have plenty of cover for holidays and illness, etc. And larger companies may also have access to enhanced commission rates. If so, you may well find that your increased earnings go a long way towards offsetting the cost of compliance.
Why go for direct authorisation?
Maintaining your independence
If you have worked hard to build up your own business, you will not want someone telling you how to run things. Direct authorisation will allow you to run a compliant business in your own way.
Networks tend to work to a template, and often restrict your choice to a panel of providers and insist you attend a number of meetings a year.
Most networks require three month's notice, and during that time will retain all commission due to you.
Most will ask you to take out professional indemnity insurance when you leave, which will last for the rest of your life.
Most firms will find it far less expensive to go direct.
Get it right – compliance is a full-time job
Compliance officer or compliance service? The former offers a personal service, the latter plenty of holiday and illness cover, as well as potential access to enhanced commission rates.