DA or AR?
Should I go DA or AR?
This is a question many people ask but unfortunately it isn’t a simple question and answer.
The first part of the process in finding your direction is to know what is most important to you and how you run your business, where you want to take your business and what support may be needed, both in terms of growth and regulatory matters. It’s also very important to be honest with yourself about where you may need to strengthen knowledge, or require assistance. Equally, you will need to know what is expected of you by either a network or the FCA, along with each of the application requirements. By exploring this, you may find that you rule one route out very quickly.
Whichever way you feel is best for you, Network Consulting is here to help.
To help you with the decision process of “Should I choose DA or AR?“, we have created a list of positive and negative considerations for both AR and DA in the two boxes below. This is in no way extensive or conclusive, it is purely there to stimulate thought, so you can evaluate the attributes that are most important to you and your business. In turn, this will help you formulate your ideas and prioritise key factors, it may even eliminate some features that you initially felt important.
Taking the step to go DA means you personally are accountable and the buck stops with you, so it’s extremely important to understand the requirements and responsibilities before taking that path. By getting the right regulatory guidance, tailored to your own requirements will minimise your personal time investment, along with the exposure to risk. Just considering these points, illustrates that it is vital that you get the right support in place from the start.
Taking the AR network route could make things a whole lot easier, with ready made structure, processes and oversight framework in place but it may mean that you could have some choices restricted, which will result in a probable compromise. If you feel the AR route is better for you, then you will need to evaluate all the offerings and make a decision on which AR proposition and culture best fits your business.
Directly Authorised
Appointed Representative
Considerations if you're thinking of going Directly Authorised
Going Directly Authorised
Every firm/adviser have their own reasons for going Directly Authorised, often there is no one decisive factor that indicates going DA is the best direction for any firm or individual. There are many aspects to consider before taking the step, and having the right support in place is imperative, be that an employed compliance officer or an external support service. You will need advice and support at an early stage, from the point of getting yourself prepared to go DA, completing the application and then through to ongoing oversight and guidance.
While networks may offer you security, with professional indemnity insurance, guidance, support, T&C and compliance oversight within their propositions, all of which keeps you operating within the guidelines of the regulator, it does come at a cost. They have to work to a model that protects all within and for the longevity of the network, so they will impose stringent processes for the AR firms to adhere to; to many this may feel like it is a one-size-fits-all.
Many firms that move from a network to Directly Authorised do so because they feel restricted in one way or another, be that processes, systems or even just the business they are allowed to conduct. Going DA will offer freedom in all these elements but it will also carry the ownership of risk and responsibility.
If you are leaving a network, you may not be used to guiding your business through the regulatory landscape, the constant changes and what implications there are to conducting the business you wish to, in the way you want. This can be time consuming and take you away from running your business and advising your clients. To counter this, as stated above, some firms employ an in-house compliance officer, while others opt for external services which may well be much more cost effective. However, it’s very important to select the right services for you, not a on-size-fits-all offering because every firm is different and will have individual requirements.
Taking the step to go Directly Authorised means you personally are accountable and the buck stops with you, so it is extremely important to understand the requirements and your responsibilities in preparation, well before you apply. By getting the right regulatory guidance, tailored to your own requirements, you will minimise your personal time investment as well as minimising your exposure to risk.
Application Process
If you plan on going Directly Authorised you will need to be extremely well prepared prior to making your application to the FCA.
Firstly, there is a £2500 fee to apply, that is just to apply, whether you are accepted or not.
It isn’t just a case of completing an application form and paying your fee, there are elements of running a regulated business that you will have to illustrate hard evidence. This includes all your documented processes and oversight mechanisms, as well as demonstrating knowledge and competency in their actual application. You will also be interviewed and asked detailed questions to affirm your claims.
To support your application you will need;
- A business plan
- Opening balance sheet
- Incorporation documents
- Your latest accounts
- Projected balance sheet for the next three years
- Detailed Profit & Loss account for the next three years
- Professional Indemnity Insurance quotation (which satisfies FCA requirements)
- Illustrate Capital Adequacy (see Capital Adequacy)
You will be required to attest that you have documented regimes as well as being capable of implementing and maintaining them.
By having certification by a third party you will be able to satisfy this- it demonstrates that you have been trained and completed any learning objectives.
Consider having certification for the following;
Sales processes
Training & Competency scheme
Senior Managers Certification Regime (SMCR)
Systems & Controls (SYSC)
By getting a strong compliance support service as part of your preparation can help you complete your application but will also put you in the best place to be accepted and accepted more quickly. Not only could this save you time in completing the application and on through to authorisation, it will also save valuable operational time, which could affect income.
Employing a compliance officer or having an experienced and solid outsourced service, in the long term will not only protect your business, it will also demonstrate to the FCA you are serious about regulatory matters, both now and in the future.
On-going FCA fees can be viewed on the FCA website here
https://www.fca.org.uk/firms/fees/how-we-calculate-annual-fees
How on-going fees are calculated and when they are collected click the link below
https://www.fca.org.uk/firms/fees/how-we-decide-rates-annual-fees
Capital Adequacy
Capital Adequacy requirements for a firm that does not hold client monies is as follows;
Loans can be made by the directors to cover capital adequacy but these must be ring fenced and cannot be used as working capital or for any other purpose, this is known as a subrogated loan. Such loans also carry specific requirements of the regulator, which include completion of a template provided by the FCA, a prescribed repayment term and details of the total funds available within the firm.