It’s a decision that every mortgage broking entrepreneur has to make at some point: whether to gain regulatory permissions via the appointed representative (AR) or directly authorised (DA) route.
While both offer distinct benefits there is no wrong answer, and the route you take ultimately rests on how you want to operate as a firm.
That said, with the Financial Conduct Authority (FCA) looking to increase its supervision of mortgage brokers over the next two years, it is extremely likely that the AR model will become more attractive.
The regulator’s recent Dear CEO letter outlines its plans to scrutinise advice quality, high-pressure selling, fees and fair value and financial promotions over the next two years. Quite right, of course.
That gives our sector a lot to think about. So, let’s explore each of those, one by one.
Quality of advice and unsuitable products
The regulator is placing renewed emphasis on ensuring that brokers deliver tailored, high-quality advice rather than simply ticking boxes to meet lender criteria.
This means advisers must prove that they are recommending products that truly suit their clients’ needs.
Networks are well-equipped to meet this challenge through robust training and business standards control measures.
Many networks also offer centralised training programmes designed to keep advisers updated on the latest regulatory expectations and industry best practices.
In addition, many of them provide guidance on how to conduct thorough suitability assessments and construct advice journeys that clearly serve the client’s best interests.
Not to mention dedicated technology solutions which support the optimal advice journey a broker delivers to consumers.
Regular internal audits and peer reviews further reinforce these practices by ensuring that the advice given is consistently aligned with FCA guidelines.
This integrated support structure minimises the risk of recommending unsuitable products and helps firms maintain high standards in client service.
High pressure selling
The FCA’s strategy also plans to investigate the use of high-pressure selling tactics, particularly in relation to sales incentives that may drive misselling or product bias.
The risk, as the regulator sees it, is that such practices could prioritise commissions over client needs, potentially leading to a culture where aggressive selling overshadows best advice.
Networks mitigate again these risks by instituting clear, ethical guidelines and processes. For example, networks like ours at Stonebridge have implemented rigorous standards that focus on consumer outcomes, and which seek to prevent high-pressure tactics.
This approach is supported by investment in advanced technology, which continuously monitors advice processes to detect and eliminate any conflicts of interest.
By ensuring that a broker’s practices remain ethical and client-focused, networks help advisers build trust and credibility with their clients while staying on the right side of regulatory requirements.
Excessive fees and fair value
Another critical pillar of the FCA’s strategy is ensuring that the fees charged by advisers represent fair value, as per the Consumer Duty.
While it isn’t the role of a network to dictate fee levels, good networks offer essential guidance that helps member firms develop transparent pricing models that are fair value.
By sharing market insights and industry benchmarks, networks enable advisers to set fees that are both fair and reflective of the service provided, ensuring that the value of their advice is clearly demonstrated.
Financial promotions
Producing balanced, accurate and regulatory-compliant marketing materials can be a complex and time-consuming challenge for many advisers. This is another area where networks can offer support and guidance.
Many networks streamline this process by offering access to proven, off-the-shelf templates and detailed guidelines that align with regulatory expectations.
Some networks also conduct regular reviews of promotional content, ensuring that any marketing material remains effective yet compliant.
This proactive approach helps advisers avoid costly regulatory pitfalls while freeing up advisers to focus on what they do best – delivering quality advice to their clients.
The appeal of the AR model
As Joanna Legg, head of consumer policy and outcomes at the FCA, noted at Stonebridge’s annual conference recently, the AR regime “offers a proportionate and cost-effective way to comply with regulations” and gives a more accessible route to market for brokers.
That’s always been the case. But with the FCA enhancing its supervision of the sector, we believe more brokers will come to value those benefits as well as the safety net that networks provide.
In an evolving market where compliance requirements are continuously tightening, the AR model offers a proven path to achieving both regulatory compliance and sustainable business growth.
Rob Clifford is chief executive of mortgage and protection network Stonebridge
