investments and IFA's

Al.

I was on the cusp of going directly authorised last year, but decided against it. As you say, it's a lot more different now - I do a fair amount of VCT, EIS, SEIS and have to jump through some seriously rigourous hoops above and beyond the norm. I like the objective oversight that the compliance dept bestows on me; generally, it frees me to advise and think about advice, rather than fret about GABRIEL and other aspects that I could do myself.. but would prefer to outsource in the interests of efficiency.

dunstonh

I was on the cusp of going directly authorised last year, but decided against it.

I'm hopefully weeks away from being directly authorised from network.

I like the objective oversight that the compliance dept bestows on me

I used to think that way. However, the compliance companies you employ but pay explictly will do an equal or better job (better based on what I have seen as they dont just pass, fail or get you to amend but give you opinion on how the FOS would view it and the risks to look out for.

rather than fret about GABRIEL and other aspects that I could do myself.. but would prefer to outsource in the interests of efficiency.

It's all about the software. I shouldn't need to tell you that! Networks make a big deal about workload they save advisers. However, its not as bad as that. Plus, the cost savings are significant by going directly authorised. Some of that is being spent on software which will automate the data needed for reports but you could employ a PA and still end up better off.

Mr_Cautious

Thanks Al

that is a very informative article. I have been on the fence re: Nutmeg for 12 months. I think I will hold fire for a bit longer yet.

JohnJonestheformer

Dunstonh, when you say you are weeks away from being directly authorised from a network. Do you mean a network is authorising you to be independent?
If you are an appointed rep are you independent?
Does this mean you are in a network, not in one, wanting to leave one, wanting to join one?
What impact does the largest network closing have on finance?

dunstonh

JohnJonestheformer wrote: »

Dunstonh, when you say you are weeks away from being directly authorised from a network. Do you mean a network is authorising you to be independent?
If you are an appointed rep are you independent?
Does this mean you are in a network, not in one, wanting to leave one, wanting to join one?
What impact does the largest network closing have on finance?

Personally, I am leaving an network to become directly authorised. You can be an IFA with either method. So, appointed reps can be independent or restricted.

The largest network closing will have no impact on finance. It is remaining open for mortgage and insurance and for those advisers that only do that, they will continue as before (as independent doesnt exist with insurance and mortgages are mostly whole of market rather than independent). Those that were investment advisers would have gone to other networks or directly authorised. To give you an idea of the scale of that network, it arranges 1 in 5 mortgages in the UK. Yet most consumers wouldnt even know they are using a network adviser (its not a disclosure requirement that needs to be pointed out specifically. However, it would appear on the documentation).

The end consumer doesnt really have to worry about whether the adviser is directly authorised or a network member. Its a different method for advisers to trade.

Networks started around 30 years ago. Small local firms would start to share compliance officers and other compliance tasks to reduce costs. Then other local firms would join. Over time, the compliance network became a business in itself and grow from local to regional to national. Originally, IFA firms could retain their own systems and methods whilst sharing compliance tasks. However, more recently, the FCA has wanted all members of the network to use the same systems and controls and has put total liability in the hands of the network. So, the freedom that once existed has gone away. For many firms that won't be an issue but for some, the software the network forces you to use may not fit with their model or way of doing things. So, going directly authorised allows the firm to control more of the choices it makes. Networks are concerned about risk and they have to put systems and controls in place to cater for the worst adviser in their membership. The more advanced members can find this restrictive or be forced to jump through very many more hoops. Plus, the cost of being a network member is high. We will save around £40,000 a year by being directly authorised.

gadgetmind

dunstonh wrote: »

To give you an idea of the scale of that network, it arranges 1 in 5 mortgages in the UK.

I'm personally blown away that so many mortgages are done via middlemen rather than by people directly engaging with lenders.

I personally can't see what value a mortgage middleman can add. All those I've encountered couldn't find anything that could match what I could get myself and I avoided a lot of hassle, fees and complexity by cutting them out.

Am I missing something?

JohnJonestheformer

Dunstonh, right, so you are leaving a network to, not sure what, become directly authorised. Does this mean you be appointed, or unappointed?
What has happened to everyone at the network that closed or did they all resort to mortgages.

I have used a broker for some property, but they tended to be specialist commercial loans, I coudln't get without a good broker.
But when I got a normal mortgage just popped to Nationwide. Absolutely fine

Al.

dunstonh wrote: »

I'm hopefully weeks away from being directly authorised from network.

Good luck 👍

dunstonh wrote: »

I used to think that way. However, the compliance companies you employ but pay explictly will do an equal or better job (better based on what I have seen as they dont just pass, fail or get you to amend but give you opinion on how the FOS would view it and the risks to look out for.

I did an overkill experiment last year as I went through the process to launch Fiver a Day. In addition to the network, I paid for two other organisations to scrutinise my proposition; one, the IFA chain and other, a credible regional support brand. I ran all three for three months - it cost, but I figured it'd be money worth spending before I launched. The result? The network was far more risk averse.. and I mean, far more. I didn't mind it; I got the sense that it was protecting clients by a) protecting me and b) protecting itself. It was so 'anti' at stages, I had to present conflicting data from the Regulator which showed how confused the picture on robo advice was. It was a beauty parade and a useful exercise. I like the fact that I can't fudge things, even if I wanted to. It really is a critical friend.

dunstonh wrote: »

It's all about the software. I shouldn't need to tell you that! Networks make a big deal about workload they save advisers. However, its not as bad as that. Plus, the cost savings are significant by going directly authorised. Some of that is being spent on software which will automate the data needed for reports but you could employ a PA and still end up better off.

I use Plum, the network would like me to use others I'm sure, but for sheer data analysis and functionality, nothing else comes close. Pricy, but aside from the research which I really enjoy playing about with, my one geeky self indulgence. I've invested heavily in self reliance to cut out ongoing costs and to keep Fiver a Day as cheap as it is; the network thankfully, is supportive. Most recently, installing my own servers etc.

I had a good natter with Gem a while back about the future of advice as I saw it, in the macro sense. I think that 'lean' is going to be vital. I hope the DA goes well. 👍👍

Mountaindues

dunstonh wrote: »

HL are not cheap and they have dropped their IFA status and gone restricted.



I would be concerned about nutmeg. Not much under management. Lost 3.6 million last year. Lost 5.3 million this year and only had a turnover of £635,381. That turnover is comparable to a firm with 4-5 advisers. Could you imagine a local IFA firm suffering those sorts of losses? Plus, they charge the same as most IFAs.

Ok, as someone who has a not insignificant sum invested through Nutmeg, I'm interested in your concerns & comments. Putting aside the numbers themselves, which are obviously "challenging" in volume terms, but not unusual for what is, essentially, a tech startup, what risks (other than an interruption risk) do you believe they pose investors capital?
Secondly, you say they charge the same as "most" IFA's, surely that's a rather misleading remark? When investing with an IFA, you will have a) initial advice charges of maybe 2-3% to set up the portfolio, then FMC's (plus extras!) on the funds plus/or dealing costs on ETF's etc, plus a platform fee, plus an annual (trail like) charge for "rebalancing" etc of typically 50bp. I'm paying 60bp for a discretionary managed risk rated portfolio, plus c20bp for the etf's. Nothing else, so less than 1% a year for a discretionary managed service with no additional costs for trading. Sure, I could run it myself, but I think it would actually cost a fair bit as my own pot has about 14 constituents.

dunstonh

I'm personally blown away that so many mortgages are done via middlemen rather than by people directly engaging with lenders.

If you add in all the brokers, it is over half.

I personally can't see what value a mortgage middleman can add. All those I've encountered couldn't find anything that could match what I could get myself and I avoided a lot of hassle, fees and complexity by cutting them out.

Am I missing something?

The personal touch. First time buyers needing the hand holding. The ability for a buy to let landlord to phone their broker and say they have another property and get them to do all the leg work whilst they get on with their life. The client that has used the same adviser for over 20 years and knows them well. Not everyone wants to live their life on the internet.

Dunstonh, right, so you are leaving a network to, not sure what, become directly authorised. Does this mean you be appointed, or unappointed?

I will be directly authorised with the FCA. It means my company will be the principle with the FCA (rather than the network) and my company will carry out all the regulatory tasks (although we are using a third party compliance company for support). Think of the network (appointed rep) as another layer.

FCA > Network > firm = appointed rep.
FCA > firm = directly authorised.

I did an overkill experiment last year as I went through the process to launch Fiver a Day. In addition to the network, I paid for two other organisations to scrutinise my proposition; one, the IFA chain and other, a credible regional support brand. I ran all three for three months - it cost, but I figured it'd be money worth spending before I launched. The result? The network was far more risk averse.. and I mean, far more. I didn't mind it; I got the sense that it was protecting clients by a) protecting me and b) protecting itself. It was so 'anti' at stages, I had to present conflicting data from the Regulator which showed how confused the picture on robo advice was. It was a beauty parade and a useful exercise. I like the fact that I can't fudge things, even if I wanted to. It really is a critical friend.

What happens when the network gets it wrong. Or as has been the case, that a small number of network member firms do wrong resulting the FCA instructing a S166/S166a review that means ALL members of that network are subject to that review. Suddenly getting letters sent out to your clients saying that they may have been mis-sold despite there never being any complaints or evidence to suggest you personally mis-sold anyone.

A good network can be a good safety layer. A not-so-good network can damage your business. When a network goes risk averse, it can result in you turning away perfectly good business because it is not worth the effort or charging a lot more to cover the increased workload.

I use Plum, the network would like me to use others I'm sure, but for sheer data analysis and functionality, nothing else comes close. Pricy, but aside from the research which I really enjoy playing about with, my one geeky self indulgence. I've invested heavily in self reliance to cut out ongoing costs and to keep Fiver a Day as cheap as it is; the network thankfully, is supportive. Most recently, installing my own servers etc.

Has your network had a review since the FCA came into force? One of the FCA requirements (that wasnt an FSA one) is that every firm works from the same compliance manual, same advice process and same systems and controls. That means same factfind across all member firms. Same research software etc. I went to a course for training on CF10 and CF11 responsibilities (although I am not actually taking on both of those roles personally). It was really hammered in how the FCA want consistency across all staff members. Examples were given about censures and that included things like firms using different factfinds and having different processes.