Your guide to becoming directly authorised

Chris Kilner of SimplyBiz talks to Maria Merricks about how advisers can go from being an appointed representative to directly authorised.

With just 18 months left on the RDR stopwatch, advisers are running out of time to decide how to operate their businesses post-2012. For some, the support of a network is the most appealing option. But others are choosing to go it alone and become directly authorised (DA).

The advantages of this option include: having more control over the business; receiving payment directly; and streamlined regulatory costs.

Fears of a long and expensive process put many advisers off the idea, however commentators agree it should not be an arduous task. A common response is to employ the help of a compliance consultant.

Chris Kilner of SimplyBiz, one of a number of specialist consultant groups in the market, outlines what advisers should expect from the process:

1. Charges: There are a number of costs involved. Initially, there is a £1,500 FSA application fee and a standard variation of permission (VOP) of £750.

Annually, there are permissions of between £850 and £1000 for each adviser. There are also various payments to the FOS, ranging from £50-£80.

FSA transitional fees are taken pro rata, with the first bill received within three months of authorisation. AIFA members get the option to pay fees monthly.

2. Giving notice to a network: Once the FSA has checked the application it is passed to a committee which will request permission to obtain a reference from the network. At this stage, advisers must resign from the network so they should be confident there is an authorised firm to move to.

Confirmation of DA status will be approximately two weeks from the committee stage. Once confirmed, advisers can begin operating.

3. Outstanding commissions and PI charges: Following resignation, advisers are unlikely to receive outstanding commissions until any unearned indemnity commission liability is less than that due to them. This may also apply during the network’s notice period, so make sure to check.

In terms of PI cover, advisers need to be aware this is taken by networks monthly and deductions will continue until the end of the policy year. This varies for each network so advisers must ensure this information is confirmed with theirs.

4. Client files: In case of a subsequent complaint, networks have a contractual right and regulatory obligation to retain original client files once an adviser leaves. On resignation, the network will provide a list of requirements for this. While some client information should be handed to the network, some must be kept. A compliance consultancy will help advise on this.

5. Novation agreements: In setting up new agencies with product providers, novation agreements are important. This allows the transfer of potential liabilities, due to claw back, from the network to the adviser’s new practice. It also means future commission due, including renewals, will be paid without delay.