The network versus directly authorised debate has been raging across the industry for decades, here Sense's Steve Young analyses the merits of both.
"Recently, one of my colleagues asked me if I had ever written a piece on the relative merits and demerits of being in a network versus being directly authorised (DA).
I had to confess that I have always shied away from a subject which is as nebulous as trying to write an essay on whether Liverpool or Everton are the best club on Merseyside.
The problem with the Network/DA debate is that it is coloured with emotion and a complete lack of objectivity. Can I write a piece which can genuinely be seen as satisfying those two problems? Let's try!
Firstly, let's get the issue of bias out of the way. I am a Director of both Sense Network and Sense Support, the latter providing support services to DA firms. I have previously been a director of one of the largest outsourced compliance firms and held senior posts in traditional networks. I have also been an adviser in a directly regulated firm, albeit some time ago. The views in this article are based upon my personal experience over 25 years and are not based upon my commercial interests which, I hope, are self-evident.
I think it important to remember that the FCA rules (other than in a small number of ways) are identical for network and DA firms. The Conduct of Business rules do not differentiate in any way and the outcomes for consumers need to be the same. It is not easier for DA firms nor more difficult for network firms to comply in this area.
It is true that network firms do not have to complete a Gabriel report (the network does this) and that network firms are not subject to the capital adequacy rules (but the network itself is). For some firms this will make a difference, for others it is not a problem.
It is true that the network takes full regulatory responsibility for the actions of their members but the directors and advisers of a network firm are still approved persons and therefore subject to disciplinary action from FCA if problems are identified.
It is also true that most networks take steps to protect themselves contractually and financially via the network agreement and personal guarantees given by the directors/principals. In short, you're on the hook for the advice that you give and the way that you manage your firm whichever route you choose.
Any other difference is simply down to who does what and, ultimately who decides upon the policy to be adopted by the advisers within the firm.
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Three years at Wells Fargo
Effective from 9 December 2019
One firm with permission suspensions left
Continuing the Architas education series for clients.
Needs to apply for authorisation