Advice networks have argued the regulator does not have the scale or ability to directly authorise thousands of appointed representative (AR) firms, should the regime be overhauled.
The networks also maintained that a well-regulated AR regime offers “significant” benefits to customers and that improving the financial services register would help customers.
Last week MPs and peers proposed that the AR regime should either be banned entirely or networks should be made 100% responsible for their ARs.
They also suggested the Financial Conduct Authority (FCA) could replace the regime for ARs with an arrangement where ARs would need to become directly regulated through the FCA and have advice networks employ ARs directly, rather than have them run their own firms.
But the report from the MPs in the All-Party Parliamentary Group for Investment Fraud and Fairer Financial Services also accused the regulator of being “incompetent” and failing to perform its functions and called for it to be overhauled.
Health & Protection contacted eight networks about the report from MPs and found the consensus among those who replied, Sesame Bankhall Group, Santé Group and Rosemount Financial Solutions (IFA), was that the AR regime still has a “significant” role to play.
Mortgage Advice Bureau, Primis, Stonebridge, Right Mortgage and Protection, and Openwork Partnership did not respond.
The FCA did not respond directly to questions about the MPs’ proposals for changes to the appointed representative regime.
On the wider report, an FCA spokesperson said: “We sympathise with those who have lost out as a result of wrongdoing in financial services, however we strongly reject the characterisation of the organisation.
“We have learned from historic issues and transformed as an organisation so we can deliver for consumers, the market and the wider economy.”
Significant role to play
While acknowledging some “valid” concerns in the report, Santé Group told Health & Protection it was important to recognise the “significant” benefits that a well-regulated AR regime offered to consumers and the financial advice industry.
It added that a reputable parent network prioritises ethical conduct, robust compliance, and customer best interests. By filtering down these values to AR firms, networks ensure that consumers receive high-quality advice, it said.
The firm also maintained that networks drive healthy market competition and innovation while empowering smaller firms and independent advisers to offer specialised expertise without the significant costs of direct FCA authorisation.
It contended these networks could provide access to advanced systems, technology, and product ranges, enabling firms to deliver more efficient and effective services.
And by operating within a well-regulated network, it said AR firms could prioritise consumer duty and deliver the best possible outcomes for their clients.
Helping to navigate a minefield of opportunities
Paul Nugent, CEO of Santé Group, said: “The Santé Partners network is built on a foundation of compliance, ethics, and customer focus. We require our AR firms to deliver exceptional advice while ensuring that they adhere to the highest standards.”
Adam Sherring, managing director of Santé Partners, added: “We live in a society where only 2% of the population pay for advice on their investments. Where do the remaining 98% take their advice from?
“As institutions withdraw from offering advice, and the advice market shrinks, the consumer is in a position of having to decipher a minefield of opportunities when it comes to investment or insurance products.
“An AR network gives a small brokerage, or even a one-man PMI specialist, the ability to deliver expert advice to clients without the need for direct authorisation and the complications that goes with being directly authorised by the FCA.
“Santé Partners, as a dedicated AR network specialising purely in employee benefits and medical insurance, offers a robust platform that is built on compliance and the best possible customer outcome. It offers the ability for small brokerages to do what they do best, within a framework of compliance and guidance.”
Making the FCA register easier to use
For Ahmed Bawa, CEO at Rosemount Financial Solutions (IFA), the key point is for the FCA register to be easy to use for the general public.
“In my view, the issue isn’t around ARs so much as how the information about advisers is presented on the register, it needs to be simplified so that members of the public can use it properly” Bawa said.
“From a regulatory perspective, it’s much easier and more efficient to manage a network than thousands of individual advisers. How would the FCA keep control of advisers if they are all directly authorised?
“How many people would they need to supervise those sole traders and small advisory firms, and how much would it cost to do so? The regulator does not have the capacity to operate in that way.
“It’s much better for the FCA to be able to have conversations with the CEO of a network, to pick out the areas that need addressing, and for that CEO to be responsible for ensuring those changes take place across all of their ARs.
“The FCA cannot effect change in the same way if they are trying to police thousands of individual firms.”
Benefits of being your own boss
Bawa also pointed out that one of the big attractions of being an AR is that you get to be your own boss, to build your own business, but with the backing of a network behind you.
“To say everyone has to become DA or employed would make meeting that aspiration much harder, and likely only lead to reduced numbers of advisers at a time when what we really need is to attract more people into this industry,” he continued.
“Unfortunately these suggestions come down to misunderstanding how our market actually works.”
Toni Smith, distribution director at Sesame Network, said high-quality advice would continue to be paramount to the firm.
“Our network advisers play a very important role in helping us to deliver on that commitment, and we work to support them through offering the highest standards of compliance, training and oversight,” she continued.