Andrews FS voices concerns over L&G transition period
Paul Bumford, managing director of Andrews Financial Services, which employs over 50 advisers in the South East of England, said that after 11 years as an L&G AR he was “disappointed” the group had made the decision to move away from the model.
But he conceded: “That’s business.”
Bumford said: “We have been in conversation with them since late January about the possibility of going down the DA route and remaining with the L&G Mortgage Club.
“We have not made any decision yet about whether we will go directly authorised but given the regulatory requirements necessary and the need to put in our Financial Conduct Authority application, we believe that it will be a minimum of 12 months before the process is complete.”
Bumford added: “We still have three years left on our contract with L&G and have not been put under any pressure to move yet.
“We like the way L&G deals with its regulatory requirements and, while some may consider them a bit more restrictive than other smaller networks, we believe that keeping their ARs safe and protected as well as keeping the customer protected and confident in our advice is what it’s all about.
“Whatever happens we would like to maintain a relationship with L&G as they have been a very good strategic partner for us over the years and we like the way they do things.”
Spicerhaart , another of L&G’s largest ARs, also revealed that it has yet to make up its mind on whether to go DA or join another network.
Paul Smith, Spicerhaart’s chief executive, said: “As you would expect from a company the size of the Spicerhaart group we have been aware of L&G’s plan for some time and have been planning our direction accordingly.
“As a major player in the house purchase sector we have a number of options open to us and will decide in due course.”
Stephen Smith, director of housing and the mortgage club at Legal & General, said the firm had appointed compliance specialists Huntswood to help all firms considering becoming DA with the decision, preparation and application process to ensure as speedy and smooth a transition as possible.
He said: “We want the change process to be done in partnership with our firms and are providing workshops and support to help those firms we strongly believe are capable of becoming DA.
“That said these things can take a long time with time taken to make the decision, prepare the application, complete it and submit it and after that the timing is out of our control.”
Smith was not prepared to comment on whether L&G would provide a guarantee that AR firms could continue to operate under L&G network permissions should their DA applications run beyond the end of next year – the timeframe Smith has said he expects all ARs to have transitioned.
But he added: “We have not got a plan to impose a shutter coming down and although these things can take time and are out of our control, we have appointed Huntswood to ensure our partners have the best possible shot at being approved quickly.”
Robert Sinclair, chief executive of the Association of Mortgage Intermediaries, said issues such as the L&G situation were complex and often had to do with the network leadership carrying full regulatory responsibility for all that happens within their appointed representative firms.
He added: “Larger networks have recruited significant compliance teams that try to apply stringent standards and these cost money, which means advisers who are members pay for the reassurance that they are getting good quality compliance support from their network.
“However it may be that this is not an entirely level playing field with some smaller networks undercutting the larger ones with lower fees to entice ARs away.
“This is a market dynamic that has evolved and there is a risk that for some firms the risk outweigh the amount of revenue they can generate.
“In the case of Legal & General, their decision to evolve away from the AR model is just a small part of their current business journey.”
Last month law firm RPC published figures, confirmed by the FCA, that revealed firms hoping to expand into new business areas were having to wait 85% longer for authorisation than two years ago.
By the end of last year the wait time had risen to nearly five months, up from 10 weeks at the start of 2013.
The FCA said the average processing time is influenced by how complex application is, how full and accurate the information provided by the applicant is, and the time taken to send the regulator any necessary information not provided in the original application.
Guidance on the FCA website also warns: “We will take direct references from your principals to process your application. Any delays in obtaining these may well affect the time it takes for the application to be completed. So please warn your principals in advance.
“Your principal will retain responsibility for any regulated business you carried out while you were its appointed representative.
“You will need to agree with your principal how they can have direct access to your client files in case a client complains during the period you were an appointed representative.”
When the FCA assesses an application for authorisation, it expects to see evidence of how the proposed approved persons have been deemed competent to carry out their roles.
The FCA said: “You could show this by, amongst other things, telling us how long you have carried out the activities you are applying for, the volumes of business undertaken and giving us copies of qualifications and details of training you have done.
“If you become directly authorised by us you will become responsible for, among other things, professional indemnity insurance, compliance and the liabilities of your business. You will need to ensure that you have systems in place to cope with these obligations.”
For firms considering a transition to DA, the FCA said once advisers give notice, their principal may “choose not to permit you to carry on regulated activities for the period of your notice”.
It added: “However as long as you remain registered as an AR, we have no objection to you trading up until the date of authorisation. An application for and approval of direct authorisation by us does not override any contractual obligations you owe to your principal. These are matters you will need to resolve with your principal directly.”
L&G’s preferred partners for advisers wishing to join another network are Stonebridge, an AR network that operates through the L&G mortgage club, and Mortgage Advice Bureau, another network with L&G’s mortgage club.
Firms wishing to remain with L&G mortgage club directly will need to transition from AR status to DA status and Smith has gone on record saying he expects some ARs still to be with the L&G network at the end of this year but all ARs to have moved to another network or gone DA by the end of next year.
Chris Hulme, advising director of Manchester-based Clayton Hulme Partnership, an AR of First Complete, said remaining an AR was a no brainer because ARs earn higher procuration fees than DAs, have professional indemnity dealt with by the network and benefit from a large network’s bargaining power with lenders to get more competitive deals for clients.
He said he “simply could not understand the blinkered approach” some ARs had about paying network fees.
He said: “Regulation has just got so complex with Mortgage Market Review and the Consumer Credit Directive and the reality is without the compliance support we get from our network we would just be swamped dealing with it all.
“Even paying £30,000 a year to a network would be worth it in my book because it allows me to get on with what I’m good at – giving advice to my client in the knowledge it’s compliant. Otherwise I’d be paying for someone’s salary to deal with the compliance we’d need to as a DA.”
He added: “Networks aren’t expensive – they’re a bargain – especially if they are part of a larger and stable group like LSL Property Services is.”