Navigating the complexities of the various financial regulators across not only Europe but also on a global scale is tantamount to skipping through a minefield; one wrong step can result in a decimated reputation, severe financial losses and crucially, clients being left vulnerable without secure guidance.
With the rapid changes to policy across IDD, MiFID and pension legislation alike, it’s no wonder that wealth management firms are naturally migrating towards more risk averse regulatory structures, such as well-established firms providing a secure framework under which to conduct business.
While the concept of an IFA network is nothing new, the interest for joining a network has amplified exponentially over the last couple of years.
What has changed and how does this affect you?
Revised regulatory standards and an introduction of MiFID II cast a light over firms within the industry that were ill-equipped to provide fully compliant and transparent financial advice. These changes were the first catalyst of many that sparked the movement into a new era of wealth management.
Notwithstanding the immense MiFID II application requirements, time and costs involved with the front-end process – the sheer increase in back-end reporting and manpower needed to satiate the regulators makes starting out on your own, as a small to medium sized business, an incredibly daunting operation.
If this first stage already had you struggling to comply with the regulator’s conditions, the arrival of Brexit bringing confusion and disorder was bound to have you asking some serious questions about the most effective route to upholding your regulatory responsibilities to your clients.
Firms that waited out the Temporary Permissions Regime (TPR) period and failed to enact new measures to secure footing in either EU or UK, will find themselves in a position where they are unable to adequately service those clients who fall outside of their remit.
Most recently, extreme changes to pensions advice and retirement planning have created a severely constrained environment to the extent that some organisations were not provided with renewals for their PI cover, putting a firm halt to their ability to conduct business.
Any one of these changes alone would provide cause for many firms to review their current situation and the suitability of their existing business plan. What we have seen over the past few years shows a direct correlation between a firm’s ability to quickly assess, pivot and shift their position in the market and their success to remain afloat.
What should you do if any of these situations have affected you?
You need to conduct an honest assessment of your capabilities, experience and capacity to determine the most effective route to execute your business plan, which must, of course, include licencing and regulatory requirements.
Have you asked yourself the hard questions? Have you considered all of your options?
Blacktower’s Group Chairman, John Westwood, has provided a list of questions that should be considered in your strategy planning.
Once these questions have been considered and answered, you can explore the three routes to market that are available to you.
Becoming a consultant at an established firm
If you like the idea of having every aspect of your licencing and regulation pre-taken care of, then joining an established firm will ensure that you are looked after with little to no further input required from you.
Overheads should be covered by the firm as part of your earnings package leaving you net once you have been paid. While you will likely be building your own personal brand, you will operate under company branding and benefit from the company’s reputation.
Forging forward to set up your own licences
Obtaining your own licences is a major responsibility; deciding which licences are necessary, then compiling an application, proving capital adequacy, financing upfront costs, hiring adequate directors, compliance officers, staff and securing a brick & mortar office are just the beginning. Remaining current with the constant changes to regulation, updating processes, staying vigilant with reporting – all while trying to build your business and service clients – are a huge undertaking.
Market research will need to be conducted on the types of software and systems needed to set up your own business,. While this option might provide you with the flexibility to choose your own preferences, the full costs associated with setting up a modern, digital office can outweigh the benefits of your apparent freedom.
Building up your own brand, may require you to start from scratch and find a place for yourself in the market; a challenging proposition for many IFA firms inexperienced in key marketing principles.
While you will not need to pay-away a percentage of your earnings to a network, the overheads involved in setting up your own regulated entity are extremely high and it will take some time for you to put your business in the black.
Joining a network
Leveraging economies of scale via a network enables you spend less on the essentials while allowing you to focus on the fundamentals of developing your business, marketing your brand and servicing your clients. The network will already have conducted their market research and have implemented appropriate systems which are fully accessible.
While you will still need to be aware of your regulatory responsibilities, all of the hard work is taken care of. The maintenance and infrastructure is already in place and you can seamlessly plug into the network’s existing framework.
Advantages stemming from the experience of a longstanding back-office team, puts you ahead of the curve. Once part of a network, you will receive swift feedback on a myriad of topics spanning all facets of the financial planning spectrum.
The ability to continue operating under your own brand, backed by the network is huge draw for many business owners. The network’s scale, reputation and marketing strategy support should work to bolster your standing in the industry.
While the above does not take into consideration the granular details involved in a business plan, I hope to have highlighted the key factors to focus on while outlining the benefits and drawbacks of each route to market.
By following this useful roadmap, you should feel confident that you have considered the vital elements involved in building out a strong, strategic business plan to ensure your business excels in a post-Brexit and ever-nearing post-Covid world.