The past few years have been a period of great turbulence and change in the wealth management industry, and the impact of these changes has been felt by anyone working within this sector, with many being forced to consider the future of their businesses.
As securing the required regulatory and licensing permissions becomes increasingly challenging, IFA networks have risen to the forefront as a cost-efficient and convenient way to ensure compliance with minimal internal restructuring; in a time of great instability in financial services, networks are providing security, especially for medium-sized businesses, writes Claire Irvine, network manager at Nexus Global.
Despite the significant changes that have already been implemented, there is no guarantee that future modifications and revisions of current legislation will not occur; in fact, it is arguably only a matter of time before additional measures are introduced. For this reason, it is important to consider the immediate position of your business, your future strategy, and the longevity of your current processes when it comes to compliance.
Changes in regulations
The combination of the introduction of the Mifid II, revised regulatory standards and the pressure from Brexit has resulted in a complete restructuring of the licences necessary to conduct business in the EU and the UK.
This upheaval has resulted in a great deal of stress for many financial planning and wealth management firms, even for those that have been established for a number of years, as the resources required to implement the necessary changes have simply not been attainable for many small and medium-sized businesses.
As regulations tightened, firms have been forced to commit to the necessary expenditure to implement the changes required to continue conducting business, or lose a large part of their revenue as the restrictions drastically limit their product offerings; those who have adapted have been able to continue to service new and existing clients and keep their businesses afloat.
After Brexit, EEA firms who have relied on the Temporary Permissions Regime (TPR) to allow them to operate in the UK will now be facing the reality that, if they do not implement the necessary changes and obtain licensing required to offer services in the UK, they will experience a significant blow to their business.
With the TPR ending at the end of 2022, time is running out.
There are some key questions to consider if you want to prioritise the survival of your firm in the current legislative landscape:
- What is your firm or network provider’s regulated position for IDD, Mifid, and UK post-2022?
- Does this remain suitable for your future business plan?
- Are adequate financial resources in place to pass regulatory capital adequacy requirements?
- Are you in a position to keep pace with constantly shifting regulatory requirements?
- Have you taken steps to protect your present and future management income streams?
- Have you agreed your future adviser remuneration arrangements?
- Does a restricted advice or an independent advice model better suit your future business plans?
- Is your firm or network provider fully conversant with the above and its implications?
- PI is compulsory. Is your policy wording suitable for cross-border activities?
How joining a network can help
When establishing your own financial planning firm, joining a network is one of the three options available when it comes to obtaining the licensing needed to operate.
The first alternative is to source your own licensing, this means putting together the application, hiring the staff with the required knowledge and experience, fronting all administrative, technological and practical costs while also committing to the expenditure of maintaining compliance in the future.
It is an expensive and sometimes stressful process; but it provides you with freedom concerning your branding and the operation of your business. It is also a significant responsibility that carries costly consequences if not fulfilled.
The second alternative is to join a financial planning firm that is already established with the necessary licensing and regulatory framework. This does not provide you with the autonomy you have operating your own business and prevents you from establishing your own business under your chosen name and branding, but it does offer the security of assurance in compliance and it means that the costs associated with licenses will be covered.
In this scenario, you trade some independence for peace of mind.
Joining an IFA network is the third option. Low costs enabled by large-scale operation make this a cost-effective and convenient option to operate under the necessary regulatory framework, which is extended by the network to cover your business.
With a network, you are able to develop, refine and build your business with the support of an established institution behind you. With a network, you receive not only assistance concerning regulatory compliance, but also regarding branding, service offerings, and growth, helping you to develop your business in all areas.
Perhaps most importantly, an IFA network allows you to retain autonomy and control over your firm, which, after potentially spending years building, is non-negotiable for many founders.
This article was written for International Adviser by Claire Irvine, network manager at Nexus Global.