Regulation has made it harder than ever for small firms to become directly authorised, advisers and marketing consultants have warned.
Phil Billingham, partner and chartered wealth manager at Perceptive Planning, said he was working with some advisers who have found getting direct authorisation from the Financial Conduct Authority has been taking months longer than they had anticipated.
"It is a much more difficult and longer process than people are giving it credit for," he said. "They expect to DA in three months and that is unrealistic. It is more like 12 months from start to finish."
Billingham told FT Adviser he had been speaking to companies that are finding the whole process more difficult and onerous now than at any time within the past 20 years.
This is why more young advisers and newcomers have decided to go down the AR route, rather than set up new businesses in their local areas.
"It has really been eye-opening," Billingham said.
According to Billingham: "Some of this is for good reason - making sure firms are set up as proper businesses, for example, but I think the FCA is also oversensitive to any potential issue, whether it is phoenixing or related to advice given in the past.
"Sometimes an individual adviser is being forced to take liability for advice given by a big national or life insurance company.
"For example, if you've been around 20 or 30 years as an AR of a big company, you will most likely have given advice on products such as key data or pension transfers."
He said this was not necessarily a reason for the FCA to prevent that individual from setting up on their own as a DA, as advice given historically must be measured regarding what was considered suitable at the time.
Billingham added: "We have sat in on meetings and can tell you, there are many more interviews needed now than in the past with the regulator. And the FCA are very well briefed.
"I understand they have to be strict because of consumer protection, but the reality is that the intensity of the process is a barrier to the creation of small, bespoke businesses who could be more focused on particular niches of clients."
He added that smaller, truly independent companies have had far fewer negative Fos outcomes than large networks or companies, and tended to serve their local communities better.
FCA concerns over suitability and protection
In 2021, Sheldon Mills, executive director of consumers and competition, wrote to Marlene Sheils, chairperson of the Small Business Practitioner Panel.
She had raised several concerns about regulation of various small businesses post-pandemic.
Mills responded to her in a detailed, seven-page letter, in which he said: "Overall, our aim is for all advice to be suitable. As more advice is suitable, fewer consumers will find themselves let down and needing redress and, over time, this will drive down the cost of unsuitable advice for the industry."
