You may have been part of a network and are considering going directly authorised for the first time.
You may have been part of a larger firm and have now decided you want some control over your destiny. Or you may be moving into advising for the first time and setting up your own business.
If so, it's worth considering what you need to do, what to expect and what are the things to avoid. In this three-part series, we will consider these questions against the three elements we think are necessary when going it alone:
Part 1 - Apply for direct authorisation
Part 2 - Build your business model
Part 3 - Create your client proposition
First off, we’ll look at applying for authorisation with the FCA.
What to do
The best place to start on this is to think high level. Think of the business overall (forget for a moment what type of business it is; it wouldn’t matter if it was an advice firm or a greengrocers). What's important is:
- Target market – and why. Start with your ‘ideal client’ and build out from there.
- Revenue projections – what you hope for, but also prepare for a ‘not quite as good as hoped’ scenario.
- Costs – when you’ve thought of every possible cost, add on another 10 per cent, as there are always more where costs are concerned.
- Strenths, weaknesses, opportunities and threats (SWOT) – when I started Para-Sols I did a SWOT analysis as a paper exercise. In it, I noted that a potential threat would be an issue with my IT. Some 18 months later, I accidentally kicked over my computer tower, destroying my hard drive and losing a lot of information. It set me back massively. I was even more cross with myself when I realised I’d identified it as a risk – and done nothing about it. I tell this story in order to demonstrate this isn't a paper exercise, and will genuinely help you avoid such issues.
- Your vision and values. These are almost always overlooked, but always regretted at a later date when you then have to attempt to implement these retrospectively.
As well as enabling you to compile a thorough business plan for yourself, it will also provide the basis of your application to the FCA for direct authorisation, as they also want to see a viable and sustainable business.
After that, you can focus on the fact your business happens to be in financial services, and start thinking about exciting topics like capital adequacy, professionalism and qualifications, continuity planning, and governance and compliance.
What to expect
In a word; challenge. You should expect to be challenged. The FCA has a duty to help protect consumers, and this means they will consider, and potentially challenge, things like the assumptions in your business plan, the figures in your cashflow, and the details in your CV.
You should also expect them to look at the details held for your firm at Companies House, plus any gaps in your employment history.
Expect to be Googled and for any gaps or inconsistencies to be highlighted and questioned. This isn’t to cause you difficulty; it’s to attempt to weed out any bad apples and thus protect the general public.
Yet the experience we and our advisers have had is a positive one. You will be assigned a case worker who will email and chat with you, like an actual human (something we can forget applies to FCA employees).
The timescales to get approval are legendary (and not in a good way), but we’ve found this is simply due to the existing backlog. Once an application has been assigned to a case worker, the process from that point on is relatively swift.
That said, when you initially apply your application will go into a ‘black hole’ of sorts; there’s no way of tracking it or knowing when it might be looked at, until it gets picked up. But after that, things will move pretty quickly.
What to avoid
Typically the biggest issues occur where a firm has rushed into the process, tried to whack an FCA application in to get it under way, and then has to spend months amending plans, cashflows and figures. So it's best to avoid this. A considered, practical approach, coming from a true intention of business planning is a far more efficient route.
Don’t be overly optimistic; this is business after all. It won’t be smooth sailing. The more realistic you are about your potential risks, limitations and threats, the more you prepare yourself for any problems and the more favourably the regulator will view your application. There's nothing wrong with a healthy dose of realism.
The final thing to avoid is the horror stories. Going it alone and the FCA application process involved really aren’t as scary as some people think.