At last we finally know who was to blame for all the faults in the financial advisory sector over the past 20 years - it was the appointed reps all the time. Or was it?

The FCA put the boot in to appointed representatives (ARs) this week by announcing a sweeping reform of the AR system, making the principals who appoint them more responsible for any poor behaviour by their ARs.

There will be annual checks, more scrutiny and tighter regulation all round.

Certainly the figures look bad for ARs if you accept the regulator’s data analysis.

The watchdog says that, on average, there are up to four times more claims connected to firms using appointed reps than firms not using ARs. Even worse than this, the FCA’s analysis of Financial Services Compensation Scheme claims found that ARs accounted for 61% of FSCS claims in monetary term from 2018 to H1 2019. The total of FSCS claims during this period was £1.1bn suggesting that ARs alone were responsible for £600m of claims.

That’s a pretty bad record however you look at it.

Many whole of market Financial Planners will, at this point, be saying “told you so.” But is it as simple as this?

The FCA itself admits that the “vast majority” of advisers, whether they be appointed reps or completely independent and directly-authorised advisers, provide good service. It's not going to eradicate appointed reps.

Certainly a quick look at the FSCS failed firms data suggest failures are common among directly-authorised independent firms.

What the FCA has highlighted, however, is that there is a major problem in the appointed rep sector, something many have suspected for a very long time, and that’s a lack of supervision. Too many firms take on appointed reps and then fail to manage them properly. While many are good advisers a significant minority of bad apple ARs are seemingly attracted to the sector by what can only be described as slack regulation and poor supervision.

It’s worth stating that ARs are far more likely to work in a self-employed, pressured, sales environment than directly authorised independent firms but the picture is a complex one. Many ARs work for well run, independent firms and are of good quality. 

Ultimately appointed reps should not be demonised and putting more pressure on the principals who employ them makes sense. It should be their job to weed out the bad ones. 

What is more important about the FCA’s move this week is that the regulator seems finally to be waking up to calls from Financial Planners, the professional bodies and others to crack down on the areas of the financial services market that cause the most problems and the most costly claims. 

It really is not right that quality providers and decent Financial Planning and wealth management firms that run sound businesses and look after clients well year after year should have to pay for the incredible and rising toll of rogue firms. It sounds like the FCA is beginning to listen to this plea.

Kevin O’Donnell is editor of Financial Planning Today and a journalist with 40 years of experience in finance, business and mainstream news. This topical comment on the Financial Planning news appears most weeks, usually on Fridays but occasionally other days. Follow @FPT_Kevin