Advantages and Disadvantages of Working as a Registered Individual (RI)shootermk
Although Which Network’s main involvement with RI’s is helping those ready to flex their wings and fly off into independence to find right network to land on, we are also approached by a number of people who for varying reasons can’t take the independent route asking what is involved in being an RI.
What to look for in a Registered Individual proposition
As with most things in life, this isn’t as straightforward a question as you may think since there are many different approaches taken by firms to employing mortgage advisers as RI’s, however in this article I will try to cover as many bases as possible and certainly the main points.
What is a Registered Individual?
Maybe a good place to start would be to explain what an RI actually is. In terms of regulation the term RI refers to Registered Individual. This is a mortgage adviser who rather than being an appointed representative of a network or directly authorised by the Financial Conduct authority (FCA) works for a company or individual on a self-employed or employed basis. As an RI you might be a trainee or have been in the business for years but you will be working for a “principal” be they a company or sole trader, Mortgage Broker or IFA who is regulated by the FCA either through a network or directly.
Advantages of being an RI
A percentage or all of your work may be provided by your principal which can be handy if you are new to the industry or even just very good at writing business but not so good at marketing.
Life as an RI can be simpler since regulation and compliance issues will usually be taken care of by your principal or if they have any their administration staff.
This route to placing business is often used by people entering the industry as mortgage brokers where they have the CeMAP or other relevant qualifications but haven’t yet gained Competent Adviser Status (CAS) and need some training and a supervised environment in order to be classed as competent.
Another situation where we often recommend mortgage advisers to go down this path is when they have been out of the industry for some time, and have lost their Competent Adviser Status (CAS). CAS is a much bandies about term and there is some flexibility with a number of the networks on our panel, but certainly if you have been out of the industry for more than 3 years unless there are extenuating circumstances then it’s likely that you will have to work as an RI for a regulated mortgage broker or IFA for at least 3- 6 months.
RI’s don’t appear on the FCA register
Finally, at time or writing, as an RI you are not directly registered with the FCA insomuch as you don’t appear on the FCA register. In certain circumstances this might mean that although you could not work independently and would not be allowed to be registered and appear on the FCA register, you could still nevertheless be allowed to practice your profession and earn a living. The issue that put you in this situation could be that you don’t have CAS or have previously had credit problems, compliance problems, have been struck off a lender panel or have been terminated by a mortgage or financial network.
The reason I say “in certain circumstances” is that as an RI, regulation doesn’t disappear. The responsibility for your compliance is just passed on to the principal so they need to accept you and accept liability for you and it is the principal who are checked and policed by the FCA.
Disadvantages of working as a Registered Individual
Turning to the maybe not so good points of being an RI now, most of which tend to revolve around cost and client issues.
In almost all cases as an RI the clients you work with will belong to the principal, regardless of whether they are provided by the principal or self-generated. You may well find that in the agreement or contract you work under there are clear “non-contact” clauses. This means that if you leave, your clients do not leave with you, which might on the surface seem a bit unfair. Remember however that the principal has joint liability for any products or services you provided to the client while you were working for them and they will have incurred administrative costs and also marketing costs where they provided the lead. This is on top of any direct costs to use your services such as compliance fees, professional indemnity insurance, software and systems support.
Financial cost of being a registered individual.
Generally in overall cost terms it’s almost always more expensive to be an RI rather than independent either as an Appointed Representative (AR) of a network or Directly Authorised (DA). The percentage taken off your commissions, proc fees and broker fees varies immensely both because the amount of administration support and training given varies and less charitably because some principals are more greedy than others, but if you think about it if principals didn’t make a profit from using the services of an RI then there wouldn’t be any RI’s.
Retention rates and monthly fees
Typical retention rates would be 25% to 40% off commissions, proc fees and broker fees from clients you have found and 60% to 90% for clients provided by your principal. Remember these are only typical rates however, there is nothing laid down in concrete and often the actual rate is arrived at by negotiation and depends on the amount of support you need, your experience and the number of clients you can bring into the business.
Monthly fees are also sometimes charged in addition to a retention to cover PI, FCA levees, network or compliance support costs and the use of an office with administrative backup (where provided).
All of the above is reasonable and fairly obvious when you think about it does add up to a fair chunk of your income and a big incentive when you are ready and able to go it alone.
Less obvious things to watch out for include lead quality
Poor quality leads for example are a common problem. Where a principal provides leads it’s not unknown for some unscrupulous principals to pass the best leads to employed staff since they tend to be paid the same maybe plus or minus a bit of bonus regardless of what they do, so it makes sense to keep them busy and not waste their time. On the other hand, as a self-employed RI, is paid only on results if you drive 50 miles or waste 2 hours of your time chasing a lead that was very unlikely to convert to a sale, that’s no additional cost to the principal and if you do convert a very poor lead, well that’s just a little bonus!
Top slicing of proc fees and delays in payment
The top slicing your proc fees and insurance commissions before taking their retention is another occasional practice which might be very difficult to detect if you are new to the job. Remember that the product illustration you give to a client will usually include a networks slice of commission where a principal is an AR and so won’t necessarily reflect the true amount the principal gets, but nevertheless you should keep an eye on any differential. Your retention with or without a monthly fee is all you should be paying for the support/training/software you receive so other than any possible networks retention, if there appears to be an appreciable difference between the top line on a product illustration and what is used to calculate what you get paid don’t be shy to ask why?
Finally delays in payment aren’t usually a problem and most principals will pass commission or proc fees through to their RI’s in around a week to ten days, but certainly if it’s much longer than 14 days, you need to ask if there’s a problem?