How to Open an IFA Arm of Your Mortgage Business
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How to Open an IFA Arm of Your Mortgage Business
We often see mortgage brokers looking for ways to diversify their income and build long-term stability. The mortgage market can be highly volatile and rate-driven, often feeling like a transactional cycle that resets every year.
Adding an Independent Financial Adviser (IFA) arm to your business allows you to move beyond this one-off nature, building a recurring income stream and providing a more holistic service to your clients. In this article, Daniel Hobbs explores the practical steps, qualifications, and benefits of expanding your brokerage into the world of full financial advice.
How do you add an IFA arm to your existing mortgage brokerage?
Adding an IFA arm is relatively straightforward, especially for firms already used to being authorised and dealing with compliance. It is essentially a pivot of the business. You can choose to have the principal of the firm become the IFA, or nominate a specific person within the business to take on that role.
The process begins with upskilling and obtaining the necessary Level 4 qualifications, which differ from the Level 3 requirements for mortgage advice.
Does it add value on exit to your mortgage business?
There is a significant difference in business value upon exit between a mortgage-only brokerage and an IFA firm. A mortgage business is typically valued as a book of clients, often resulting in an introducer-style sale where you receive a percentage of future income.
In contrast, an IFA business is valued on its ongoing servicing agreements and funds under management. Because this provides a predictable, recurring income, these businesses are highly attractive to buyers and can be valued at up to three times the annual ongoing income.
What FCA permissions do you need to offer full financial advice?
To offer investment advice, you must apply for specific approval from the Financial Conduct Authority (FCA). This involves a separate application process and additional due diligence, such as credit reporting and Disclosure & Barring Service (DBS) checks.
Once approved, IFAs must also commit to at least 35 hours of Continuing Professional Development (CPD) each year, which must be verified by an examining body like the London Institute of Banking & Finance (LIBF).
Do you need to set up a new company, or can you expand your existing firm?
You do not necessarily need to set up a new company. Many firms operate with multiple permissions, including mortgages, IFA services, and will writing, all under the same limited company.
However, some choose to set up a separate Appointed Representative (AR) company if they want different branding or to keep the business arms distinct. Both approaches are acceptable within the industry.
What qualifications do your staff need to offer IFA services?
Staff must hold a Level 4 qualification, such as the Diploma in Financial Advice. This is more in-depth than the Level 3 CeMAP (Certificate in Mortgage Advice and Practice) required for mortgages. The diploma includes multiple-choice exams and a written assignment or coursework piece, similar to a university module.
If an adviser has completed the modern CeMAP module one recently, they may be able to skip the opening module of the diploma, as there is a direct crossover.
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How does joining an IFA network like New Leaf simplify the process?
Joining a network like New Leaf provides access to every permission area, from mortgages and protection to investments, pensions, and estate planning. A major advantage is the inclusion of full administration and paraplanning services. This allows advisers to focus on building relationships and acquiring clients, while the network handles the complex paperwork and research.
What compliance and PI insurance changes are needed?
When joining a network, Professional Indemnity (PI) insurance is typically covered for all areas of the business. Because the network supports the administration and signs off on the business, they often provide an advice guarantee. This level of support means that the network can fully back the adviser if a complaint arises, provided the correct processes were followed.
New Leaf also offers a two-year mentorship programme to help new IFAs navigate the compliance landscape safely.
How long does it typically take to go from mortgage-only to offering full advice?
The process is flexible and can be taken at your own pace. Some people find that it takes between six and nine months to complete the necessary qualifications, though a year is a comfortable timeframe for a busy mortgage broker with a full-time practice. Since the exams are flexible, you can pick up where you left off without a strict time barrier.
Is there anything else you would like to add?
Expanding into financial advice is particularly effective for those dealing with business directors or high-net-worth clients. It allows for a more holistic approach, such as providing pension reviews for a client’s employees or consolidating multiple legacy pensions for younger clients. This not only adds value to the client relationship but also builds significant long-term assets for your business.
Summary:
Transitioning from a mortgage-only brokerage to including an IFA arm is a strategic move that enhances business value and income stability. By obtaining Level 4 qualifications and the correct FCA permissions, brokers can offer a wider range of services, including pensions and investments. Working with a network can greatly simplify the administrative and compliance burdens associated with this shift.
Key Points:
- Move from transactional mortgage income to recurring fees based on funds under management.
- IFA businesses often command higher exit multiples (up to 3x recurring income) compared to mortgage brokerages.
- Requires a Level 4 Diploma in Financial Advice, which typically takes 6 to 12 months to complete.
- Networks provide essential paraplanning, administration, PI insurance, and mentorship.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS