A directly authorised (DA) firm holds its own FCA permission and answers to the FCA for everything it does. An appointed representative (AR) has no permission of its own: it is exempt under section 39 of the Financial Services and Markets Act 2000 because a principal firm has accepted responsibility for it in writing. The AR route is faster and cheaper to start. The DA route costs more but gives the firm control of its products, panel, brand and compliance standards. The right choice depends on the firm's size, growth plans and how much control it needs.
This guide compares the two routes for the four sectors where ARs are most common: investment advice, mortgages, general insurance and consumer credit. It sets out the costs that change, what the FCA expects of principals, and how to move from AR to DA when the time comes.
What each status means
An AR carries on regulated activities under a contract with its principal. The principal must be authorised for the same activities, must accept responsibility for the AR's regulated business, and must oversee it under SUP 12 of the FCA Handbook. The AR appears on the FCA Register under the principal's name. Its advisers or brokers are still assessed for fitness and competence, but through the principal's systems.
A DA firm applies for Part 4A permission through Connect. The FCA assesses it against the threshold conditions: appropriate resources, suitability, effective supervision and a suitable business model. Once authorised, the firm has its own Register entry, its own reporting, its own senior managers under SM&CR and its own relationship with the FCA.
There is a third model in some sectors: the introducer appointed representative (IAR), which may only introduce customers and distribute non-real-time promotions. An IAR cannot advise or arrange.
Side by side: DA and AR
| Area | Directly authorised | Appointed representative |
|---|---|---|
| FCA permission | Own Part 4A permission | None: exempt under section 39 FSMA |
| Who answers to the FCA | The firm and its senior managers | The principal, for everything the AR does |
| Capital | Own requirement, for example £20,000 or more for an advice firm, £5,000 or more for a mortgage or insurance broker | None set by the FCA; the principal holds capital |
| PII | Own policy meeting IPRU(INV) 13 or MIPRU 3 | Covered by the principal's PII |
| FCA application | Fee paid (Category 4, £2,820, for most advisers and brokers); statutory decision within 6 or 12 months | Principal notifies the FCA at least 30 days before the AR starts |
| Ongoing FCA fees and levies | Paid by the firm | Paid by the principal, usually recharged |
| Compliance | Own monitoring, policies, file checks and reporting | Principal's framework, monitoring and file checks |
| Products and panel | Free choice, subject to the firm's own due diligence | Limited to the principal's approved panel |
| Brand | Own brand and Register entry | Own trading name possible, but disclosed as the principal's AR |
| Cost model | Fixed costs: capital, PII, fees, compliance staff | A share of income or a fee paid to the principal |
| Exit | Wind-down plan; no one else to approve | Notice terms in the AR contract, and the principal's consent to transfer clients |
What principals must do, and why it shapes the AR experience
Since the FCA's appointed representative rules took effect on 8 December 2022 (PS22/11), principals must carry out due diligence before appointing an AR, notify the FCA at least 30 days before the AR starts regulated activity, review each AR at least once every 12 months, and have their governing body approve a written self-assessment of their AR oversight every year.
This is why many principals have tightened their terms. An AR that wants to add a product, change its charging, take on a new adviser or open a new office will usually need the principal's approval first. Our guides to principal oversight of ARs and the principal self-assessment explain the duties from the principal's side.
HM Treasury consulted from 12 February to 9 April 2026 on reforming the regime, including a specific FCA permission to act as a principal, applying SM&CR to AR staff and giving the Financial Ombudsman Service jurisdiction over ARs. Any change needs legislation, so plan on the current rules.
How the choice differs by sector
| Sector | Typical AR model | What DA status adds | Prudential rules |
|---|---|---|---|
| Investment and pensions advice | Network or single principal; adviser firms as ARs | Own investment proposition, platform and provider panel, own ongoing service and charging | IPRU(INV) 13: highest of £20,000 and 5% or 10% of income; PII at least £500,000 per claim and in aggregate for smaller firms |
| Mortgages | Network or mortgage club principal; brokers as ARs | Direct lender relationships, own panel, own protection and general insurance offer | MIPRU 4.2: £5,000 or 2.5% of income, or £10,000 or 5% with client money; PII EUR 460,000 per claim and EUR 750,000 in aggregate for most brokers |
| General insurance | Broker network or MGA principal; brokers as ARs | Own insurer agencies and terms of business agreements, own client money arrangements | MIPRU 4.2 capital as above; PII EUR 1,300,380 per claim and EUR 1,924,560 or 10% of income in aggregate |
| Consumer credit | Lender or broker principal; retailers and introducers as ARs | Own lender panel and commission terms, own permission scope | No capital requirement for most credit brokers; limited or full permission depending on activities |
The real cost comparison
The AR cost is mostly variable: the principal takes a percentage of income or a fixed monthly fee, and in return carries the capital, PII, FCA fees, levies, compliance monitoring and much of the reporting. When income is low, that is usually cheaper than DA status.
The DA cost is mostly fixed. A small advice or broking firm pays the application fee once, then annual FCA fees, Financial Ombudsman Service and Financial Services Compensation Scheme levies, PII premiums, and the cost of compliance support, whether in-house or outsourced. It must also keep capital in the business. As income grows, the AR percentage grows with it, while much of the DA cost does not. That crossover is the point at which most firms start to consider DA status.
Do the comparison on real numbers: your income for the last 12 months, your PII quote, your capital requirement and the compliance resource you will need. The fee and levy estimates in your financial projections should come from the FCA's and the levy bodies' published fee rates for the year.
When AR status is the better choice
- the firm is new, small or testing a business model
- the principal's panel and proposition fit the firm's clients
- the firm does not want to carry PII, capital and compliance overheads yet
- speed matters: the principal can appoint in weeks, while the FCA has up to 6 months for a complete application
- the firm's advisers or brokers value the principal's training and file checking
When DA status is the better choice
- income has grown to the point where the principal's share costs more than doing it yourself
- the firm needs products, platforms, lenders or insurers outside the principal's panel
- the principal's restrictions are holding back the business model
- the firm wants its own brand and Register entry, for example ahead of a sale or a merger
- the firm wants to become a principal itself and appoint ARs
How to move from AR to directly authorised
- Prepare the application while still an AR. The business plan, projections, policies and SM&CR documents can be built in parallel with trading.
- Arrange PII early. The new policy must cover the firm's business from the day permission takes effect. Your principal's PII should cover the business you did as its AR, and the FCA expects principals to hold compliant cover for current and former ARs.
- Agree the exit with the principal. Check notice periods, client ownership, ongoing fee arrangements and any restrictions in the AR contract.
- Apply and answer the FCA's questions. The FCA has 6 months to decide a complete application. The Government plans to cut that to 4 months through the Financial Services and Markets Bill.
- Switch over on the day permission is granted. The principal removes the AR from the Register, and clients are told of the change in status.
Our guides on becoming a directly authorised financial adviser, starting a mortgage brokerage and starting an insurance brokerage set out the sector specific steps.
How Regulatory Counsel helps
We help firms test the DA business case on their own numbers, prepare the FCA application and manage the move from AR status. For principals, our AR oversight service covers due diligence, annual reviews and the board self-assessment. See also our licensing and authorisation service.