To become a directly authorised financial adviser, your firm applies to the FCA for its own Part 4A permission through Connect, pays the application fee (Category 4, £2,820, for most financial advisers), and shows it can meet the threshold conditions from day one. For a typical advice firm that means capital of at least £20,000, professional indemnity insurance (PII) that meets IPRU(INV) 13, approved senior managers and a credible business plan. The FCA must decide a complete application within 6 months and any application within 12 months, and the Government has confirmed plans to cut those limits to 4 and 10 months.
This guide covers the route for an advice firm that wants its own permission rather than working under a network or principal. It sets out the permissions, the capital and PII rules as they stand in the FCA Handbook on 15 November 2026, the people requirements, what goes in the application and what changes once you are authorised.
Directly authorised or appointed representative: the first decision
A directly authorised (DA) firm holds its own FCA permission and is responsible for its own compliance. An appointed representative (AR) works under a principal firm that has accepted regulatory responsibility for it in writing. Many advisers start as an AR and move to DA status when they want control of their investment proposition, platform and provider panel, their own brand, or their own compliance standards.
Neither route is better in itself. DA status brings control and higher fixed costs: capital, PII, FCA fees and levies, and your own compliance function. Our guide to directly authorised versus appointed representative status compares the two in detail, sector by sector.
Which FCA permissions an advice firm needs
Permission is granted activity by activity and product by product. Apply for what your business plan supports now and in the next 12 months, not for everything you might do one day. Unused permissions raise questions and can increase fees.
| Activity | What it covers | Who typically needs it |
|---|---|---|
| Advising on investments (except P2P agreements) | Personal recommendations on pensions, ISAs, unit trusts, life policies and other investments | Every advice firm |
| Arranging (bringing about) deals in investments | Taking the steps that bring about a transaction for the client | Most advice firms |
| Making arrangements with a view to transactions in investments | Introducing clients to platforms and providers, submitting applications | Most advice firms |
| Pension transfers and opt-outs | Advice on giving up safeguarded benefits, such as a defined benefit transfer | Only firms with a qualified pension transfer specialist |
| Insurance distribution (life and protection) | Advising on and arranging life cover, income protection and critical illness | Firms that also write protection |
| Home finance mediation | Advising on and arranging regulated mortgages | Firms that also give mortgage advice |
| Managing investments | Discretionary management of client portfolios | Only firms running their own discretionary service |
Most new advice firms also apply with a requirement that they do not hold or control client money. That keeps the firm out of the client money rules in CASS and lowers its capital requirement, as the next section shows. Client fees are then paid to the firm for its own account, and client money for investment goes direct to providers and platforms.
Personal investment firm or MiFID investment firm
Most independent and restricted advice firms are personal investment firms in the FCA's terms. The FCA Glossary defines a personal investment firm broadly as a firm whose main income comes from advising on or arranging packaged products, or managing investments for retail clients. These firms use the prudential rules in IPRU(INV) 13, not the Investment Firms Prudential Regime (IFPR).
A firm that offers wider MiFID services, such as holding client assets or executing orders, may instead be a MIFIDPRU investment firm, with a permanent minimum capital of at least £75,000. Our FCA authorisation guide for investment firms covers that route. Getting the classification right matters, because it decides your capital, your reporting and how the FCA reads your application.
Capital: the £20,000 rule and the percentage of income
Under IPRU(INV) 13.13.2R a personal investment firm's capital resources requirement is the highest of three amounts: £20,000; a percentage of annual income that depends on the firm's category; and, for a firm with permission to provide targeted support, £500,000.
| Firm category | What it means | Percentage of annual income |
|---|---|---|
| Category B1 | Permission includes dealing in investments as principal | 10% |
| Category B2 | Not dealing as principal, and not barred from holding client money or custody assets | 10% |
| Category B3 managing life policy portfolios | Barred from holding client money, and managing portfolios containing only life policies | 10% |
| Category B3, all others | Barred from holding client money or custody assets, with advising, arranging and similar permissions only | 5% |
A typical new advice firm with a no client money requirement is a category B3 firm. With annual income of £300,000 its requirement is the higher of £20,000 and 5% of £300,000 (£15,000), so £20,000. The requirement only exceeds £20,000 once annual income passes £400,000.
Firms that also give mortgage or insurance advice add part of the MIPRU 4.2 requirement on top of the percentage, under IPRU(INV) 13.13.3R. The FCA's own example is a category B3 firm with £300,000 of investment income and £100,000 of mortgage income: 5% of £300,000 plus 2.5% of £100,000 gives £17,500, so the £20,000 floor still applies.
The firm must also be able to meet its liabilities as they fall due at all times (IPRU(INV) 13.1.4R). Capital is calculated from items such as paid-up share capital and audited retained profits, under IPRU(INV) 13.15. In practice the FCA will want to see the capital in the firm's bank account, plus a buffer, and financial projections showing it stays above the requirement through a weak first year.
Professional indemnity insurance: the minimum cover
PII is often the hardest part of becoming directly authorised. IPRU(INV) 13.1 sets minimum limits of indemnity per year, and the cover must be in place from the day the permission takes effect.
| Firm | Single claim | Aggregate |
|---|---|---|
| Not an IDD insurance intermediary, relevant income up to £3 million | £500,000 | £500,000 |
| Not an IDD insurance intermediary, relevant income over £3 million | £650,000 | £1,000,000 |
| IDD insurance intermediary (for example, also advising on life or protection policies) | EUR 1,300,380 | EUR 1,924,560 |
| Relevant income over £10 million | As above | Higher aggregate from the IPRU(INV) 13.1.19R table, starting at £2,000,000 |
The policy must also:
- cover claims arising from the acts of the firm, its employees and its appointed representatives
- give full retroactive cover for past business, and cover Ombudsman awards
- not exclude any type of business the firm has done or will do during the policy, unless the firm holds additional capital under IPRU(INV) 13.1.23R
- carry an excess of no more than £5,000 on any claim, unless the firm holds additional capital under IPRU(INV) 13.1.27R
- not limit cover where the firm, a fund it recommended or another person defaults, and state that it complies with IPRU(INV) 13.1.20AR
Insurers price advice firms on what they have advised on. Expect detailed questions on pension transfers, unregulated investments and high-risk products. Our FCA PII requirements guide sets out every limit, excess and capital top-up in one place.
People: senior managers, certification and competence
Every authorised advice firm is a Senior Managers and Certification Regime (SM&CR) firm. Most small advice firms are core firms. Typical senior manager functions are SMF1 (chief executive) or SMF3 (executive director), SMF16 (compliance oversight) and SMF17 (money laundering reporting officer), with SMF9 (chair) or SMF27 (partner) where relevant. Each senior manager needs FCA approval and a statement of responsibilities. Since April 2026, firms have 12 weeks to submit an approval application while an individual covers a role temporarily.
Advisers themselves are certified, not approved. The firm assesses each adviser as fit and proper every year. Retail investment advisers must also hold an appropriate qualification and a current Statement of Professional Standing from an accredited body. Pension transfer advice needs a pension transfer specialist with the additional qualification. Our SM&CR service covers responsibilities maps, statements of responsibilities and certification.
What goes in the application
The FCA judges the application against the threshold conditions: a UK address, effective supervision, appropriate resources, suitability, and a business model that is suitable for the firm and its clients. A complete, consistent file is the single biggest factor in how fast it is decided.
| Document | What the FCA looks for |
|---|---|
| Regulatory business plan | Target clients, services, charging structure, ongoing service, distribution, investment proposition and growth plans |
| Financial projections | Three years of forecasts with capital headroom against IPRU(INV) 13, and a stressed case |
| Wind-down plan | How the firm would close in an orderly way, and what it would cost |
| Compliance monitoring programme | Who checks advice files, how often, and how findings reach the board |
| Consumer Duty evidence | Target market, fair value of charges, how ongoing service is delivered and evidenced, vulnerable clients |
| PII | A policy or firm quote that meets IPRU(INV) 13.1 |
| People | SMF applications, controllers, close links, organisation chart, training and competence scheme |
| Financial crime | AML risk assessment and procedures, sanctions screening |
The FCA reads the business plan against the projections and the people. If the plan promises an ongoing service at a set price, it expects the projections to cost that service and the staffing to deliver it.
Timescales and fees
| Step | What happens | Typical timing |
|---|---|---|
| Preparation | Business plan, projections, policies, PII quote, SMF candidates | Depends on how ready the firm is |
| Submission | Application and Category 4 fee (£2,820, non-refundable) paid through Connect | Day 0 |
| Assessment | Case officer review, questions, possible interview of senior managers | Statutory limit 6 months if complete, 12 months if incomplete |
| Decision | Permission granted, possibly with requirements, or refused | Once granted, update the FCA Register and start trading |
The Government confirmed on 12 May 2026 that it will cut the statutory limits to 4 months for complete applications and 10 months for incomplete ones. That change is in the Financial Services and Markets Bill and is not yet in force. The FCA already measures its own performance against the shorter limits from January 2026.
The application fee is a one-off. Once authorised, the firm also pays annual FCA fees and levies for the Financial Ombudsman Service, the Financial Services Compensation Scheme and the Money and Pensions Service. Build all of them into the projections.
After authorisation: what changes on day one
Authorisation is the start of ongoing obligations, not the end of the project. A new advice firm should have these working from the first client:
- Retail Mediation Activities Return (RMAR) reporting, including capital and PII self-certification
- capital monitoring against IPRU(INV) 13, with an early warning if headroom falls
- file checking and compliance monitoring, with findings reported to the board
- the Consumer Duty annual board report and outcome monitoring
- ongoing service delivery records, so every ongoing charge can be matched to a service delivered
The advice rules themselves are changing. The FCA's CP26/10 proposes replacing the annual suitability review with periodic reviews based on client needs, and the FCA aims to publish final rules in a policy statement in Q4 2026. Our guide to the ongoing advice rules and CP26/10 explains what to build now.
How Regulatory Counsel helps advice firms become directly authorised
We prepare the full application: permissions scoping, regulatory business plan, financial projections, wind-down plan, compliance framework, SM&CR documents and Consumer Duty evidence. We also manage the FCA's questions through to a decision. See our licensing and authorisation service and our investment and wealth firms sector page.