14 September 2021

The Goldilocks dilemma (or how to choose the FAP full licence class that’s just right)

By Derek Grantham, Principal Consultant, Market Engagement

Now that we are six months into the new financial advice regime, many of you are ready to take the next steps in your licensing journey. That means thinking about the right type of Financial Advice Provider (FAP) full licence to apply for. It also means reflecting on what you have learnt over the past six months, and what you think the future will look like for your business. 

One of the first big decisions you need to make is which type of FAP full licence is right for you, as this determines some of the things you need to think about now, and have in place, in support of your full licence application.

To understand your choices, it helps to remember that the three FAP full licence classes relate to the way advice is given, not the type of advice.

It’s a good idea to apply (and be assessed) for the class of licence that best suits your particular circumstances and the way your FAP, and any authorised bodies operating under your licence, intend to provide advice in the future.

As a general indication, we use the one-two rule:

  • A Class 1 licence is for FAPs with one adviser, or sole adviser practices.
  • A Class 2 licence allows a FAP to have two or more advisers (or to grow to that, to allow you to bring another adviser into your business in future, for example).
  • A Class 3 licence is most suited to large organisations that engage nominated representatives.

So, which class is right for you?

For many smaller financial advice providers, the choice will come down to a Class 1 or Class 2 licence.

I’d suggest you start by asking yourself the following questions:

  • What have you learnt about your business over the past 6 months?
  • How might your business evolve over the next 12-18 months?

If you’re a sole adviser, reasons to apply for a Class 1 licence might include:

  • Your full licence application process is right-sized for your business – you won’t be asked questions about some of the more complex business arrangements, for example.
  • You can employ a locum short term if you need to.

However, if you want to engage any other financial advisers, have authorised bodies (ABs) under your licence, or indirectly engage financial advisers through an interposed person, you won’t be able to do so until you operate under a Class 2 licence.

For more information, check out the questions you’ll be asked when you apply for a Class 1 licence.

If you’re currently a sole adviser, reasons to apply for a Class 2 licence might include:

  • You intend bringing other advisers under your licence in the near future, or you’re nearing retirement age and want to bring on another adviser as part of your succession plan.

For more information, check out the questions you’ll be asked when you apply for a Class 2 licence.

My recommendation?

To avoid unnecessary costs, make sure you think carefully about your future plans, and select the appropriate class of FAP full licence at the outset.


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