In times past we would often refer to a repetitive message as a ‘Stuck Record’, but with records now having become the preserve of specialists, self-proclaimed music ‘connoisseurs’ and a smattering of aging ‘House’ DJs I found myself trying to find a new metaphor for an old message.

In the end I decided upon a simile:

‘The constant reminders about the need for caution where introducers are concerned are like the reminders we receive to eat five portions of fruit or veg every day.’

Bear with me on this one.

The amount of communication (and repetition) we receive from the Law Enforcement Agencies, The Regulator, Lenders and Industry Commentators on the subject of Introducers and the threat they pose to our respective businesses, is like the repeated message we receive to eat more healthily, to consume more fruit and veg and less sugar and salt.

We know the benefits of eating more carefully; we become healthier, we reduce the risk of heart disease and diabetes, we might live longer and our quality of living generally improves. So why is it then, that nearly two thirds of us do not consume the prerequisite 5-a-day?

Honestly, I can’t answer that, but I do have an answer where introducers are concerned.

The question is, do we listen to the repeated messages about the need for due diligence where introducers are concerned. Evidence would suggest not.

I’m sorry to say that advisers across the industry continue to find excuses for not conducting the necessary due diligence on a lead source and fail to put the necessary contracts in place. This really surprises me, especially when you consider implications of failing to heed the guidance regarding introducers and the potential impact upon you and your business. Let’s consider a few of those potential outcomes:

Panel Removal

Last week on my return from holiday I was greeted by a letter from one of our largest lender partners that had been sent to a number of larger networks and advisory firms; in this letter they explained their concerns regarding the use of introducers and the direct impact it had had on their business and lending practices.

The message was clear, if advisers follow our previously disclosed instructions for receiving business from introducers then there was little to worry about, but if they failed in their diligence, then they could expect to be removed from the lender panel.

The letter went further, it drew attention to the contractual obligations that are agreed to when you submit business to this un-named, but significant mortgage lender. Here is a taste:

1. The Network must approve all introducers and there must be a formal agreement in place which is retained by the Network.
2. The introducer will not engage in the activities covered in the Regulated Activities Order (sections 25(A) and 53(A). Or to put it another way, they will not be involved in the sales process beyond supplying a name and contact details.
3. The introducer should not undertake any activity which requires it to be a registered Firm.
4. The introducer will not receive any remuneration from the client in connection with the transaction of a mortgage contract.
5. Any payment that is to be received by the introducer must be disclosed to the client in advance of the referral being made. Where the total amount of the remuneration is unclear, such as when a percentage of an unknown fee is to be passed on, this should also be clearly stated in monetary terms as soon as it becomes known.
6. The introducer must disclose if it is a member of the same ‘Group’
   [of companies].
7. The introducer must retain written records that the above disclosures have been made and these should be able to be made available to the Adviser, Network, Lender or Regulator upon request.
8. The adviser and the introducer must both retain records of all introduced business and review periodically to spot any trends or potential compliance issues.
9. All appointed representatives must provide the lender with a list of all introducers and introduced business upon request. (We require all ARs to provide the details of any introducer and complete the introducer application and associated process)

You may be thinking that this is just one lender, but the discussions I have had with other key lenders in the market place indicates that they too feel the same way. In addition these points are largely based upon the regulator’s guidance as included in The Perimeter Guidance Manual.

Network Investigation

Due to the increased attention that we are receiving it is important that the Network process for dealing with introducers is followed; failure to do so could result in further investigations and sanctions by the Network; not something that any of us want.

Details of the process are available on the adviser website here and further guidance is available from your Compliance Manager.

Regulator Investigation

In 2016 the FCA shared guidance regarding the use of introducers.

Here are some of their key concerns:

1. Introducers using authorised individuals registration details to obtain information regarding a financial product held and/or using log-ins for research purposes.
2. Introducers presenting a client to an adviser with a completed fact find and having steered a client regarding the most suitable products for their needs.
3. Authorised firms providing reduced levels of advices based upon the prospecting and research carried out by the introducer.

Here are some of their requirements and actions:

1. You should carry out robust due diligence on the introducers that you transact with.
2. Have in place a robust vetting procedure to ensure the introductions have been sourced legitimately.
3. Regularly review and ensure your systems and controls are adequate to demonstrate you have full and complete ownership of the advice you are providing.
4. Only recommend products you understand fully – how it works, the risks involved and undertake adequate due diligence.
5. Provide full and detailed advice.
6. Don’t allow another entity – regulated or not – to use your FRN or other log-in details.
7. Only delegate the performance of regulated activities to other authorised firms that have the required permissions or who are your appointed representatives, with appropriate monitoring.

Of course, it should also be remembered that since the transferring of consumer credit regulation moved from the OFT to the FCA, there are a number of activities that require an introducer to be authorised – further details regarding this are recorded in PERG 2; hence there is a need to truly understand the role of the introducer so as to establish what they can and can’t do and the regulatory authorisation which they may need to have.

Needless to say, failure to follow the guidance provided by the regulator as conveyed and interpreted by the Network will undoubtedly result in unwanted attention from the regulator.

End of Career

It might seem a little excessive to say that the use of an unauthorised introducer could result in the end of your career, but I am sorry to report that during my time in the industry I have witnessed it on a number of occasions:

• Adviser A received introduced business from an accountant who was active in the local community. The accountant was taking significant fees from clients to provide a mortgage. The accountant also produced a fact find and supporting documents to Adviser A. These documents were subsequently found to be fraudulent. Result: Panel Removals, Network Termination & Fraud Investigation.
• Adviser B was contacted ‘out of the blue’ by an introducer claiming to have seen his website (a miracle because it was not optimised and on page 32 of Google!), wondering if the adviser would be interested in high value leads in an affluent part of the country. Both the introducer and the leads were a significant distance away from the adviser. Without further due diligence and without meeting the introducer, the adviser began accepting leads which subsequently turned out to be fraudulent. Result: Panel Removals, Network Termination & Fraud Investigation.
• Firm C was approached by a protection adviser who was looking to ‘retire from the industry’, but still had plenty of leads that required placing. The introducer would conduct the fact find and then send it over to the firm for the insurance to be written. Commission was subsequently received and a proportion paid on to the introducer, but the clients, who were never contacted by the firm, knew nothing of the policies. Once they spotted the surprise insurance payments they cancelled the Direct Debit and complained about the firm who had incepted the plans. Result: Significant Clawbacks, Upheld Complaints, Financial Redress paid, Network Termination & Fraud Investigation.

I could go on…

So, what is an Introducer?

There is a common misconception that as long as no money changes hands, it is a referral, not an introduction – To be very clear, this is not correct.

Whenever you receive a piece of business, you must consider its source; it is not acceptable to consider only the income that will be received. If there is any degree of regularity or reoccurrence you are expected to have in place an introducer agreement.

Therefore, any business/client source could be considered as an introducer.

Effectively though, the term is somewhat irrelevant, it is the act of an individual providing a potential client to you (the adviser) that poses the biggest threat. It is really important then, that you, as the adviser, adhere to your regulatory responsibilities to ‘Know Your Customer’; that starts by knowing where they have come from, or to put it another way, who has introduced them.

What will we be doing as a network?

In the interest of protecting you, as the adviser, we will continue our checks on ARs and their introducers, we will do so through our file checks and through our audit visits.

Please remember, failure to disclose an introducer to your business could be recorded as a ‘compliance breach’.

Other Lead Sources

It isn’t just introducers that we are considering; we will also be paying attention to other sources of leads, such as teams of prospectors employed to generate insurance leads.

And finally…

I appreciate that this might come across as a little ‘hard hitting’ but the reputation and future of your business (and ours) is at stake and for that reason I make no apologies for the repetition of the risk of introducers.