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Daniel Harrison, senior partner at True Potential, outlines why he believes pressures on networks are mounting ahead of RDR implementation…
Should IFAs be able to leave a network when they want? Should they be able to take their clients with them without penalty? Absolutely.
Networks have always been regarded by some IFAs as a welcome source of regulatory protection. In theory they take some of the stress and worry out of regulation: You buy in compliance, training, marketing, technology and supervision, which help maintain compliant advice. Or so the theory goes.
The FSA also benefits from being able to communicate with a manageable number of companies rather than the thousands of network members. Or so the theory goes.
In its latest annual risk outlook, the FSA expressed a number of concerns about networks in terms of compliance, particularly given the strain caused by the economic crisis and the regulatory challenges facing the IFA sector as a whole.
The following appears to sum up the FSA’s concerns: “Supervisory activity with networks of various sizes continues to reveal significant issues with the control and oversight that networks exert over their appointed representatives, including monitoring procedures, levels of compliance resource and standards of due diligence carried out on incoming appointed representatives.”
The network model has fundamental weaknesses, which is a problem for advisers. Ask a member who has seen his network fold about how difficult the experience was and about the strain it puts on business. Then ask another who is being sued for allegedly poaching his own clients. Then ask another whose compliance procedures are forever being tightened based on the actions of one or two other members.
Networks are challenged at both ends: The FSA wants them to be an effective custodian of their appointed representatives to know what all their advisers are up to, and to stop them doing anything the FSA doesn’t want them to do. Meanwhile, the members, while implicitly accepting some limited degree of intrusion, want charges and interference kept to a minimum.
The FSA has warned the financial strain and control problems with networks could grow ahead of the RDR. It also raised questions over the growth strategy and sustainability of some network models, especially given the present economic conditions.
How might some of the networks cope with these pressures, including the contradiction at the heart of the model, combined with the added pressure of the new provider remuneration rules?
Networks have made bullish noises. But in the past they’ve been able to call on providers for what might euphemistically be termed as ‘marketing support’, but in other industries might be called ‘sponsorship’.
And that may be the ultimate destination for the networks. The pressure will be on to make more calls on provider money and the providers will want something in return. That ‘something’ has been on the cards since depolarisation – it is the networks tying themselves (and their advisers) to the providers.
In fact, some doubt if the networks can call on the support of providers under the new system, unless it is through restricted advice.
The ‘restricted’ model, for all the claims to the contrary, looks very much like this year’s term for a multi-tie, i.e. where providers and the network benefit, not the advisers nor their clients.
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Having trouble sleeping
John You really must have trouble sleeping that was written at 01.56! Anyway, joking aside it does seem a little ironic that yesterday PS announced that it was creating a network and Daniel Harrison runs down the network model. Perhaps his dad will teach him a little humility. I agree with what you say though regarding PS, if I was them I would feel pretty betrayed after all I guess that they must be their biggest client?
Posted by: Jeremy
Disclaimer
My name is John Lees, of Macclesfield, Cheshire and I am in the process of retiring from financial services, after 12 years with PS. I want to advise that I did not post the previous response and do not endorse the comments made.
Posted by: John Lees
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We do not agree!
Daniel I really would like to voice my concerns in this advert for TP. We buy our software and services from your company which generally is good but to be honest is almost identical to our initial intelligent office software from seven years ago and in some cases is so similar I am genuinely surprised you have not be sued for plagiarism. Our biggest producer here is an ex member of Positive Solutions and it is for this reason we are with you as we were recruited direct to the FSA by you. In a sad twist we LOST our second biggest producer to 2Plan on the promise of free shares via the same guy who got us into PS in the first place. PS have announced today that they are starting a network and at the same time you come out with an article that completely trashes the network model. However, you are meant to support PS with tech and now Wrap support. You clearly care nothing for the IFA who wishes to make an honest living and publicly slate your ‘client’ (PS) who today announced a network model. Surely you must see how this looks? If I was PS I would seek a software partner who supports them and does not disrespect them at every turn. To add insult to injury you now say that you have ‘built’ a Wrap in three months. We were actually excited st firdt but having used the system now, realise that all we can is take out an ISA through SEI at .4% per annum. This is not a wrap, it is an application system for SEI funds which can be bought through Ascentric at .25%. How on earth is this good value for a client? I am assuming that as PS is daft enough to retain your services they will follow the same lead. Well we feel it’s about time that IFA’s realise that this talk is propaganda. Although we are direct to the FSA and will probably stay this way, I can quite honestly state that your software is OK but we feel you have a hidden agenda and you will publicly slate a network model for self interest. We have to do loads of work to reassure ourselves that we have sound processes in place as a direct firm. You do nothing more than provide software which is good but slag everyone else off in the process and this article is the tipping point for us. Our group turnover is 500K, 76% is trail and we intend to look at the network model with our eyes open. We would seriously consider PS if it wasn’t for you involvement and self interest. We think most decent IFA’s welcome continuity of service and good support without the you BS which is now predictable and annoying.
Posted by: John Lees