burden of regulatory responsibilities there will always be practices that do not feel the need to house themselves under a network umbrella. The arguments regarding AR versus DA almost always seem to suggest that competing distribution models – networks or support service providers – are in a fight to the death trying to convince firms who have taken a different route to move across to their status.
the cost factor
DA firms know only too well whether they can continue their current course but I would suggest that given the increasing regulatory scrutiny they are under and the costs of maintaining their status, many will be thinking whether it is financially viable to maintain their current direction. In the IFA sector one only needs to look at the huge scale of some of the Financial Services Compensation Scheme interim levies that have been handed out to directly authorised entities to see there may be considerable benefits in choosing AR status.
Some suggest that the network route involves the firm ceding huge rafts of control to the principal partner when most ARs would see this quite differently. For example if you are an adviser then you are particularly good at advising and selling. You may not be the greatest administrator the world has ever seen and, I would bet the house, that you are not the most renowned compliance expert on the planet. If you were, then you would probably be doing a different job.
stick to the kNittiNg A network can allow a firm and its advisers to do exactly what they are good at. Other major considerations which they do not have the expertise for are placed in the network’s hands. Administration and compliance functions are taken care of and the firm need not worry about issues such as authorisation fees or securing professional indemnity insurance. However, these are just the basics when it comes to network membership. If all an AR firm is getting are these then it could be time to conduct some competitor analysis as there are many
more benefits and opportunities available with other networks. Before outlining those network must haves it is important to look at the current environment for both networks and AR firms, particularly in the regulatory sense.
regulatioN is chaNgiNg The recent publication of the Retail Conduct Risk Outlook by the Financial Services Authority has put an increased spotlight on networks and while the report was focusing on IFA networks in particular, there was much to interest those of the mortgage variety. At the core of the FSA’s concerns was the quality of the advice issued by AR firms with the suggestion being that some networks were not doing enough to ensure it was up to scratch. The regulator was also concerned about network responses to the Retail Distribution Review in particular, with the argument that many were looking to ratchet up the number of firms they had under their umbrellas while at the same time pushing into a variety of new product areas.
The FSA outlined concerns in the report that the compliance span of control would not be bulked up sufficiently to deal with such increased numbers. In effect, the focus has been placed on networks’ systems and controls being sufficiently robust to deal with any issues regarding a slip in the quality of advice whilst at the same time handling an increased number of firms.
kNow your Network Given that a major reason for going AR is to ensure the firm’s compliance is covered, then it appears common sense to review the network’s arrangements in this area thoroughly. Firms should be asking themselves whether they trust the compliance operation the network has in place both in terms of the systems and processes used, plus the staffing levels, and the quality and experience of those individuals.
What sort of checking procedures are in place and what level of ongoing support, feedback and scrutiny will the firm’s work be placed under? The important thing is to be closely monitored by the network itself and to ensure that quality of compliance
never falls from a high standard. We should also remember that technology need not be used merely to facilitate compliance quality. With the right interactive, up-to-date system, a top of the range network should be able to supply this and so much more including a variety of lead and income-generating opportunities for the individual firm.
ecoNomies of scale Of course it is the buying power and economies of scale that networks can also offer which is often appealing to the individual AR firm. Today’s market more than ever has produced a real discrepancy between the opportunities one practice is able to access as compared to the far greater number of offerings that a large network with sizeable reach and distribution is able to deliver.
A few years ago distribution of mortgages in particular was open to all and there were plenty of funders and products to satisfy a burgeoning sector. Now the situation is far different. Lenders can cherry-pick not only the least risky clients but also their distribution channels – there has been a growing focus on not just size but the quality of business the bigger operators can offer. AR firms should make sure they
regularly check the opportunities and offerings available to them through their network because distribution is a moveable feast at present. Firms should also be certain about the network’s own financial standing and its own plans and intentions for the future. I have spoken to many AR firms who have joined a network and now feel both neglected and frankly unloved. Many AR firms are often more comfortable with a network which is not trying to be top of the AR firm member lists but instead is working individually with each AR to develop their offering, to expand their business development opportunities and ensure they have the certainty and support to advise and sell.
Choosing the correct partner is the first step in attaining this goal and, once this is achieved the AR versus DA argument is effectively null. n
morTgage inTroducer APRIL 2011 47
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