From Adviser Guide:
Picking a network part 1
Q: What are the pros and cons of networks?
This largely depends on the perspective and needs of an individual firm, as sometimes the benefits realised by one can be perceived as a disadvantage by another.
Overall the principle of a modern network has changed significantly from the past, and Keith Richards, group distribution and development director of Tenet, said in his company’s case this meant providing a support platform that enables adviser firms to choose the level of support relative to their individual needs.
Effectively, he said the same level of support is available for directly authorised firms, the main difference therefore being that of regulatory risk transfer, which the appointed representative model affords.
The key benefits, Mr Richards, said are that networks offer effective support and guidance in order to help IFA firms cope with the ever changing regulatory demands placed upon them.
It also gives firms the comfort and confidence of knowing that a larger organisation is sharing the regulatory risk and responsibility and of course Mr Richards said many of the regulatory requirements were the responsibility of the network, which allowed the adviser to focus on compliant advice, service and running their business.
Philip Martin, proposition and marketing director of Openwork, said a clear advantage of a network is that the business model meant strength in numbers.
He said the scale of networks led to buying power, and ultimately better value for money propositions for the advisers’ clients.
Networks also offer opportunities to network and exchange ideas with like-minded people, he added.
Nick Kelly, managing director of Sesame Bankhall Group, said adviser firms looking to build long-term value and profit need to maximise their opportunities while minimising both the commercial and advice risks.
In today’s challenging environment, Mr Kelly said the support of a strong network remained an excellent way to achieve that objective.
He said a network takes away the day to day intrusion of the regulator and enables advisers to focus on running their business and developing their clients.
Beyond that, he said there is support with sales, marketing, strategy and direction.
Mr Kelly said: “You can also share best practice, benefit from comprehensive adviser training and business development support. You choose what you need.
“The network’s scale and resources are there for you, but the overall package will enable you to maximise your firm’s income whilst minimising disruption and distraction caused by an ever changing regulatory environment.”
Given that the network model has changed considerably compared to the past, and more importantly, advisers have choice of regulatory status, Tenet’s Mr Richards said it was difficult to identify a consistent list of disadvantages that would be universally identified across all network models.
However, he said the main consideration would be to ensure the network you belong to has got good capital resources and an ability to absorb short term financial impact - in other words.
Mr Richards said: “Be wary of poorly capitalised networks which could represent a higher risk strategy.”
Openwork’s Mr Martin acknowledged some felt a con of joining a network was a loss of freedom in how an adviser runs their business.
He said: “Avoid this by joining a network that offers choice, whether that is whole of market, multi-tie, single tie, restricted or IFA.”
Sesame Bankhall Group’s Mr Kelly agreed that some people argue you lose an element of control when you join a network as they are sometimes seen as prescriptive in dictating the way an adviser operates.
Mr Kelly said some people are also concerned about financial security, because commission is paid direct to the network, reconciled and then passed on to the member.
He added some people are concerned that their business could be at risk if the network fails.
Mr Kelly said: “This is particularly the case if the network does not have a balanced income and is too reliant on a particular business model, as we have seen with mortgages in recent years.
“However, all these concerns can be easily alleviated by asking the right questions.”