From Adviser Guide:
Q: How much due diligence shall I do?
Due diligence should become your mantra and just as any quality support provider will vet your credentials, so should you theirs.
Keith Richards, group distribution and development director of Tenet, said if they don’t vet you, alarm bells should ring and you would be advised to steer clear.
Some key questions to consider with regard to establishing the likely longevity of any new partner are:
*What is their financial services experience?
*What is their regulatory experience?
* Which associations or trade bodies are they members of?
* Do they have sufficient resources or might they be overstretched?
* Have you reviewed their professional integrity, reputation, skills and competence?
* Have you asked for a list of clients and taken references?
* Have they ever been subject to any action by the FSA and what was the outcome?
* Do they have professional indemnity insurance and is it sufficient?
* Do you retain ownership of your clients and is there a contractual commitment in place?
* Are they financially well managed?
Statutory accounts are available from Companies House
Any questions you may have regarding any of the figures can be raised directly with the party in question.
Nick Kelly, managing director of Sesame Bankhall Group, said there are five key indicators of the health of a network:
1) Financial strength
Can the network demonstrate a track record of profitability and strong financial governance?
For example, do they carry capital reserves several times greater than that required by the FSA’s most stringent expenditure-based test, giving advisers complete confidence in their ability to support them?
2) Capital resources
Going beyond capital adequacy as mandated by the regulator, does the network have liquid assets to commit to the business and its membership long-term?
For example, is the host actively providing cash loans to help firms acquire assets and re-engineer their business in preparation for the RDR world?
3) Ongoing investment.
Are funds being made available to enhance the infrastructure and service to network members, in turn helping them create value in their own businesses?
For example, can the network demonstrate a multi-million investment in infrastructure within the last 12-months?
4) Management expertise.
Is there an experienced and committed senior management team, providing continuity and a long-term vision?
For example, are established industry leaders being attracted to the management team to drive the business forward?
5) Support of a strong parent: Is there a clear strategic intent to help the business succeed?
For example, do they have the full support of a FTSE 100 company?
Philip Martin, proposition and marketing director of Openwork, said your due diligence should show you that the network you are joining is sustainable, profitable, operates at least one platform and has a comprehensive Retail Distribution Review (RDR) strategy.
He said: “You should also ask to meet the heads of the various departments in the network, so that you can start to see who you will be dealing with, and get confidence in the senior management team and the strategy they have in place.”