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Special Report

Future of Networks - November 2012

Published by Financial Adviser | Nov 28, 2012

Networks have come under the spotlight in connection with this. In existence for years, they have become closely connected to the the traditional adviser business model based on commission.

Networks promise to look after the compliance function of their appointed representatives, taking care of their authorisation and in return they take a percentage of the advisers’ commission. Now that the commission model will no longer exist there is uncertainty over how they will generate their income, and indeed if they will survive in the long term.

Many advisers are questioning whether it is worth staying with a network and how they will conduct their business in the future. Some are choosing to go directly authorised and outsource their compliance function to a third party support service provider.

The network model has not been helped by the collapse of Honister earlier this year, which was blamed in part on rising PI costs, and the challenges of the RDR.

Even Ken Davy, deemed to be the founding father of networks and now the brains behind SimplyBiz, claims the network model is not ‘fit for purpose’.

One option for networks is to diversify into areas that will be less directly affected by the RDR. Mortgages and protection will not be affected by the RDR and so those networks feeling most optimistic specialise in these areas.

Where advisers might have offered just a home loan for their clients, they are now offering a one stop shop for their clients, and networks are having to evolve.

As business dries up in other areas of their work, so financial advisers are actively looking into new sectors, and protection has become a key part of their portfolio. Networks that have been able to offer this kind of support will be likely to survive in the long term.

Another option has emerged in that lenders may become forced to rely more heavily on an ‘approved’ representative arrangement where the general checking of advisers, principals and firms is standardised. Early signs suggest that lenders find the referencing, training and supervision monitoring that the assigned representative model offers helpful.

Networks, like the advisers they look after, have to adapt to survive next year. For those that do the future looks promising. Those not facing up to the changes have some serious questions to ask.

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