Larger networks have become so large that members do not share the same culture in the way that smaller networks do, Malcolm Kerr, senior adviser to Ernst and Young said.
Mr Kerr said that smaller networks with less than 500 members and 100 firms are doing “pretty well” because members share a culture with the network.
He said: “But with the larger networks you’ve got so many different firms and cultures that it’s almost a completely different business.
“I see a future for large networks, but there’s going to be much more of a requirement for the members to sign up to the way they do things, in the same way that the smaller networks are already managing to achieve.”
Mr Kerr also stated that there must be an emergence of brands in the network space, as with at-retirement reforms on the horizon, there is still no obvious place to get financial advice.
He said: “In financial services there are insurance companies and asset managers, but they don’t give advice, so I think these larger networks owned by providers with the capital to invest will over a period of some years become something that looks a little bit like St James Place and operate under a name that is recognised nationally.
“Some of the acquisitions that have been made are pointing in that direction.”
A strong brand is also important for independent financial advisers, who are able to thrive locally by focusing on financial planning for a small client base, according to Mr Kerr.
“However, I wonder whether the small organisations that don’t have that differentiation have not yet got confident in charging explicit fees for services as opposed to the 3 per cent if you transact but no charge if you don’t model; they may need networks to help them with the propositions that they need to take to market.”
Mr Kerr also questioned whether the Financial Conduct Authority envisaged such a significant change in business models following the Retail Distribution Review, in terms of networks seeking to generate revenue through becoming platform providers and discretionary managers.
“The FCA is now on its third round of post-RDR reviews and the smoke signals coming out of Canary Wharf seem to be along the lines of the first review having seen some good practice, but a lot still to be done, the second review causing a little bit of impatience around disclosure, and I’d suggest that with this third review the FCA are losing patience with those that are not even doing the basics properly.
“If customers aren’t getting the basic disclosure forms spelling out products and costs, then the next step has to be enforcement, sending a message to the market that it won’t be tolerated.”
