Network Financial Limited is seeking investment to secure the business after posting post-tax losses of over £120,481 for the year ending March 2014 compared to a loss of £28,193 in the previous year.
The latest accounts, published on Companies House, revealed that the directors are in discussions with a third party over a potential investment into the group, as cashflow requirements and a recruitment ban created “difficult trading conditions”.
Auditor Nexia Smith and Williamson warned that the group may not be able to continue to operate if it does not secure an investment that will “satisfy its commercial and regulatory capital requirements”.
The accounts stated that financial revenue of £35.3m was made during the year, but there were pre-tax losses of £105,500 - more than double the £48,900 recorded in 2013 on revenues of £30.8m.
The network’s directors blamed a “write-off of goodwill” for last year’s losses, also blaming “challenging market conditions in a post-Retail Distribution Review environment” as “fee charging becomes fully understood by the clients”.
The company set aside £2.8m for covering client complaints, although this was down from £3.3m in 2013.
In July, subsidiaries of Financial Group escaped Financial Conduct Authority fines of more than £13m for failing to have adequate controls in place over appointed representatives, but did receive the first recruitment ban made under the regulator’s new powers.
A ban of six months was reduced to four and a half months due to early settlement.
The city watchdog also ordered past business reviews in relation to the group’s pension-switching recommendations and its promotion and sale of unregulated investments, which may result in redress being paid to consumers.
The regulator found that between 20 August 2008 and 30 April 2013 there were systemic weaknesses in the design and execution of the firms’ systems and controls and risk management framework.
The fines were rescinded on the basis of the firm’s “financial position”, despite claims from chief executive Brian Galvin at the time that it was “strong and profitable”.
In a business briefing for members at the end of October, Mr Galvin pleaded with advisers to focus on the “excellent trading figures”, stating that writing off goodwill would mean a paper loss for the year, but that this would have no impact on trading position or capital base.
“This year is looking harder as the recruitment freeze impacts, but we are taking some serious steps to address this and new members are in the pipeline for next month.”
Financial Ltd is not the first network to post a loss for the 2014 financial year. In October Openwork Holdings, parent company of adviser network Openwork, posted an after-tax loss of £1.02m for 2013, compared with a loss of £1.61m the previous year.
Sesame also posted a full year loss of £19m for 2013, as it was forced to set up a provision following a review of past business including pensions transfers.
peter.walker@ft.com
