Your IndustryMay 25 2016

When it’s time to change networks

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When it’s time to change networks

Moving network can be time consuming and disruptive. It should only be undertaken after extensive due diligence into the alternative options and the arrangements for leaving the current network.

There are any number of reasons why now might the right time to change network; in my experience the top three are:

1. Ever tightening restrictions over product or advice areas

2. Perceived poor value for money

3. Poor service

If you are considering parting company with your network, think about the following before you decide to leave. They should be covered in your contract, if not, then they become areas to negotiate on when you hand in your notice.

Notice period: Typically between one and three months; understanding your notice period is crucial to planning your move, especially if your re-authorisation will take longer than your notice period, leaving you unable to advise clients for a period of time.

Financial terms: Once in receipt of your notice, what action will your current network take? Will they withdraw your authorisation or stop paying your adviser fees?

An ever-increasing number of networks are imposing a restrictive investment proposition on their members

Your contract should make the financial arrangements on leaving clear. If they do not, I recommend contacting advisers who have recently left to understand the process in more detail. The FCA register will show you which advisers have recently left a network as well as where they chose to move to.

Block client transfer: Although certain restrictions apply, the most efficient way to move clients from the existing to new network is a block transfer or novation. Not all networks allow this, check whether yours does.

Data: Will your current network allow you to take copies of the files? Will they allow access to your client data? How easy is this to migrate into a new back office system?

Investment proposition: An ever-increasing number of networks are imposing a restrictive investment proposition on their members; indeed, this is the reason many advisers choose to move on.

If you have used your network’s restricted proposition and you leave, will you still have access to the platform you have placed your clients on? Will you need to make significant changes to your investment proposition? How much work will be involved?

Restrictive clauses: Although rare, I have seen some networks impose restrictions on client contact or solicitation after leaving. Check your contract.

New network

Moving networks is not something advisers should undertake on a regular basis; careful due diligence is therefore vital. I would suggest asking the following 10 questions:

#1: Restricted or independent proposition? In my experience most advisers still believe independent advice produces better client outcomes, while giving them a competitive advantage over restricted advisers.

If the network purports to allow independent advice look for evidence to support this, and ask further questions:

• What percentage of the member firms are independent?

• If both restricted and independent options are available, which is growing more rapidly?

• Does the charging structure indicate a bias towards the restricted option?

On the other hand, you may be happy to work as a restricted adviser. Again, due diligence is required to ensure that your business model, and that of the network, are compatible.

#2: Who owns the clients?

There should be no debate, the ownership of clients, to the extent that such a thing exists, sits with your business.

Ask for a copy of the Appointed Representative agreement early in the due diligence process and check for any clauses which would prevent you from advising your clients if you leave the network. As an aside, if a network is reluctant to let you see the Appointed Representative agreement this should set alarm bells ringing.

#3: Has the network had regulatory problems?

This is very simple, why join a network which has had recent regulatory difficulties? Check for fines, past business reviews and other sanctions. If what you find concerns you, simply look elsewhere.

#4: Is the network profitable?

Profitability brings stability, minimal fee increases and reinvestment back into the services being provided to you. Ask for a copy of the accounts, confirm profitability and look for sources of income which may come under regulatory pressure in the future, potentially leading to fee increases, and also commercial arrangements affecting the options you can offer to your clients.

#5: Who owns the network?

The owners of the network, along with the board, will set the strategy for the business. Advisers want stability so key questions should include:

• Will any corporate owners restrict the advice being given by members now or in the future?

• Do the owners have the ability and the desire to continue investing in the network?

• Are the owners committed to the network in the long term?

#6: What are the network’s fees?

This is relatively low on my list of priorities because I believe other factors are more important.Ultimately though, you will want to know what the network charges for membership and the services you will receive in return. Only you can decide whether or not the proposition offers value for money. You should look carefully for hidden costs, beware of flat percentages, which can be less than transparent and ask for information about historical fee increases.

#7: How is the Professional Indemnity insurance arranged?

PI is always a trade-off between premium and quality of cover. The way in which it is arranged is also important, for example, does each member firm have their own policy or is the arrangement a single block policy for all members, which anyone who remembers the downfall of Honister knows, can be dangerous.

In many ways the PI terms offered can also be used as a barometer for the health of the network. High premiums, significant excesses and onerous exclusions should set alarm bells ringing.

#8: Is the back office used by members independent or proprietary?

This is often overlooked but nevertheless crucial for two reasons.

Firstly, an independent system means that if you leave the network you will not have to change back office systems, with the inevitable business disruption this brings. Secondly, the on-going development of the back office is not linked to the profitability and priorities of the network.

#9: Are there any marketing restrictions?

Other than those needed to comply with FCA guidelines, will the network place any restriction on how you market your business? It is important that you are able to follow your preferred marketing strategy and hugely frustrating if you cannot.

#10: What do other members say?

Finally, finish your due diligence by getting in touch with other members and ask for their opinion.

Use the FCA register to find new and long-standing members, call a sample to get their feedback. Was the joining process efficient? Has the long-term experience been a positive one? Are they thinking of leaving?

Having done deep due diligence on the other options available to you and carefully chosen your new partner, I cannot emphasise enough how important it is to meticulously plan the transition.

Make the right choice and your new network will help your business flourish; select the wrong option and you could be faced with another expensive and disruptive, move.

Phillip Bray is head of marketing of Sense Network

Key points

Moving network can be time consuming and disruptive.

If you have used your network’s restricted proposition and you leave, it is important to assess if you still have access to the platform you have placed your clients on.

It is important to meticulously plan the transition.