An IFA has seen his costs fall 10 per cent since becoming directly authorised compared to being a member of a network but Tenet says that the key benefit of a network is helping firms cope with ever-changing regulatory demands.
Martin Evans, director of Newport-based Prism IFA believes his cost savings come mainly from avoiding ongoing network costs, although he does admit that the “real sting in the tail” is that now they need to do all the compliance work themselves. He has been directly authorised since May 2010.
Mr Evans told FTAdviser: “Our costs have fallen by 10 per cent since becoming directly authorised - we used to be part of a network. That’s because of network costs but now we are doing all the Gabriel reports and compliance ourselves so we are working longer hours for the cost saving.”
Indeed a 2010 report by Charles River Associates, commissioned by the Association of British Insurers, found that network IFAs ended up with higher monetary costs than small IFAs despite spending less time on any given case.
The report said this was partly because small IFAs have a higher proportion of advice time undertaken by non-adviser staff compared to network IFAs but also because network IFAs need to pay for network services.
However, Keith Richards, group distribution and development director at Tenet, believes that comparisons should be about appropriateness of support, risk appetite and individual firms’ support needs rather than trying to compare the cost of being directly authorised against being a member of a network, which he said is like “comparing apples with pears”.
He said: “There has often been reference to the fact that small, directly authorised firms fall under the FSA radar, which to some extent is true, although it is also true that the FSA will periodically target firms in this area and the consequences of not being able to satisfy them under such circumstances can be extremely challenging.”
Mr Richards believes the key benefits of networks are that they offer effective support and guidance in order to help IFA firms cope with the ever changing regulatory demands placed upon them and shoulder a large part of the regulatory responsibility for the advice an intermediary gives.
He said: “It can therefore often give firms the comfort and confidence of knowing that a larger organisation is sharing the regulatory risk and responsibility and of course as many of the regulatory requirements are the duty of the network, this allows the adviser to focus on compliant advice, service and running their business.
“Operating in a highly regulated environment means that cost comparison, when considering regulatory status and support, should always be secondary to the most appropriate route to meet an adviser’s regulatory needs.”