For & Against: Big networks – AGAINST

I would reject that argument – when it comes to networks, smaller is most certainly better.

The big, old networks were built for a different era. They developed in a period where scale gave them the power to negotiate better commission terms with providers. Profitability was sacrificed to the need to build scale and to realise a capital gain by selling to a product provider. Critically, they built their compliance infrastructure when regulatory scrutiny was much lower.

Modern, independent networks were born out of a belief that RDR would need a different approach. The drive towards professionalism needed a focus on quality advisers, and risk management was simply too important not to use the latest technology to underpin compliance processes.

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So what are the results of these two very different strategies?

The big, old networks are suffering with huge levels of complaints and redress. One very large network has paid out more than £50m in the last five years. As a contrast, smaller networks have proportionately much smaller levels of complaints.

The big boys are under intense regulatory scrutiny. Their lack of investment in risk management over 25 years is now coming home to roost.

The consequences of this are Section 166 investigations, huge fines and past business reviews. The small modern networks simply do not have these challenges as they were set up to operate with current risk management best practice in mind.

A year on from RDR, what do we see? We see the big networks continuing to lose money and advisers. The only game in town seems to be restricted advice. They protest it is too difficult to offer independent advice. Armed with their new ‘super-duper’, risk-rated investment funds you can deal with the majority of your customers.

We reject this as pure self-interest. Independent advice may well be impossible to deliver for these dinosaurs, but this is due more to their lack of investment in proper infrastructure than it is the complexity of the task.

The truth is that the only financial model that is acceptable to their provider owners means they have to wean advisers off independence and into accumulating assets in the network-owned funds.

A modern, independent network takes a very different view. Firstly, it is important to ask members what they want – unsurprisingly, in my experience, the answer is a resounding yes to independence. The next step is to develop a plan and consult to ensure that members are prepared to undertake the additional work required to demonstrate independence.

Modern networks are enjoying growth in adviser numbers, low complaints and a strong and growing bottom line. They are committed to independence and see a bright future working with high-quality financial planning firms who share their commitment to robust risk management and great customer outcomes.

Adviser networks will rapidly polarise into two groups. The big, restricted transactional networks selling their own collective funds and the smaller, truly independent networks who support firms committed to delivering high-quality independent advice.