Networks are increasingly operating like nationals and adviser autonomy is rapidly diminishing as a result of a blurring of boundaries by regulators, especially in the wake of the Retail Distribution Review, two former network heads have said.
Speaking to FTAdviser, Ian McIver, ex-managing director of the Whitechurch Network and newly appointed managing director of IFA Compliance Ltd, said both networks and nationals are now both a “bit restricted” in what technology and systems they can use.
“It’s probably the regulator’s [fault] as they want to see autonomy of control. Maybe the regulator in its own mind doesn’t see a difference between networks and nationals; if anything they just see it as a group of people huddled together in a common cause,” he added.
Jim Reeve, former chief executive of Positive Solutions and now managing director of consultancy Signature Private Clients, told FTAdviser the line between the two have been blurred for some time but that this had been exacerbated by the RDR.
He said: “Some of the networks and nationals have changed their business model to satisfy the Retail Distribution Review, to attract members etc and they have probably moved into the same space but I think it was already blurred.
“When networks were established they took responsibility for the advice but now they mostly offer services as networks no longer want to carry the advice risk. Networks now look like service providers.”
The comments come in the wake of a major shift in the business model of the UK’s oldest network, Sesame, earlier this year in order to move to a lower risk ‘restricted’ model following the FCA strengthening independence rules.
In March the network reported that losses had more than doubled to £19m in part because it was forced to set up a provision following a review of past business including pensions transfers. Last year it was fined was £6m for failing to ensure the advice on Keydata was suitable.
Many of the largest national firms went indepedent in the wake of the RDR in 2013 and most believe networks will increasingly seek to do the same.
The reduced freedom offered under these models and increasing moves by networks to force advisers to use particular systems means that the autonomy that used to be offered by opting for this model over a national are diminishing, Mr McIver said.
He said historically that if a financial adviser “doesn’t know how to run a business”, they will join a national as everything is done for you. The next step is either joining a network or becoming directly authorised, he added.
Mr McIver said: “Those three are supposed to be spaced apart but what has happened in my view, is the national and the network models have got closer together - you will use this software and you will do it this way. Sorry, that’s getting in the nationals space.
“To me there is a distinct difference between a network and a national – there has to be. So maybe the regulator just sees it as a group of people and all they want to know is if the person in control of that has got control generally of that group of people.
“If someone makes a mistake, the regulator thinks ooh who else could that have happened to . The whole thing becomes very sour. You can’t blame a network for doing that, they have to fight back and make sure everyone is doing things correctly – that’s fine but it is more like a national.”
