Where to now for smaller networks?

I thought it would be interesting to pose the same question, but about small networks, of which we are of course one.

I agree with Ashley’s view that large networks have problems; not just because we are a small network, but because that’s where all the evidence points.

The first issue is size. In large networks the spans of control are wider, with a bigger gap between senior management and members. Historically, this, coupled with ‘light touch’ compliance, has led to expensive past business reviews, which impact on both reputation and profitability (more of which in a moment).

I firmly believe that short spans of control, with direct links between senior management to members, are vital for a network to survive and thrive in the new era.

Compliance

High quality compliance is also easier to implement when the network owners are not in a ‘land grab’; recruiting anything that moves simply to boost numbers and in some circumstances simply to please outside investors.

High standards and a rigorous induction process, which needs to be far more than simply applying the mirror test, should mean that only the best advisers are allowed to join the network. This then needs to be backed up by high quality compliance and strong case review, from a highly qualified team, to minimise the likelihood of regulatory enforcement action and business reviews.

Profitability

A history of profitability and strong balance sheet is also crucial. Not to boost the management’s ego or the shareholder’s bank balances, but because it provides stability to members and ultimately their clients.

A profitable network, which is perfectly possible to achieve whilst offering value for money to members, means the network is better placed to withstand the brickbats which are continually thrown at our profession.

It leads to a stable fee structure, allowing members to better plan their own cash flows as well as the ability to invest in training, technology and additional services to help improve the proposition members offer to their clients. Furthermore it avoids grubby deals with product providers, which put up the costs of platforms and protection for clients, solely for the commercial benefit of the network.

The use of cutting edge technology is vital and it is here a small network’s dynamism comes into its own. The roll out of any new software is fraught with pitfalls, far easier to introduce new systems to a smaller group of like-minded advisers, who all share a similar culture, than a diverse mass of advisers with different requirements.

Independence

This brings me to the thorny topic of independence. Ashley’s view is that larger networks will find it increasingly hard to offer this option to members. I’d certainly agree.

I’d also suggest that some larger networks actively want to build their restricted model due to the perceived compliance and commercial benefits. It’s without a doubt easier for smaller networks to support independent advisers with high quality research, training and compliance.

But the service offered by small networks has to be about so much more than just compliance. A smaller group of like-minded advisers removes the ‘lowest common denominator compliance’ accusation often levelled at networks. It also makes it easier to offer high quality training and other added value services, targeted at the needs of a smaller group.

Concluding his article Ashley talks about a ‘sweet spot’ for former networks, which shift their proposition to compliance support for directly authorised firms.

I’ve always said that direct and network authorisation are equally valid options, but for stable, profitable, unfettered and well run networks, working with high quality advisers, this could prove to be an equally attractive sweet spot.

To paraphrase Mark Twain: “the report of our death has been exaggerated”. The future for small, well run networks is indeed bright.

Steve Young is the chairman of Sense network