As a child I used to love watching the fishermen of Filey untangling their nets so as to be ready for the next day’s catch.
I fear, however, that this may not prove such an attractive pastime for the networks’ managers as they try to untangle the implications of a recent court ruling on who carries liabilities for their advisers. While not commenting on the facts of any particular case, it appears that the judiciary have taken the view that the principal carries the responsibility for the appointed representatives’ (AR) actions.
This should not be a surprise to anyone, as that was the basic principle behind a network when I created the concept over 30 years ago.
The success of networks was such that within just 10 years of the start of regulation in 1988, some 80 per cent of advisers were operating in networks. Recently, this has fallen back dramatically as many more firms now have the confidence, ability and support, to enable them to operate under direct regulation.
The best estimate today is that only about half of advisers remain in networks.
Two things have undermined the network as a viable business model.
Firstly, during the pensions review it seemed as if the principles of common law and natural justice were consigned to the dustbin.
Secondly, the ethics of a minority of advisers left much to be desired, creating the potential for almost limitless claims to fall on the network.
To counteract this, networks began carefully constructing their contracts so as to transfer the liability for any claims back onto the AR.
It seems to me that the recent judgement appears to put that liability squarely back on to the network as principal. The challenge facing networks is whether their business model remains viable.
If they accept their position as principal, they are at risk of claims. Equally, if they seek to pass them back to the AR, why would any adviser who is confident of their business practices not choose to be directly regulated so that they can build their practice in the way that they wish?
It is a situation that may well take quite a bit of untangling in coming years, and could prove to be one that many advisers will not want to stand around and watch.
Ken Davy is chairman of SimplyBiz Group
