Nine things which make the ideal network27th February 2019
As you probably know, the Professional Adviser awards took place earlier this month. One of the categories is ‘Best Network,’ whilst we were highly commended by the judges this year, it got me thinking, what actually makes a good network?
The answer will be different depending on who you ask. But the first decision perhaps isn’t which network to join, but whether the appointed representative or directly authorised route is most appropriate. If we assume you choose the network route when faced with a myriad of options what does ‘good’ look like and what should be top of mind when weighing up the options?
I suggest there are nine.
A network’s first job is to provide a stable home for its members from both a regulatory and financial perspective.
Look for a network with a healthy balance sheet with minimal debt. If its accounts show losses, I’d want the reason to be reinvestment into the network rather than trading losses.
From a regulatory perspective, are there any past or pending enforcement actions and have restrictions been imposed on their regulated activities? Also, the history of their PI renewal can be a great barometer of a network’s ‘regulatory health’.
2. PI Insurance
The Professional Indemnity (PI) market is getting tougher. Many firms are facing higher premiums, larger excesses and onerous restrictions on renewal. Some are struggling to renew their cover and it’s unlikely this will change any time soon.
When shopping for a network, find out how their systems and controls will help your business weather the current PI storm and the steps they take to stay close to their insurer, as well as specific policy terms and premiums.
3. Compliance Support
At a basic level, a network’s role is to help a business manage risk while removing the burden of dealing directly with the FCA. Having compliant processes to follow will lighten the load for many. However, not all networks’ compliance support is of equal calibre. Be clear about what your business will receive and the expectations that sit with you and your team.
It’s vital to understand both the ownership structure of a potential network and how this might affect future decisions.
The trend for investment managers to control the value chain from advice to investment and platform creates potential conflicts of interest. Of course, vertical integration might not create concerns. But first, understand a network’s ownership structure and the potential implications it has for your business and your clients.
The culture of your business and the network must be closely aligned. A collegiate relationship where the network welcomes input from the appointed representatives and vice versa is valuable. Pick the phone up to existing members (they are easy to find via the FCA register) and explore whether the sales pitch is reflected in reality and their day-to-day experience.
Each business will have its own unique requirements. Some appointed representatives want help to grow their business which may include financial support, business development or marketing. Others require assistance with technology or removing the burden of investment management. Find a network or partner that is aligned with your needs.
We are big supporters of independent advice. It still resonates with consumers and is helpful for those working with professional connections. Consider carefully whether the network is truly committed to remaining independent.
Focus on the value received rather than the fees to pay. At some stage, when the other boxes have been ticked, you need to agree on commercial terms. I’m looking for fairness and to put the current charging structure into context, by understanding any recent changes to the overall financial position of the network.
9. Exit Terms
Before signing on the dotted line, understand the terms under which you will be able to exit should the need arise. This starts with reading the contract (something too many advisers fail to do); look out for excessive notice periods, the retention of fees and other onerous exit terms.
Due diligence should be broad. Get reassurance that the network has the capacity to process any exit efficiently to avoid you being held in limbo. Talk to firms who have left the network to understand their exit experience. It speaks volumes about the network if they part as friends.
What makes an ideal network is a personal question. There’s no one-size-fits-all solution, which is why the range of options currently available is positive.
But getting it wrong can cost. Worst case it can impact turnover while curtailing growth. Take your time, look past cost and make a carefully considered decision.
If you are currently considering an alternative network, we’d love to find out who you are and where we might be able to support your business.
Executive Chairman, The Beaufort Group