FSA sends out network business model warning
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The FSA has warned that the network model presents a potentially growing risk of consumer detriment due to weaknesses with systems and controls and pressure on income.
In its first Retail Conduct Risk Outlook, published today, the FSA says networks are under pressure financially, and warns that there are issues with networks’ oversight of members.
The regulator says: “A number of networks are under considerable strain, with continuing pressure on income and low levels of profitability. In addition, supervisory activity with networks of various sizes continues to reveal significant issues with the control and oversight that networks exert over their appointed representatives, including monitoring procedures, levels of compliance resource and standards of due diligence carried out on incoming appointed representatives.”
The FSA says that there is a risk these problems will worsen in the run-up to the RDR, as networks push to rapidly expand their adviser numbers.
The FSA is also concerned that greater emphasis is being placed on moving into new product areas.
The regulator adds: “It is not clear to us that either of these strategies are achievable on a wide scale across the market, particularly in the current economic environment and while ensuring firms meet their conduct responsibilities.”
The FSA has also warned about emerging risks related to transitioning to the RDR.
It says that if providers choose to offer larger commission and advisers look to maximise recurring revenue before the RDR is implemented, this could result in unnecessary churn and excessive consumer costs.
Other possible consequences of the RDR that could increase the risk of poor consumer outcomes include:
- sales biases: risk of more churn and that advisers may feel compelled to move into sophisticated products or services to justify adviser charges;
- ongoing service: risk of more transactions than necessary to justify fees;
- provider influence: providers may offer incentives such as consultancy services in lieu of commission;
- compliance: the requirement to change business models will put strain on on adviser compliance functions.
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Readers' comments (42)
Anonymous | 28 Feb 2011 11:43 am
Wow, thanks FSA for those words of wisdom, as the industry grapples with RDR there is a risk of consumer detriment and industry strain/risk. We are all only trying to play with the rules that you are imposing upon us, maybe that's the problem eh ?
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Anonymous | 28 Feb 2011 11:45 am
So is this the FSA saying that they know this will happen as a result of thier imposition of RDR, but they will blame everyone else if it goes wrong?
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Anonymous | 28 Feb 2011 11:55 am
As a former member of Network Data and having spent 2 years rebuilding my business following the loss of significant non indemnified income that wasI never received it makes my blood boil when the FSA say there are "A number of networks under considerable strain........."
How about telling the members of such Networks that their income and livelihood is at risk or implementing rules regarding advisors commission in the event the Netwwork folds.
We have seen enough car crashes in this industry where it transpired the FSA were fully aware of the situation long before the car hit the wall yet it seems the humble advisor will only find out when his commission payments start drying up and get blamed on technical difficulties.
If there are Networks signifcantly at risk wouldn't it be nice for the FSA to let us know who they are so those threatened could take action before rather than after the event.
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Rod | 28 Feb 2011 11:59 am
Never ending rubbish out of the FSA's own rules, further rules, uturns, changes and a waste of everyone’s time. I suppose they feel they have to somehow justify their own failings by blaming everyone else.
Perhaps if we were able to get on with the work we do, looking after our clients, instead of dealing with incessant change, we would make fewer mistakes.
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Peter Herd | 28 Feb 2011 12:00 pm
Looks to me that the FSA is still continuing its biased towards bank insurance. Instead of continually kicking the industry may be issued start with highlighting what the industry does well. After all for every case that they have found errors or indeed mis-selling there have been thousands of cases where great service has been provided.
People learn just as much from good practices as they do from just highlighting what is wrong! It also would go towards strengthening the FSA's or new regulator's stance on promoting and strengthening financial public awareness.
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Anonymous | 28 Feb 2011 12:01 pm
Suggest to FSA that their own business model is fit for purpose first !!!
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Anonymous | 28 Feb 2011 12:02 pm
What a farce!
Dear FSA - Why not just cancel every IFA's permissions right now. Get it over and done with. This really is palpable and complete nonsense. Why create challenges for firms to step up to and then use exactly the same challenges to try to trip them up, criticise and lambast them?
Once the independent financial services destruction is complete, you will be able to set your hob nail boots on some other unsuspecting organisation instead.
What is it that makes you despise independence of thought so much?
A considered answer would be appreciated. Many thanks.
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Richard | 28 Feb 2011 12:07 pm
Has the FSA never heard of the phrase 'chickens coming home to roost'? This is entirely their doing, but, as ever they are completely unwilling to accept responsibility for it.
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Rod Leonard | 28 Feb 2011 12:15 pm
If anyone from the FSA READS THIS, please post one here why you feel you have to destroy the IFA Industry,
and put your name on the post!
(pigs might fly)
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Pissed Off IFA | 28 Feb 2011 12:16 pm
Where are Harry and the rest of the good old boys who thought about having a ago at me 2/3 weeks ago? They thought the FSA were the best thing since sliced bread but as can be seen they only want to up the ante so that more fines can be obtained to feather their nest.
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