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Advisers fear hike in network fees and ‘stealth taxes’

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Advisers are fearing further increases in network fees after two of the industry’s most prominent groups hiked costs, while a rival warns further “stealth taxes” are also possible.

Intrinsic announced last week it will increase fees following an “unprecedented” rise in its Financial Services Compensation Scheme levy. The network told members it faced a bill of £5.5m, almost £3m more than it had expected.

Around half the cost of the increase is expected to be passed on to appointed representatives.

Independent advisers will see a £12 a week increase to £123.92, restricted advisers will pay £10.50 more a week to £88.73 and mortgage and protection advisers will pay an additional £9.80 per week to £48.80.

Separately, Tenet announced earlier this month it would begin to charge members of its investment and pensions division TenetConnect £150 to carry out file checks on drawdown cases.

Advisers will be able to avoid the charge if they submit to a series of Tenet-devised case studies, after which point they will not have to have cases signed off by a specialist.

Derbyshire Booth managing director Greg Heath says advisers are beginning to question the benefits of the network model in the face of rising costs.

On the Tenet charge, Heath says: “If you do a lot of cases in these areas, then that can easily become a significant push on your costs overall.

“Other networks will start to increase their costs as well, and with all this extra bureaucracy that’s been created by pension freedom you can see why people are starting to think they might be better off going directly authorised. I know a few who have done it who say it’s the best thing they’ve ever done. It’s a lot more work, but they get to choose what services they need and find what suits them.”

Threesixty managing director Phil Young describes Tenet’s £150 bill as a “stealth tax” that is likely to become more common as networks try to keep costs down.

“In the old days, networks used to charge basically a flat rate of around 25 per cent of revenue.

“But because it’s so price-sensitive competing for network advisers, we’ve seen a few cut that down to what might look like about 5 per cent and then bring in some stealth taxes along the way.”

Yellowtail Financial Planning managing director Dennis Hall says advisers are likely to find their network bills will continue to increase.

He says: “These costs will continue to creep up until they either become uneconomic and people start to think the model is broken.”

Hall says advisers are increasingly questioning the value of the remaining as a network member.

He says: “Historically you might join to get a better commission deal or even professional indemnity, but for the better players out there you have to think you could be doing it cheaper by yourself.”

Swallow Financial Planning Andrew Swallow says: “The network model is a dinosaur structure and its time is no more. I can see some consolidators still proving attractive to advisers, and even some service providers, but the days of the one-man-band insurance salesman that used to drive these networks are now gone.”

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Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. You missed Personal Touch who also increased their fees.

    This just proves that none of us are immune from the FCSC levy rises to cover past miss-selling by advisers often no longer in the industry or the selling of unregulated schemes.

    DA firms will feel the full force this year and probably in years to come through the levy and networks are now marking out to their members that they will not absorb the costs but will pass them on through increased fees.

    We all bear the burden of the few

  2. Networks face a difficult challenge as they have to set their standards based on the lowest advisers knowledge and experience. Therefore many pay for the costly failings of a few, as the PI is calculated based on the group and shared as a group. This in turn leads to over the top compliance (I have never seen a network compliance department shrink or reduce requirements), which further restricts advisers to complete their business effectively.

    It is easy to pass the regulatory costs on as individual costs to an adviser but you share the increased PI. You than have to ask what else the Network offers for the additional costs you pay. I do find it sad but have to agree that the days of the one man band working for themselves if not already is coming to an end. What I am seeing more and more are small groups of advisers (3-5) coming together to form companies and share the regulation and cost. The cost savings are worth the effort and the freedom gained from over the top compliance in my opinion has to be worth the effort.

    In the past networks received payments from Life Companies to help subsidies their members cost, this can no longer happen.

  3. I’ve run a network and equally now have a role in a firm assisting advisers wanting to become directly authorised. However on this occasion I’m staying neutral – the issue is the FSCS levy and the ridiculous way the thing is spiralling out of control. Agree? Sign up to the following to at least try and get some sort of discussion flowing. https://www.change.org/p/tracey-mcdermott-request-for-an-independent-review-of-the-regulation-of-financial-advisory-firms-and-the-fscs

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