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INDEPENDENT VIEW

Totting up the number of staff at the Burns-Anderson Network recently, I realised that we had passed the 100 mark.

As networks are marketed as service providers for their members, it was interesting to note that nearly three-quarters of the staff came from pension review, compliance and training and competency.

I very much doubt if any other network has a dissimilar spread of staff so I can only conclude that the core services that networks provide are regulatory-driven. This, in turn, means that around 75 per cent of a network member&#39s contribution go towards compliance and T&C services.

At a time when margins are under pressure and we all have to work harder and smarter to stand still, as a network member, I would be assessing the merits of how much I paid to a network and where it went.

If the majority of a member&#39s contribution goes into compliance, does that help you write more business,improve your knowledge or help you recruit?

Answer yes and the networks have got it right and so have the regulators as they have been the driving force behind the networks&#39 compliance and T&C regimes.

However, as regulation is about investor protection and not about helping you build a better and more profitable business, I suspect that your answer would have been no.

I accept that without a network you may not have developed the skills and practices that are required in today&#39s regulatory environment but that then begs the question of those sole traders that have never joined a network and always opted for direct regulation. Are they more or less of a regulatory risk to the investor?

For sole traders directly regulated, there appears to be a far more relaxed regime than for network members although you would think this should the other way around.

Sole traders, it seems, get the odd visit by the regulator. They do not require a supervisor nor do they have their files checked on a regular basis.I am sure there are quite a few directly registered sole traders who have kept up with the times. However, I suspect that the regulator does not have anywhere near the same information on their sole traders as a network does.

Taking a bird&#39s eye view of this unusual situation, you could compare the PIA with a network as it charges fees to provide regulatory advice and guidance.

The main difference, however, is that we all have to join the PIA, whereas networks have to attract members on their competitiveness and value-added services.

It is only when those valueadded services become more of a hindrance than a benefit that IFAs will join the PIA rather than a network, which is a situation that is beginning to occur as we have already seen a number of network members opting for our service-only proposition.

Taking my network hat off and looking at this from an investor protection point of view, in order to solve the problem, the Government could do the following:

Requisition all the networks, do away with all the support services except compliance and T&C and make membership compulsory. Then rename it the FSA.

Allow networks to adopt the same procedures as the regulator to create a level playing field.

Apply the same standards on directly regulated firms, especially sole traders, as networks are obliged to do.

Finally, it should not be forgotten that without networks the overall standards in our industry would be a lot lower.

In addition, they have poured huge resources into compensating clients in all the misselling situations.

This huge exercise would never have been completed to the current standards, as most small IFAs would have gone out of business and left the ICS levy to sort out the mess.

As similar situations could occur in the future, it is in everyone&#39s interest to keep the networks trading, which means creating a level playing field between direct regulation and network membership.

Steve Kelland is chairman and chief executive of Burns-Anderson

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