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Network choice is getting more difficult

Jonathan Cornell

When I read the newsflow on Home of Choice over recent weeks there was a certain terrible sense of deja vu.

We had all previously watched Network Data and Mortgage Times collapsing slowly and publicly despite assurances of their rude health.

Yet I was rather surprised to read the news in the first place as, in my mind, any network that had made it this far stood a solid chance of surviving.

I had hoped that had heard the end of the horror stories of appointed representatives fearing they would not get paid.

It has been heartening to read the online comments posted by HoC ARs on Money Marketing and other websites which showed a very different sentiment to those of Network Data and Mortgage Times. Rather than being angry and bitter at the directors, most of the comments were very supportive, so clearly, Gerry O’Brien,

Richard Coulson and the other directors won the trust and respect of their ARs despite the situation.

One of the funniest comments asks if HOC will start the next season with a 10-point penalty and offers to play at right-half, which shows a remarkable sense of humour in a very dark situation.

One of the difficulties in these situations is that during the period when potential buyers are circling a network, non-disclosure agreements mean that ARs are kept in the dark. During this time, ARs are left in a state of uncertainty over whether they will recoup the commission they are owed and whether they should seek to find a new network home or look to go directly authorised.

The whole situation compounds a major issue. It is getting harder and harder for small directly authorised firms to trade, the fees have gone up sharply and while the FSA does try hard to help small DA firms, the regulatory environment is getting tougher, so there will be a natural migration from DA to AR.

This will probably not disappoint the FSA as it is easier for them to regulate via networks rather than trying to regulate tens of thousands of sole traders.

The Home of Choice scenario will undoubtedly mean that prospective ARs will be a lot more cautious about which network they choose. This will probably help the bigger networks and in particular those which have a strong IFA offering as they are not so reliant on the mortgage industry.

The FSA’s plans to put the responsibility for affordability on the lender will make it harder for lenders to police small firms’ compliance compared with networks.

Networks seem to be winning what feels like the lion’s share of exclusives at the moment and lenders which want to restrict their distribution are outsourcing tranche management to the bigger networks rather than via mortgage clubs.

I hope the pendulum does not swing too far as there should be a place in the industry for both ARs and DAs but I think there will be further consolidation and aggregation on both sides.

Jonathan Cornell is head of communications for First Action Finance


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There are 5 comments at the moment, we would love to hear your opinion too.

  1. Network insider 14th May 2010 at 3:46 pm

    It is well know in the industry that the FSA does not want to regulate 1 man bands (mortgage or IFA) hence, (despite outpourings from the fsa that disagree) the FSA are making it more and more difficult with increased fees and more stringent reporting.

    With that said advisers may now look to find a secure and on the face of it financial secure Network. But since many Networks are wholly, or have a major influence from, a product provider it doesn’t take a genius to see that when the preverbal hits the fan with the providers it’s the expensive distribution arm that will suffer if business levels are down and overheads stay the same. Its proven now that many Provider distribution channels (positive solutions springs to mind) are putting their fees up.

    If it’s true that our new coalition government are hiking up taxes in the coming months then overall consumer spending will decrease and the financial industry will also.

    Between a rock and a hard place?? I don’t think we have seen the last of Failing Networks or firms struggling to survive!! And then guess what happens? We all have to adapt to lower income because of our commitment to fee based charging……..

  2. My understanding was that the Conservatives were taking the regulation duties away from the FSA. Or has that changed already. Great to see we are in such good hands.

  3. Think you missed the point totally Jonathan.

    If HOC had debts of circa £8m then them going into administration is not amusing nor have the directors acted admirably during this Phoenix style sell off.

    Somewhere companies and individuals have just lost millions of £’s that may put them also into trouble to survive by HOC bad management.

    I say bad, obviously unless you were a direcor and banked millions over the last 5 years in a company that NEVER made a profit and was built initially on the managent taking as many ARs from Zurich as it could without spending all it’s time in court (or have we all forgot that)?

    Maybe someone should tell the true story one day?

    I’m glad the ARs look like they may keep their pipeline through all of this but I’m sure it will not all be a bed or roses ahead….unless they continue to believe what they are ‘told’ rather than doing some basic due diligence.

    Trust, respect, success and sense of humour are not words I’d use in this story.

    Try shameful.

  4. Neil F Liversidge 14th May 2010 at 6:44 pm

    Networks are a bit like shaky banks with poor credit ratings. Their continuance depends entirely on members having the blind faith that they are good for their promise to pay the bearer on demand. When members exit and/or the business environment turns severely negative as the mortgage market did, the income stream drops but a lot of the overheads are hard to reduce. Certainly networks are not light on their feet. I find it hard to understand why anyone is still in a network at all (Financial excepted – and no I’m not a Financial member) when the deal involves trusting a middleman to hand over your commission. The service providers do pretty much the same job better in my experience, which includes working 7 years in the head office of a Network (DBS 1995-2002) and 6 years directly authorised using Simply Biz, whom I have found very satisfactory.

  5. Steven Martin 14th May 2010 at 6:55 pm

    I am getting really tired of the continual peddling of the line about how difficult it is for small financial planning firms to be directly regulated. It is nothing but nonsense.
    If the reference is to people who work from home and turnover £20/30/40/50k per annum and do everything themselves, then of course it is difficult because that is not a business. If, however, the references are to properly organised and resourced 1 or 2 adviser businesses that have secretarial / administrative / paraplanning staff (either internal or external) and compliance support etc they are the firms that will flourish in the future as they have an unshakeable focus on customer service that the larger ‘firms’ can only dream about.
    Oh and they are also the crazy guys that actually make a profit each year, how many big firms or networks can say that.

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