To quote that old cliché -size matters. But then again, does it?
Last week, we have Sesame writing off the “minnows”, saying that, in the longer term, Sesame, Tenet and Bankhall will be the only survivors in the network market and the latter name in this group saying that only it and Sesame have the scale to build a workable multi-tie proposition – again due to size, muscle or whatever you want to see it as.
Of course, I thought initially that they were commenting on whether the “new” mortgage networks would all survive – in that area I do agree that being too small, for example, 20-50 members, is likely to make them unsustainable but when I read the article again and realised that the comments related to what we would broadly term IFA networks then, of course, I would disagree.
Let us take issue number one – network size and examine that first.
I fail to understand why a smaller network is going to struggle simply due to having, say, 250 RIs and not 5,000. My opinion, as usual, is based on what a network is put on this Earth to do – provide a regulatory framework for that group of RIs who have a common affinity to each other.
This latter point is important. RIs may not all know each other personally but, from an FSA point of view, they are all singing from the same hymn sheet. They are being guided and monitored by the one firm and that keeps them the FSA happy. It also keeps the PI insurer happy as he can see exactly how the network operates.
So, problem number one – Bankhall is not a network. I have urged this industry time and time again to be consistent in its terminology. Bankhall members, as with networks, may not know each other personally either but neither are they viewed as one common “regulatory” unit by the FSA.
Sesame says that smaller fees charged by smaller networks will be outweighed by the need for the four network “planks” -service levels from providers, dealing with the regulatory burden, technological support and better commission.
Now look again at my definition of a network above. Why would service levels and technological support have anything to do with what a network does within reason? The FSA certainly do not question me on these aspects when I am visited.
A network can get involved when administration is bad but the important thing is to do so only when all other avenues have failed and, even more important, makes it clear to members that that is the rule.
A network can exist on lower income – it can't if you start employing people to deal with providers when that is the job of the member.
At Whitechurch, we draw a parallel with technical helplines – do we provide one – nope, providers provide such a service and would do it a lot better than we ever could.
Technological support – network members do not need a computer that can get them into orbit to survive, more important, it should not be part of a network's raison d'etre. You need technology but I find letting members decide what they want is better. They are using something that fits their business and the network does not spend a fortune building architecture it thinks all members will immediately get into bed with.
So, smaller networks will exist because “plank” number two from the above list is their raison d'etre, in their opinion and the regulator's.
To some degree, the multi-tie issue is a similar argument. In fairness, Bankhall is not saying smaller networks will not have the ability to multi-tie but will not be able to do so in “their” way rather than a distribution aggregator.
Why would a multi-tie operation need to have a complicated support structure and IT platform? I think there remains unanswered questions in the multi-tie debate but, if I were a betting man, a lot of networks will simply split membership to cater for those members who are a vehement “No, never” and those who say “Sorry, did you really say I would be paid 220 per cent Lautro?” Call me cynical but if I said the latter were happy to be called distribution aggregators I would be quite correct.
I was pleased to read the FSA letter about incentives. Multi-ties is a differing distribution proposal. Exchanges of money makes me very nervous – networks ensure compliant sales by members. How can monetary exchanges be considered moral and how can any future advice be correct if the network feels obliged to slant business in one direction due to a golden hello?
Finally, commission. Bigger networks command bigger rates but the gap has been reducing over the last few years. In the 1 per cent world, providers are waking up to the fact that any common group of individuals is just that but let us agree that there is a difference. Can we also agree smaller networks have cheaper fees? So take your pick.
Ian McIvor is managing director of Whitechurch Network