I have recently watched and partaken in a lively debate on IFAs use of Social Media on the superb IFA networking site IFALife.com. What intrigued me was how quickly the original and core topic disintegrated into the usual ‘network bashing’ dialogue.
Let me be clear up front, I am the managing director of an IFA network as part of an AIM listed financial services group… and here comes the shocking bit for some …. I am very proud to be so!
It intrigues me when so frequently I witness how willing, keen even, we are to take ‘pot shots’ at alternative business models within our own industry / profession / sector. To me this self-destruction appears unique to us as a sector. Personally I cannot recall the last time I heard one accountant criticising another? Likewise try complaining about a solicitor or barristers chambers and watch the barricades come up as the profession quickly unite against ‘the outside world’.
If you believed some, networks are only full of commission hungry crooks and charlatans and that if you want quality advice you must seek out your small local directly authorised IFA as the only sensible choice. So why do we find ourselves in this position?
Well we cannot escape the reality of some significant, high-profile and catastrophic failures as well as FSA sanctions and the inevitable reputational damage to the ‘network’ model this results in. However, if these failures are examined in detail both from a financial and regulatory perspective they almost entirely come down to crass mismanagement of the network model not the network model itself.
So conversely are all small directly authorised IFA business well run, highly qualified and experienced? I am afraid not … I receive enough approaches on a weekly basis from these firms looking for an exit to know the truth. The same aspects of poor management whether they relate to; under-capitalisation, under resourcing or less than robust compliance could also be levied at many small directly authorised businesses.
Does that mean that networks get everything right? Most certainly not. Does it mean all network advisers and firms are personally well funded chartered financial planners? Again no. However, equally, are they all initial commission hungry ‘churn and burn’ advisers who should be struck off? No.
I would almost guarantee that advisers within a robust network business are subject to far greater scrutiny than many directly authorised businesses … why? Well because unlike compliance service companies I, and my Board colleagues, have our houses, careers and reputation on the line for the advice given by members.
The key word above is ‘robust’. What are the risks to a network member? Primarily two fold; the first is the financial stability of the host network. This is easily and quickly qualified by looking at the businesses accounts including the balance sheet and understanding what the true position is. Can the business see tough times through whilst investing in the future? All competent advisers should be capable of understanding the financial accounts of their host organisation and that is irrespective of whether they be part of a national, network or small directly authorised business. The second is the regulatory risk. This is where advisers should be pleased if they see strong compliance themes throughout any business … as not only is it ensuring that they are compliant it is ensuring that their colleagues are also.
So do I believe networks are the right and only solution for all advisers and advisory firms? Personally I believe in the freedom of choice. There is quite clearly the requirement for a supportive environment of a true National IFA that provides centralised support, services and potentially lead generation. It is also quite clearly appropriate for some business to be directly authorised in order to provide them absolute autonomy in how they act and interpret the regulatory guidelines. Each model has their benefits and draw backs and will, as ever, be down to personal choice and that choice may change over time. So if I can see the value in other business models why can’t others?
I am a great fan of ‘The Strategic Coach’ and one of the founding principles of the programme is ‘delegate everything except your unique genius’. The philosophy works on the basis that in any one day you will be engaged in activities that you are; uniquely gifted, excellent, competent and incompetent at … and that clearly the aim should be to expand the time you have available to spend in your area of ‘unique ability’. Advising clients and running a compliant, profitable regulated business sometimes require very different skills sets. By in large, advisers are ‘uniquely gifted’ at creating great relationships, endearing trust and presenting innovative solutions in a simple fashion. Therefore ‘some’ advisers will choose to delegate the other areas away to a network who will stand shoulder to shoulder with them to drive their own business model forward. Amongst our Boards there are qualified IFAs, ex Investment & Retail Bankers, one ex KPMG partner as finance director and a risk director who has worked directly with and for regulators and, at last count, at least five are chartered accountants from memory … now whilst that may not make for the most riveting of Board meetings in my opinion … it certainly provides a breadth of knowledge and experience I have yet to find within a small directly authorised firm.
There is also an interesting comparison between the adviser / network relationship and the client / adviser relationship. Could some well-educated and sophisticated clients manage a great deal of their own financial planning by carrying out their own research, analysing options, interpreting rules and then transacting direct with institutions? Yes of course some could but as a profession that wouldn’t be our recommendation and inevitably some could miss some vital points or misinterpret some legislation in the process.
So where did my ramblings start …. referring to a forum on IFALife and the use of social media in financial services and the regulator’s recent communication on the matter. What I found saddening was that at a time when the profession needed us to unite to better understand, explain and educate on the use of social media it had so quickly diverted into the all to frequent ‘handbags at dawn’ between business models delivering the same thing – robust, compliant and value adding advice. So an appeal to all … there are some significant and challenging external battles to fight so let’s focus on those jointly to achieve a great collective result for all ….
Stephen Gazard is managing director of Falcon Group plc (part of the Lighthouse Group plc)