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Network if you can get it

In fairy tales, the small guy can wins over the big monster but, in

reality, the mega-companies are gaining an increasing advantage over small

firms.

In financial services, a spate of mergers and acquisitions have resulted

in super-IFAs flexing their buying power to ratchet up commission.

Bradford & Bingley head of product marketing (financial services) Geoff

Mills says: “Smaller IFAs will be squeezed further and may have to take

refuge within networks.”

Sedgwick managing director John Dick believes some small IFAs will survive

but warns: “Companies that do not have the money to develop and spend on

technology are going to find it difficult.”

But Aifa director general Paul Smee says. “Do not assume that IFAs will

end up in a uniform pattern, they won&#39t. It is not just a technical market,

it is a people market and I think there will continue to be a diversity of

outlook and approach.”

But with the benefits that a super-network can offer IFAs, you have to ask

why anyone would want to go it alone. When they were set up around 10 years

ago, networks were seen as the poor relation in financial services. They

offered the one-man band an easy route to authorisation in the eyes of the

more traditional players such as Noble Lowndes or Towry Law.

But they have come a long way. They now have training and competence

regimes to rival the nationals. They have realised the value of product

research and the buying power it offers and have the resources to develop

the technology IFAs will need to survive.

They also offer members access to these services at very little cost to

their bottom line. The networks use their bulk buying power to push up

commission levels beyond that which any individual member could get on his

own. They take their fees from the inflated commission, leaving the IFA

with more or less what they would have got, in commission earnings, on

their own.

Misys IFA services head of marketing Andrew Bedford says: “There is a good

argument to say, if your costs are running at 20 per cent, a network

canprovide better services moreefficiently. Why would they not want to join

a network?”

It could also be argued this is a good arrangement for the consumer. The

advice they get is thoroughly researched by a financially sound company.

“They are getting the best product because the network is guaranteeing the

advice and there is enough money to support future complaints or reviews,”

says Bedford.

However, some fear the size of organisations such as Misys could lead to a

commission war where the consumer is the loser. Misys has around 4,500

registered individuals and accounts for 5 per cent of the overall regulated

product sales in the UK and around 20 per cent of sales in the IFA market.

Bankhall head of business operations Tony Murrell says: “There is a

concern over commission. It is suggested that people like Misys are

tryingto push up commission and say pay us this or else we will tellour

IFAs not to deal with you.”

Bedford says: “We always talk to providers about commission and there is

nothing new in that. What we are doing now is asking how are you going to

differentiate the services you provide to Misys.”

He says the network is looking for commitments on servicing levels and

training which will help forge relationships and benefit the consumer.

But unlike the rest of the industry, he does not believe these

relationships will be defined by the cost savings technology can deliver.

“You can drive down the cost as a matter of course but it is about the

delivery of products. We are looking at people who make it easier to

provide training for IFAs,” he explains.

Dick disagrees. He says building relationships which deliver the cost

savings technology brings to consumers is the way forward. “I believe the

companies we are doing the majority of business with will have to make sure

we getthe efficiencies we can obtain through having our systems work

together,” he says.

Mills says: “Technology will allow us as a retailer to talk to the

supplier and strip out costs and look at putting them back into the

products so the customer shares in the benefits.”

However, Burns Anderson chairman and chief executive Steve Kelland

believes the buying power of networks and nationals such as Misys, DBS and

Sedgwick means any cost saving passed on to the client will come out of the

insurer&#39s – not the IFA&#39s pocket.

He says the insurers have “missed out because they have let the

distribution fall into the hands of a few players” whowill be able to

control the market through technology and buying power.

Murrell agrees, saying it linked up with technology company Lynx because

it needed cash to develop technologyfor its 3,000 IFAs. He says: “It will

drive down distribution costs for the insurers and savings can be passed on

to the consumer.”

Mills agrees technology is the way forward for nationals and networks.

“There is no downside for the consumer. The market should develop more

competitive and transparent products,” he says.

But he warns the squeeze on margins, while good for the consumer, could

cause problems for IFAs and insurers. “The possible downside for the

industry is pressure on the retailer and providers to become more

competitive and there will be casualties,” he says.

Dick warns the battle may already have been lost by some. “Any company who

is not looking at intranet and internet software at the moment has almost

missed the boat,” he says.

Only last week, Misys launched the e-commerceservice m-link which allows

IFAs to do business online.

Bankhall is piloting a similar portal which it hopes to have running by

the end of the year.

The super-IFA vision is one with a set number of business partners with

which thereis a very close and lucrativerelationship.

As Mills says: “It is notrocket science, it is about doing the sensible

thing and doingit quicker and better thanthe next man.”

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