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Network jungle

The FSA is telling mortgage brokers not to rush into joining networks until they are confident they fully understand the new regulatory regime and their options.

The warning comes as some IFAs voice their own concerns that the coming of N4 next October – when mortgage brokers must decide if they want to be directly authorised or become an appointed representative of a network is just the latest issue that networks are manipulating in order to scare advisers into submission.

Syndaxi Financial Planning principal Robert Reid believes the networks are willing to engage in increasingly aggressive tactics, including a level of scaremongering. He says: “The problem that networks face is that they already have all the people who actually want to be part of a network. The challenge now is to win over those who would much rather do it themselves. This requires a switch of emphasis.”

In Reid&#39s view this shift is from selling the positive benefits of joining a network, typically professional indemnity cover, admin and training and competence to the negatives surrounding what life might be like without the support of a network. Reid says: “Networks will be pushing hard on the mortgage regulation angle, namely that IFAs need to run for cover.”

Alan Steel Asset Management financial consultant David Scott says: “There is probably a lot of scaremongering going on. I do not feel that if you a strong IFA that you ought to feel the need to join a network.”

There are also financial promises. Scott says he has been phoned by networks, as have a number of his colleagues. He says: “When networks try to get your attention, they will ask what you are currently earning and say they can beat it considerably. But it is more than likely this will be if tough sales targets are met which is something that consultants here do not have to be preoccupied with as we do not have those sorts of targets.”

Reid says: “I know some networks have resorted to foreign holidays to try and convince as yet unpersuaded advisers to sign up. For some networks, there is something of the vultures from the Jungle Book about them, swooping in when it looks as if people are in trouble.”

Scott says: “Invites to the golf are always a favourite but I am still waiting for my invite to Barcelona or any other foreign holiday.”

But what of the other key reasons why tens of thousands of IFAs have joined networks. Do these hold any appeal for the hard-liners who say they would never join a network?

Reid is adamant about staying independent. He says: “I would not join a network in a month of Sundays. You need to think long and hard about who you want to be associated with in this market. When you join a network, you give away that choice. I just do not trust the networks not to change the goalposts two to three years down the line. I have heard of quite a few problems where clients have not been transferred as they said they would be, so retaining your integrity might prove difficult.”

He believes the networks&#39 stringent compliance framework can constrain brokers. “I am sure that networks would see this as a positive, but they can be perhaps too severe on compliance. If you are operating in a non-mainstream area they can take some strange views.”

Getting PI insurance is another issue where Reid is unconvinced. He says: “One of the classic lines used by networks is &#39We can get PI and you can&#39t&#39 but even if your premiums are very high, once you have paid the network its 7 per cent or whatever it charges, it can work out the same or more expensive.”

Scott believes that PI cover is the main driver for this decision, following the huge increases IFAs have had to shoulder. “That said, there are more and more IFAs avoiding the network route by self-insuring. If, like us, they have very few claims then having a slush fund to meet these claims can make sense.

“Administration is another reason, as networks offer standard documentation where all you need to do is change the names. You might also get higher commission as part of a network but this is largely because many of them are effectively semi-tied because of their panels.”

On the administration issue, Reid believes that here is little or nothing that networks can offer which advisers cannot do themselves.

IN2 Consulting managing director Philip Cohen agrees. He says: “I think a lot of what the networks talk about is scaremongering on PI, compliance and training and competence. I am not convinced that you cannot replicate what networks offer. I think what a lot of they offer, particularly the pseudo-networks, is window-dressing.”

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