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Nick Cann: Networks and nationals face survival struggle

Nick Cann roundtable

Institute of Financial Planning chief executive Nick Cann says the RDR will make advisers more powerful in their dealings with platforms and fund managers but warns some networks and nationals will struggle to survive.

Speaking to Money Marketing at the IFP annual conference in Newport this week, Cann (pictured) says there has been an interesting shift in the dynamic between platforms, fund managers and advisers.

He said: “Financial planners and advisers will have far more power to work out who they want to deal with and how post-RDR. Advisers have been changing their business model and gaining power because as they move more money onto platforms, they have the ability to move it off quickly as well.”

Cann says well capitalised businesses that are clear on their service proposition stand to gain from any bid to buy distribution next year but networks and nationals that have run sustained losses may not be able to continue for much longer.

He says: “The network model grew up on gathering lots of small, entrepreneurial guys looking to do a good job for their clients but who needed some help with regulation and structure. The business model was to create higher commission levels and take a percentage of commission. But how does that work with adviser charging?

“There have been significant amounts of money spent by the life companies and everyone else in protecting or accessing distribution to put commission deals in place in terms of training and support, technology support or any other service propping up businesses but with no obvious value. It will be interesting to see how those models survive and grow in the new world.”

Cann says the FSA’s increased scrutiny of how firms are complying with inducements and RDR rules will not help businesses that are already struggling.

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Comments

There are 4 comments at the moment, we would love to hear your opinion too.

  1. The FSA never had any idea, nor could they care, about the fallout from RDR. The only consideration was to remove commission (albeit clients will finish up paying more in charges than previous commission levels) despite there being very little evidence of commission bias.

    Commission, as a proportion of the total costs associated with a client’s investment portfolio, has been insignificant in the great scheme of things. Fund managers often earn seven figures including bonuses – how many IFAs earn six figures ? Then there is stamp duty (tax), the cost of regulation, transaction costs which are not even alluded to in any KIID, and now an increase in the incidence of charging VAT.

    It shouldn’t be necessary to join a network just to stay up-to-date with the latest movement of the ‘goal posts’ by the FSA which thinks that a million rules a day is helping Joe Public.

    If networks fail then this will be yet another (un)intended consequence of which there have already been many with many more to come. The culprits for the unmitigated disaster (which RDR will prove to be) will simply move to their next job (golden handshake, golden hello) safe in the knowledge that they will never be held to account and that their own futures are secure within the ‘special circle’ to which they have managed to gain entry (old school tie, friend of Dave, Lord Muck’s nephew etc etc).

  2. Bill, I think you are being a little hasty. The network model has been flawed for a long time. It has clouded the issue of independence and has relied on bidding up commissions (at the expense of the client). Those that joined were either too timid or too lazy to get involved first hand with regulation and have paid a heavy price. The parasites that run the networks have gained at the expense of those that actually do the work.
    I for one don’t think it is a bad thing to go back to a pre-network model.
    As for the large firms they too operate in a similar way. The demand a minimum amount of throughput – often on a quarterly basis. If the poor drone doesn’t bring home the bacon the pressure often dictates a less than optimal outcome for the client.
    The independence to set your own tariff and control your own costs within a solvent business has always been the best route for decent client outcomes and a decent business model.

  3. Whilst appreciating that networks have costs that they need to cover, the pressure to produce a minimum amount of business just makes a joke out of treating customers fairly. It’s just bancassurance behaviour in a IFA wrapping. Networks need to be reformed or become extinct.

  4. Those larger distributors who are sensible and have their eye on the long game will recognise that scale will always win over sub-scale. Rather than the basic commercial arrangements currently seen, they will look to reduce the cost of investment for the client allowing the adviser to either charge more or charge the same but at a lower total costs to client.

    The small IFA, on a like for like basis, should not be able to compete with a scale driven product. Ultimately it will come down to relationship but on a cost basis it will be a challenge. See Tesco vs the local shop. Everyone shakes their head with sadness at the demise of the local shop but no-one wants to pay that 30p more for a bottle of milk.

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