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Past liabilities cast long shadow over networks

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Some of the industry’s biggest adviser networks are suffering from a raft of historical liability issues which are leaving networks with little room to breathe.

Over a year has passed since Money Marketing revealed Friends Life had put Sesame Bankhall Group up for sale and hired Barclays to find potential buyers.

Despite interest no sale has been agreed and although SBG itself is still preparing for what it hopes will be a prosperous future, the fate of the network remains unclear.

The primary obstacle to a sale is widely believed to be reluctance of any potential suitor to take on a business which could be harbouring unknown liabilities.

After SBG posted a £19m pre-tax loss for 2013, chairman John Cowan told Money Marketing the business was “facing up to legacy issues”.

To that end the business has been hiring in new staff to oversee compliance procedures and is well on the way to moving advisers into a restricted model. 

Elsewhere, when Old Mutual confirmed the acquisition of Intrinsic in February, chief executive Paul Feeney indicated tight controls at Intrinsic had given him comfort that the acquisition would not come with excess baggage.

Nonetheless, he accepted the business will need to stand behind Intrinsic when issues do inevitably surface.

Openwork accounts filed in 2013 show redress payouts of £2m despite the network avoiding exposure to unregulated collective investment schemes and other non-mainstream products

Meanwhile Tenet, although moving back to a modest profit, still has close to £10m set aside to cover liabilities and admits to tightening up compliance checks in an effort to de-risk the business.

Seeking to provide a remedy, insurance brokers Marsh are trying to engineer a deal on behalf of a number of networks to transfer historic liability risks onto an insurer.

Deals of that nature are more common in other sectors where risks of fines and redress around past business are easier to contain and measure. But pricing that risk in the advice sector will be difficult. 

Factor in contractions in the size of the adviser community, ongoing questions about trail commission, and the fact the FCA are clamping down on inducement payments and the future for networks looks bleaker still.

With all that in mind, there came some welcome news last week that a 15 year long-stop on complaints to the FOS will be considered.

The trouble is advisers are a disparate community which does not lend itself to effective lobbying. There are just a handful of banks, insurers and asset managers (all with resourcess to support lobbying efforts), making it easier to consolidate a single agenda.

Apfa will perform a key role in representing adviser’s case for a long-stop but the broader adviser profession must be more assertive. A campaign by Tenet to force the issue of a long-stop for advisers onto the political agenda is still only halfway to achieving the 10,000 signatures necessary to force an official Government response, despite a recent spike in signatures. That petition alone will not prompt real change in the immediate term, but it would add weight to the campaign and increase public and political awareness of the issue.

Without respite from the regulatory powers that be, the advice sector runs the risk of being forced to adopt a compliance-led culture where regulatory requirements eat into both financial and human resources, blunting investment and innovation. 

Michael Glenister is platforms and distribution reporter for Money Marketing – follow him on Twitter here

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Comments

There are 7 comments at the moment, we would love to hear your opinion too.

  1. Intrinsic is in fact a mixed network of Independent and restricted advisers and not as stated in the article.

  2. I wish I shared your “surprise” Michael.

    The single reason why advisers will never be fully represented and the main reason why the regulator can manouevre its way with impunity is apathy.

    Advisers moan and groan and vent their collective spleen on blogs but when it comes to actually doing anything or actually paying for representation that creep back into the woodwork.

    Until the silent majority wake up to what has been happening and continues to happen then we will always be, in the words of Walter Merricks, playing “on an unlevel playing field broadly supported by those playing up hill”

  3. I note that having made a comment correcting a mistake in this article that the mistake was rectified and my comment was suppressed.
    I don’t know if I should be pleased or annoyed.

  4. Michael & Alan

    I’m afraid you are both wrong.

    In the case of advisers in networks , yes, they are in the main (with notable exceptions) both lazy and apathetic – that’s why they are in Networks in the first place. They like to be nannied and think that the Network will fight all their battles – after all that is what they pay for.

    By and large this whole push for the long stop is driven by the Networks who see their viability (if ever they had any) threatened.

    As for the non network adviser. Firstly (in the main) they have very few complaints as they are well aware they have no one to fight their battles and any redress will come straight out of their pocket. Very few indeed will get a complaint that is over 15 years old – so why are you surprised that they don’t wail and shout.

    As ever the trade associations are to a very large extent Network Associations. (It’s a matter of plain economics).

  5. Sorry Harry, I disagree with you.
    I agree with Alan, as a directly regulated firm (Ltd company) I still believe that a longstop is a point of principle. If it’s good for the goose it’s good for the gander and either ALL should have a longstop or no one should, not just one part of society.
    Members of netowrks shoudl be arguing for a longstop as much as directly regulate firms as most network contracts include a personal guarantee from the adviser to the network and if the network upholds a complaint (or the FOS) they will recoup from the adviser after paying the client whether the adviser agrees or not.
    It doesn’t matter that their are very few claims against IFAs, directly regulated or not and it doesn’t matter that there are very few against any adviser in excess of 15 years, it is the fact that any system that wants to be able to judge in to infinity (i.e. passed the day fo judgment) is morally corrupt and should be challenged.
    My promise is that as a 49 year old, if I retire at age 67 lets say and I am not afforded a longstop by the time I am aged 82 (15 years), I will simply act in the way the F -pack want to treats us, i.e. I will become the criminal they want to make me, but they might not like the level of crimilanity I then choose to stoop too.
    P.S. Never even had a parking fine, let alone a speeding ticket or worse in my 49 years, but willing to change if they want to make me a criminal, I will do my best to BE the best.

  6. Phil

    Sorry I must be a little slow but I don’t follow your logic. So you retire at 67 – that means that with a 15 year longstop you are not right through till you are 82 – big deal.

    There is a better way and a lot more fun.

    Just off the top of my head – the following countries don’t have an extradition treaty with the UK:

    North Cyprus
    Brazil
    The Dominican Republic

    All great holiday destinations!

    Anyway I’d like to see what would happen if a retired 70 year old (say) was to tell the FOS to take a hike.

  7. Harry, I was born in Broadstairs (home birth) and bar a few years in Sandwich and Deal (also Kent) I have lived all my life in Broadstairs. Never been more than a mile away from the sea for more than 3 weeks (and that included 2 months In Oz & 3 weeks in NZ) so I have no intention of leaving my home simply because a quango decided it was acceptance to treat us differently to everyone else in the UK.
    So as a results as you say at 70 (in my case probably 82) I will not be taking a hike myself, I will be telling them to take a hike and possibly worse depending on my health at the time.

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