I wonder what would have happened if DBS, of which Ken was the chairman, had not had to sell to Misys?
I suppose you can understand why Ken has made an about-turn and has tried to assert that the competition is dead – he cannot afford to offer the choice any more, as he stated in the article.
Fortunately, our group consists of all the distribution models – national, IFA network, mortgage and GI network, compliance services company and a specialist protection business. We can be therefore a little less aggressive in our views and certainly it seems more balanced and better informed – more a case of offering choice and allowing advisers to choose which model supports them best. It is horses for courses.
Many advisers thrive within a national environment, they love the atmosphere, camaraderie and buzz. You may pay more but good advisers in that environment often seem to produce more than on their own without the distractions of running their own business.
Directly authorised advisers who buy compliance and support services are another model. For a number of advisers, this suits their business and can have positive benefits as long as the service provider is actually providing tangible support, fully understands the FSA requirements, knows what they are talking about and is not just a cheap commission club.
We are mainly a regulated group so our compliance and T&C advice through our 1,200-adviser client services company has to be spot on or we would quickly be picked up by the FSA. Without that governance, your compliance service provider could give you very poor advice with no fear of comeback.
Another choice is a network, and it is still a logical option for the majority of advisers.With the explosion of cheap service providers, you will hear all sorts of nonsense about the disadvantages of networks. In reality, the network model is the safest, cheapest and best value for money for any adviser who does not want a national model. Why? Well let us look at the myths:
- Our networks do not tell you what products to sell but we believe they do give you loads of help and support to choose the best products for your clients.
- Our networks do not hold on to members’ commission or control their cashflow. They fully reconcile the commission, produce statements for each adviser and the firm and obtain the highest commission levels available – 10-20 per cent more than most direct firms and a number of service companies, as providers recognise the added value of our distribution model in reducing their costs.
- Our networks provide competitive PI and will spread the costs of PI, FSA and FSCS fees over the year, helping cash-flow.
- Our networks also smooth the repayment of big chargebacks, again helping cashflow.
- Our networks do not erode the capital value of member businesses, in fact, we enhance them through the production of sound auditable commission statements, reduced risk of misselling and dealing effectively with all regulatory issues.
- Our networks also provide an exit route for members wishing to retire.
Clients of network advisers really appreciate their adviser having us behind them and for the same reasons professional firms, solicitors and accountants are happier knowing that the adviser buys our support and that we are sharing the regulatory responsibility and risk.
Are networks cheaper? Of course they are, if you are honest with yourself. What cost would you put on such issues as:
For any business, this is going to be a significant cost, particularly as it is generally the principal of the firm who ends up doing most of the compliance work, or who employs a compliance officer at £50,000-plus a year.
And do not forget, networks can get fined – their members do not, even if it is the members’ fault. Why? Because networks are responsible for ensuring that their members are the good guys.
Indeed, networks make a significant and positive contribution to consumer confidence in IFAs and uphold the good reputation of IFAs by protecting their members from falling foul of regulation or selling duff products.
One final question. If all advisers went directly authorised, would regulatory cost go up or down? It is the big distribution groups that subsidise regulatory cost and, without them, costs would escalate. It is not possible to defy gravity. There is a cost to being a regulated business and cheap short cuts have no long-term future.
Yes, some larger than life, badly managed distribution groups have disappeared and lessons need to be learned.
What you do not hear about are the dozens of directly authorised firms that are closed down each year by the regulator, often because they do not comply.
A number of these no doubt buy services. They are not network members and are certainly not ours.
One size certainly does not fit all and we are more interested in offering advisers choice by explaining the features and benefits of each model and allowing them to make the decision.