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Tim Newman: Time for networks to come clean on charges

It has long been a gripe of mine that many appointed representative firms do not know when their chosen network is making a turn. It is amazing that while the RDR is making the cost of advice clear to consumers and the FSA is driving transparency into the mystic world of bundled platform charging, advisory firms can be a little foggy over their network charges.

An oft-quoted benefit of being directly authorised has been “at least I know where I stand” but being small and directly authorised may be a bridge too far for many IFAs in 2013. To ask a simple question, why can’t firms know where they stand and be in a network? These are not incompatible concepts.

Traditional networks have not done themselves any favours on this front. Sesame’s recent price hike follows a spate of similar moves from other long-established networks over recent months, all under the banner of increasing regulatory and professional indemnity insurance costs. All well and good but firms are left wondering if they are simply paying their dues or if somebody is making a turn. Ambiguity is just not healthy.

People are happy paying a sensible price for a good service but they want to understand the price and the service to enable a clear assessment of value for money. They also do not like nasty surprises. Put simply, disclosure by networks should be clear, fair and not misleading – sound familiar?

How difficult is it for a network to achieve pricing transparency? Let’s consider a few key points:

Is there a way whereby itemised regulatory fees can be billed to AR firms with, demonstrably, no margin being added by a network? Of course there is, the FSA is even kind enough to provide the formulae.

Is it possible for good firms not to subsidise bad firms on what they pay the network? Absolutely, just work out which firms absorb more resource and price accordingly.
Can AR firms have their own PI policy terms and pay the insurer direct? Yes.

By embracing these concepts, networks are entirely capable of delivering clean, fair pricing for their services. Firms should know where they stand.

The bundled charging structures of traditional networks therefore seem less and less defensible. Adopting pricing models in which ARs pay fairly for what they receive is surely a better way. Deliver a quality service and we have the foundation of a trusting and lasting business relationship.

Which leads to my final paradox: a network needs to be profitable. Delivering profit, however, without members being clear on where it is made is one heck of a party trick. It can only wash for so long.

Seems to me that the bundled networks need to come clean, draw a line in the sand and make the payment for their services clear and transparent. This is the brave new world.

Tim Newman is managing director of Sense Network and Sense Support

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Comments

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

  1. After having been DA since FSA mortgage regulation, in April 2011 we joined Intrinsic and have been impressed with their service and support.
    Having looked at several networks we thought that Intrinsic’s model – a reasonable monthly amount per adviser plus a clearly stated cut from business written was one of the clearest offerings on the market
    In terms of the costs and time involved with being DA it has been a good move

  2. Unbundled network charging…now there’s a novel idea. Can’t see it happening any time soon though and while we are at it, how about an insight into the cosy deals being struck for the networks with multi tie propositions? I’m sure there are one or two interesting nuggest floating around.

  3. Costs going up because of increased regulatory costs yet it’s expected adviser numbers will decrease any where up to 30%. Less members to regulate should surely mean decreasing costs, shouldn’t it? Or, am I just being silly? 🙂

  4. Scott Taylor-Barr 21st May 2012 at 11:18 am

    Choosing the correct network for your business is a difficult and very personal decision.
    You have to look at the costs, but also what you get for those costs and if your personal views/ideals are shared by those of your network – or you’ll be locking horns, more than working in partnership.
    I spent many years as the National Account Manager for a lender and spoke to many of the larger networks at a senior level. When I made the decision to become a financial adviser I chose Openwork as my network partner – because they offered the range of products, service and on-going support I wanted for my business.

  5. Marilyn Holmes 21st May 2012 at 1:39 pm

    I am trying to leave Positive Solutions to go DA after them increasing charges to 35%, however they are charging everyone who wants to leave £7k which they say are their costs? can’t afford to stay or leave!!

  6. I am the other person leaving Positive Solutions. I received a letter saying I was making a grave mistake. I think not.

  7. Does it matter how the charges are laid out?

    What is more important for an AR is the truth about who is responsible for what, who pays the PI for whom and what the network can or cannot do to them.

    As far as leaving a network is concerned don’t be taken for a mug, call me so you don’t get fleeced.

    The comments from Tim Newman give me the impression that his network has crystal balls.

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