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