St James’s Place chairman Mike Wilson says many IFA networks are not viable businesses because they focus on size rather than profitability.
He says: “They have clearly proved they are not viable business models. The only measure of success for a company from a shareholder’s point of view is, bluntly, how profitable you have been.”
Wilson cites the examples of Berkeley Berry Birch, Inter-Alliance and Millfield as businesses that were too concerned with being the biggest.
He says: “Inter-Alliance used to keep on saying it was the largest by turnover and by number of advisers. You measure the success of any business by its profitability.”
Wilson says the competition for advisers means that networks pay far too much commission to their representatives and cannot run their businesses profitably in the long term by retaining only 10 per cent of commission.
He says: “They give away too much of the gross commission to advisers and do not have enough to run their back office. How do you have a proper compliance department when you pay out so much commission?”
Wilson believes this lack of support is self-defeating. He says: “The irony is that a lot of network members are very dissatisfied with the support and end up asking: What am I getting for my 10 per cent?”
Sesame sales and marketing director Stephen Young says some networks have been guilty of this in the past but companies are aware of the importance of making a profit. He says: “In the long run, all businesses must turn a profit to survive.”