Quality networks aren’t called ‘umbrella’ organisations for nothing, argues Richard Adams, managing director of Stonebridge Group
With inflation seemingly running riot at present one might think that the cost of just about everything is on the increase. Certainly, one would be hard pressed to think of something that has recently become cheaper and the outlook is for greater increases in prices in the months ahead. This is not just the case in our personal lives, the cost of running a business particularly in the financial services sector has perhaps never been so high and it is hardly surprising that many advisory firms are either looking for another way of conducting business or searching for an exit strategy, particularly in light of what is coming over the horizon with regards to the Retail Distribution Review (RDR).
The significant interim levy recently placed upon advisory firms by the Financial Services Compensation Scheme (FSCS) has certainly drawn great attention on the overall costs that come with providing advice these days. Regulatory fees and levies are just one area of outgoings however the problems truly lies in the unpredictability of such added costs interim levies are impossible to budget for and, given that many firms are on the edge when it comes to keeping a business going, a considerable sum to pay could force them over.
Of course this problem is particularly acute for directly authorised (DA) firms who may be left feeling isolated at this time. Appointed representatives (ARs) can feel much more confident about their own financial position at present because there are a number of advantages that come from being under a network umbrella that are simply not available for DA firms. Given the current climate significant numbers of DA advisory practices are now actively considering a move to AR as a network we are in discussions with a number of firms who are looking at the protection afforded ARs along with the various business and cost benefits that can also be accrued.
Consider the typical AR firm in today’s market they have no authorisation fees to pay, no professional indemnity insurance costs to find, no administrative or compliance oversight to fund, and no interim or regulatory fees or levies to deliver at a moment’s notice. Given the market we have had for the last couple of years, particularly in the mortgage sector, it is obvious that firms are going to want to keep their costs down to the bare minimum. DA firms are looking at the AR model as a method to do just that lower costs after all should deliver greater profitability.
Plus, we should not forget that joining a network – particularly one which is focused on providing a range of development opportunities – can also boost business and therefore income levels in a short space of time. Many DA firms feel lost at present because they are unable to access the products and propositions that bigger operations have secured. The individual firm starts its negotiating and buying position from a far lower level than a network which comes with bulk-buying power and the promise of greater distribution levels for the provider. DA firms are not able to compete with the bigger operations the benefits however for AR firms are multiple in terms of product and provider access coupled with more competitive pricing and stronger terms and commissions available.
Our AR firms also benefit from other services which a DA firm would have to supply (and fund) themselves particularly in the technology space where quality systems are in short supply. Rather than opting for a system which just delivers a compliance oversight mechanism, ARs should be using technology that provides this and a range of business-generating opportunities. For instance, our Revolution system provides a client-facing interface where clients can check on the financial products they have, where there may be gaps and how their cases are progressing, while there is also a similar opportunity to grow introducer relationships by offering full, transparent information regarding an introduced lead, how it has been dealt with and at what stage the process is at. This develops both client and introducer loyalty.
Therefore at present while the costs and stresses of being a DA firm are only increasing, those AR firms who have chosen the right network partner will be experiencing a much smoother, headache-free existence. Quality networks are not called ‘umbrella’ propositions for nothing when the sun is shining we are able to put the umbrella down and bask in the opportunities the market presents, however, when it rains (and it has been pouring lately) the umbrella goes up immediately protecting our AR firms from any unanticipated ‘bad weather’ which can regularly befall advisory practices.It is truly the best of both worlds which is why many DAs are looking covetously at network offerings and deciding now is probably not the best time to be standing alone.