Choosing the right IFA network to support your business isn’t an easy decision. Get it wrong and the pain to change again can be considerable, but get it right and your network partner will help your business to flourish.
Before we go any further let me make one thing clear; not every advisory firm should be a member of a network. For some, direct authorisation is the most appropriate route, for others being a network member is the right choice. I recognise that there are pros and cons for each option, but let’s put that to one side until another day.
So, whether you are a new start business, or have many years trading behind you and have decided now is the time to change network, what questions should you be asking your existing network, or indeed one you are considering joining and what answers should you be looking for?
#1: “How do you support independence?”
Most advisers I know value their independent status highly and believe it helps them to better advise their clients, whilst giving a competitive advantage.
Look for evidence to back up the answers you are given
- What percentage of the member firms are independent?
- If both restricted and independent options are available, which is growing more rapidly?
- Does the charging structure indicate a bias towards the restricted option?
#2: “Who owns the clients?”
I’ve never met an IFA who isn’t interested in client ownership. Frankly, there should be no ‘ifs’ or ‘buts’, client ownership should sit with the member firm and not be restricted in any way.
That’s not the case with all networks though; I know of at least two which include a non-solicitation clause in their membership contract.
I’d urge you to read the Appointed Representative agreement, plus other supporting documentation, carefully, and check there are no clauses which would stop you advising your clients if you were to leave the network.
#3: “Is the network profitable?”
A profitable network, with a strong balance sheet, should lead to a stable home for your business, with minimal fee increases and reinvestment into the services provided to you.
I’d suggest you ask for a copy of the network’s accounts (full, not abridged) to confirm their financial position. It’s also worth checking on the sources of the network’s income, how much comes from:
- Fees charged to members
- Sources which may come under regulatory pressure in the future
- Platforms and investment houses
#4: “How clean is the network?”
This is just common sense, why take the risk of joining a network which has had regulatory problems?
Check for fines, past business reviews and other regulatory sanctions. If what you see worries you simply walk away and consider alternatives.
#5: “Who owns the network?”
The owners of a business clearly influence the future direction of that organisation.
Once you know who owns the network, key questions include:
- If there are corporate owners is the network core to their business?
- How would your authorisation be affected if the ownership of the network was to change?
- Does their ownership in any way affect the platform and investment solutions available for you to offer to your clients?
#6: “Is the back office used by members independent?”
The importance of an independent back office system is often overlooked, but is crucial for two main reasons.
Firstly, the on-going development of the back office isn’t linked to the profitability and priorities of the network.
Secondly, and perhaps more importantly, on leaving the network it should be relatively easy to approach the supplier of the back office, purchase a copy and continue with business as usual.
However, if the back office system is owned by the network and you leave, this will almost certainly mean you have to change system, which could result in a costly data migration exercise (if the network allows migration, often they don’t), additional training and disruption to your business.
#7: “Does the network have a financial interest in how my clients invest money?”
If a network makes money from their link to a platform or investment solution, how will that impact on the charges clients pay and the options you can recommend?
#8: “What are the network’s fees?”
I’ve deliberately put this a long way down my list; whilst cost (actually, I should probably change that to value for money) is important, I believe there are many other factors which should be considered first.
Nevertheless, eventually your discussions with a network you will get to the issue of fees.
There are a few things I’d look out for here, clearly the costs themselves, but digging a little deeper can be very revealing, for example:
- A flat percentage fee can be attractive in its simplicity, but can mean the advisory firm losing out, especially in relation to items, such as FCA fees, which are billed in arrears
- How often have fees risen? This links back to question #3 and profitability
- Are there any ‘hidden’ fees, for example when it comes to protection panels and loaded premiums?
#9: “How is the Professional Indemnity insurance arranged?”
It’s important to know how your PI insurance is set up. Does each member firm have their own individual policy or is there just one block policy for all members; an option which could put your business at greater risk in the future.
The terms offered to network members by PI insurers can in many ways be seen as an indication of the health of the network; the more competitive the premiums and terms (excess, cover limit, exclusions etc), the lower risk the member / network presents.
Referring back to the first question in this article, you should also confirm that the PI insurance being offered to you will cover all retail products, thereby allowing you to give independent advice.
#10: “Are there any restrictions on how I market my business?”
Clearly all marketing needs to follow the financial promotions rules, but once that box has been ticked, will the network place any further restrictions on your ability to market your business?
Social media is certainly an area where some networks have traditionally been very nervous, leading in some extreme cases to advisers being banned from using Twitter, Facebook, etc.
Fortunately, thanks to the FCA issuing clearer guidance, this is becoming rarer. But, you should still confirm that any potential network partner is going to support your marketing activities and not hinder them.
Bonus question: “What do other members say about the network?”
I’m often asked by potential new members of the network to supply them with details of existing members so they can “check us out” further.
I’m always happy to do this. But I do exactly the same as any adviser would if asked the same question by a potential client. I pass on the details of members who are delighted with the service we offer and will give us a glowing recommendation.
The FCA register provides a more useful option though. Simply search for members of the network you are considering, select a couple of at random and call them up.
This will give you a truer picture of what the existing members actually think, whilst giving you a chance to test some of the answers given to the first 10 questions.