The network model... still makes Sense

Freedom within a framework.

Increasing regulatory compliance and rising back-office costs have prompted many financial advisers to take a greater look at the way in which they run their advisory business. As a result of these increases, we have seen a dramatic surge in advice firms of all sizes approaching and joining the ASHL Group networks.

An example of these costs would be Professional Indemnity Insurance (PII). If you go right back to the FCA retail intermediary data from 2017, the FCA was showing a range of average PIIs from 1.9% up to 2.7%, and that's for firms with turnover between anywhere from £100,000 turnover to £10,000,000 turnover. We've seen that steadily increase over the years, with the 2023 data from the FCA highlighting a nationwide average of 3.2% to 3.5%. A steady and significant increase over that time period. Sense firms premiums however, continue to compare favourably against the industry average.

Currently, contributions across the Network stand at an average of 1.54%, for compliant PII.

Keith Richards, the former Chief Executive of the Personal Finance Society (PFS), believed it would be advantageous for smaller firms to partner with a network model because “the network handles both regulatory and legal responsibilities to trade”.

 “Adviser businesses need to be alert to what is happening as regulatory requirements and the raising of professional standards is only heading in one direction, and for many advisers this will mean putting some time aside to properly set in place a strategy and development plan,” he told International Adviser.

“Firms or individuals need to be honest in assessing the firm’s competency, experience and capacity to determine the most effective route to achieve their business plan, which must include regulatory requirements.”

Another such reason for an advisory firm to choose to be part of a network would be the FCA’s Senior Managers Regime, and requirement for those individuals holding the Compliance Oversight (SMF16) function to have significant compliance experience. In years gone by the FCA would empower the firm to manage this area and trust that they would either handle internally or outsource if there was a need.

We have seen the industry go through significant periods of disruption over recent years, from RDR to Mifid and more recently to Consumer Duty. Seen by most, this is the overwhelming benefit of being part of a network.

Interpreting and implementing the many regulatory guidance papers and ensuring that the impacting requirements are both communicated and managed in a way in which they clearly understood and adhered to ensures a way in which advisers get the essential information without detracting from looking after their clients and ensuring that their advice helps to find the right financial solutions.

The responsibility of the adviser remains to adhere to these processes and to follow the guidance given to them, however the network will ensure, through its own processes, that this is conformed to and that any shortfalls are managed without risk to you or your clients.

The main reason that Advisers often choose not to join a network is perceived autonomy and expectation of a greater of freedom to run their own business and retain that sense of control with Advisers.

Feedback from recent joiners of both Sense and Lyncombe networks who were previously Directly Authorised, suggested that their main their main reasons for being DA was that they preferred to design their own sales processes and have their own relationship with the FCA, lenders and providers.

Upon reflection, they felt that this was a misnomer and that modern networks provide an environment that encourages the freedom and flexibility to run your own business in the way in which they would want to, whilst providing that added safety from a regulatory perspective.

Most Advisers that are suspicious of networks have had bad experiences, which stem from the old-fashioned networks that constrain creativity and are rigid in their thinking. The key to a good network experience comes down to similarity of values, providing the support that you need and access to the products that will be most beneficial for your clients and your business.

Any good network will be happy to share testimonials from existing members.

Modern networks have high standards in terms of who they accept into community of Advisers. Those that have been terminated by another network may find it very difficult to be approved to join a good network.

The primary objectives of a network should be to provide a safe home to their members, and to harness the collective strength of the community whilst empowering the individual. The wrong calibre of new joiner, would weaken the group.

The pros of an advice network are:

• Time saving - the application process is much quicker and easier than the process needed for a DA; which allows you to focus on your clients and start writing business straight away.
• Cost saving – joining a network rather than becoming DA is much less expensive. There are costs involved not only in the application stage but also hidden costs of being a DA adviser or firm such as the costs for training, PII cover and excesses, compliance function, staff and equipment.
• Ongoing Support - As part of a network, you have the ability to consult within the firm or Network for any advice and support. There is also usually ongoing training through your principal firm. A DA firm is usually solely responsible for all decisions and training. Whereas a network shares its regulatory status with the Principal Firm, which reduces risk and provides reassurance.
• Focus on your clients - As the Principal Firm is also responsible for all compliance and provides support; you have more time and resources to focus on writing business and maintaining your client relationships.
• Future-proofing your business - We understand our part to play in the future of financial advice and the need to provide long-term succession planning opportunities for our firms. The ASHL Adviser Development Academy encourages and supports a younger and more diverse generation of Financial Advisers. Academy courses are free to Sense members up to Level 4.

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To find out more about the ASHL Group, our growing financial advice community and our suite of support services, get in touch here, or download our group services & benefits guide here.