Club rep
NICHE MORTGAGES - 1ST JUNE 2007
Being part of a club can help boost a small broker’s reputation.
Simon Burgess, managing director of britishinsurance.com, recently decided to turn his guns away from his usual target, the single premium payment protection insurance market, and aim them squarely at the network market.
Quite why Simon Burgess chose to do this I’m not sure, but he has been hard-hitting his comments, which are critical of networks. The nub of his argument is that members of networks stand a high risk of suffering reputational damage because of the failings of other members. He said: “For many directly authorised advisers the very thought of not having complete control over their own reputation is not something they would countenance.” He went on to say that reputational damage is an argument for individual introducers to go it alone.
An interesting outburst but one which completely ignores the wider and more important issue of the existing reputation which some brokers have, especially the individuals who Simon Burgess is eagerly encouraging to go it alone.
The hard facts of life are that small firms have consistently demonstrated that they are struggling to get to grips with regulation and that the are the very people who need the help and support provided by networks. Early in the year the FSA announced that, having reviewed 252 mortgage firms, it found only a third of firms with robust processes in place to provide customers with suitable advice and the most significant failings were amongst smaller firms, where three quarters of advisers did not have robust processes. These findings cam only weeks after the FSA had to censure more than 200 mortgage brokers for using misleading mortgage advertising, particularly with regard to sub-prime deals.
On 13th April this year the FSA also announced that it had to cancel the permissions of 151 small firms during 2006, the majority of whom had failed to meet their threshold conditions. On 17th April the FSA went on to say that in an investigation of 22 small firms who had employed compliance consultants it found that nearly half of them were not implementing the advice they were being given.
The truth is that before small brokers start worrying about reputational damage as a consequence of belonging to a network, they need to be far more concerned about the failing reputation of many hundreds of small brokers simply because they are not complying with existing regulations. It seems that every time the FSA conducts an investigation, the image of small brokers is dented once again and you have to ask for how long this process can continue?
My counter argument to Simon Burgess is that based on current evidence, the vast majority of small brokers would be better off seeking support either by becoming ARs of a network or, if they wish to remain independent, by using the services of a club – which can provide compliance support as an additional service.
Simon is right in highlighting the fact that reputation is key to the future success of the financial adviser community, but he is well off target by saying that the biggest risk comes from belonging to a network.
This article you may have noticed, is meant to be about clubs and yet my argument seems to be in support of networks. I have only referred to networks because they were the target of Simon Burgess’ attack. I believe exactly the same principles apply to clubs, because reputation is an issue which crosses regulatory boundaries. DAs using mortgage clubs have the same reputational concerns as ARs using a network.
However, to focus on networks or clubs is to miss the main point.
The main point is that all brokers, especially smaller firms, need to work a lot harder to clear up their image.
It is becoming far easier for consumers to buy financial services direct form products providers whether via branches, the phone or the internet. Retailers with strong brands such as Tesco, Sainsbury and M&S are also muscling in on brokers’ key markets and if consumers get the jitters because they no longer trust the people they are buying from, there are plenty of alternatives on offer. Maintaining a position reputation is critical – but networks and clubs don’t deserve to be singled out as the most likely cause of brokers’ future downfall.
