Consolidation nation
MONEY MARKETING - 10TH MAY 2007
Simon Burgess, managing director
There is only one thing worse than being caught and that is being blamed for something you didn't even do.
That is how some Sesame brokers must have felt in the wake of the £330,000 fine handed out after the FSA found the firm had not treated customers fairly over complaints made on structured capital at risk products.
Over the last decade, Sesame and the constituent networks which formed it in 2003, have been fined eight times by the FSA and its predecessor the Personal Investment Authority.
With around 7,500 intermediaries, Sesame is an oil tanker among pleasure craft in the advisory market, and it is unsurprising that a number of problems have come across its bows.
For members, the worry is that they are being regularly tainted by association for things they have nothing to do with. Given how widely financial matters are reported in the media, there is little doubt that consumers will be well aware of the problems and there must be a level of reservation in dealing with a firm that has just been fined for not treating customers fairly.
In this particular situation, mortgage, protection and pension advisers will be negatively affected by the publicity even though they were not involved in the selling of precipice bonds.
It is this lack of control that must be so infuriating for advisers. In joining such a big organisation, one of the benefits often expounded is the strength of brand. This is all very well when the company is performing well, but if results dip or sanctions are slapped on to the firm publicly, everyone is negatively affected. This is irrespective of how well their own client book is performing.
For firms which have chosen to join a bigger network, the lack of control does not only extend to their reputation. as there will be little, if any, control over the agency agreements with product providers and where these are not suitable, it may be difficult for advisers to go off panel and offer products from across the market to clients. This may make it difficult to offer best advice in some circumstances.
There is also likely to be frustration when it comes to retirement. It is easy to hand over the reins to others in the network when an adviser is thinking of retiring but do they really get value for their business under such an arrangement?
For those operating as part of a big network, other members will absorb their clients and it will be difficult to guarantee any future levels of service. For many who have made personal friends with clients, this is a bitter pill to swallow.
Members have paid through the years to be part of a network and although they will have received various services in return, will they ever get true remuneration for the book of business they leave behind?
Many believe there are a number of flaws in the network model and that it is nigh on impossible to effectively control large numbers of disparate firms that have been brought together under a single trading banner but that often retain their own operational cultures.
It looks certain there will be an increasing move away from this type of set-up and we will see development in those firms which choose to grow their operations organically or sell to a consolidator. There are a number of players looking to create big advisory firms and they will offer smaller, directly authorised businesses an attractive proposition.
In the first instance, selling to a consolidator will provide intermediaries with up-front remuneration for their book of business. Firms entering into such a deal will also be able to judge for themselves if the consolidator operates the kind of business model they believe will best serve their clients. Hence, while they may be handing their clients over, they will only make the decision to do so if they feel their clients will be treated as they would like in the future.
This is not necessarily the case for those retiring and leaving clients in the hands of their network, nor will those retiring see any financial remuneration for the business they leave behind. In such circumstances, it is difficult to see the network operator as anything but the outright winner and the intermediary who has built up the business coming a long way behind in second place.
Consolidators have already proved effective in other markets and in buying businesses and incorporating them into a single company it is easier to create a culture that is consistent.
For advisers who remain after the sale of their business and continue working, this consistency of approach should also help prevent problems with the regulator. It would seem less likely they will have to put up with the negative publicity that networks have seen come their way on the back of regulatory sanctioning.
It is not possible to make some Orwellian statement to the tune of, Consolidators Good, Networks Bad. However, for those who have not signed up to a network, there do seem to be more attractive options available to them where they maintain a higher level of control and will be financially remunerated for the businesses that they have created.
It will be interesting to see how the sand shifts in financial services distribution over the coming years and whether networks manage to maintain and grow the number of advisers they have so far attracted.
In a market that preaches from the pulpit of best advice, intermediaries must weigh up all the odds and make sure the structure they chose to operate under is the one that best suits both their clients and themselves.
