This week we’re finding out how networks can boost their appeal to brokers this year. We’ve asked a network head, an appointed representative broker and a directly authorised adviser what changes networks could make to their business models to pull in new membership. Do brokers move that easily anyway? And, with the next phase of the Senior Managers’ Regime on horizon, are DA brokers likely to start jumping ship to AR?
This week our panel are discussing the best ways to get brokers on board, and if indeed it is right for them to actively pursue higher membership.
Gemma Harle, managing director, TenetLime, says pure growth in numbers is not something that should generally be aspired to, but notes that the upcoming Senior Managers’ regime could prompt some directly authorised brokers to rethink their regulatory status.
Paul Flavin, director, Zing Mortgages, says assistance with recruitment and compliance are top of his list for the support he looks for in a network, and believes that the additional layer of protection provided by a network is “priceless”.
Mark Dyason, a DA broker and owner of Edinburgh Mortgage Advice, explains that the networks which can offer broker firms support with compliance and growth plans, as well as lowering the risk, might have an attractive case for directly authorised advisers.
Although we have seen consistent, incremental growth at TenetLime, any influx of new additions is always tempered by advisers who retire or leave the business.
One also has to ask if pure growth in numbers is what we should be aspiring to. Do we not heed the lessons of the past?
The numbers game makes headlines, but we firmly believe that any sustainable growth policy must also have a parallel focus on quality and productivity.
Changing regulatory status from AR to DA, or vice versa, takes a significant amount of time if the proper due diligence is carried out. Nevertheless, there is an undeniable opportunity for growth with advisers launching their own firms.
Networks have a good reputation for providing support for such new businesses and are an attractive proposition for many advisers who choose to set up on their own. However, I have seen no signs of a mass migration any time soon.
The impending Senior Managers’ Regime could have an impact on DA firms, especially as the key personnel realise the personal liability and accountability they are potentially acquiring as a result.
Networks certainly offer an appropriate protection framework – as opposed to being directly accountable the regulator – yet any significant future growth in numbers will more likely be as a result of advisers starting their own businesses and having the capability to attract and develop new recruits.
For me, the decision to be with a network is one of safety, but ruled by size. Once you become responsible not only for your own advice but for the advice of those you employ, then the additional layer of protection provided by a network is priceless. Assistance with recruitment and compliance are high on my agenda. Having someone to vet new advisers and manage their compliance is vital to ensure you remain trading. Admittedly you need your own systems and procedures in place, but having guidance and assistance from a trusted partner does alleviate the strain.
However, if you are keen to grow then you will reach a tipping point where the retention held by a network becomes greater than the cost of employing your own compliance and training person, and then, as you grow further, your own marketing person. For most, though, this tipping point is a place they never want to reach.
From a network’s point of view, for the model to be sustainable a certain type of adviser is needed. The character who’s just looking to work part-time to bank £30k, and fits in compliance as and when it suits them probably costs the network as much, if not more, to supervise than a typical five to 10 adviser company. For the network these ‘low hanging fruit’ may be easy pickings and a quick way to boost numbers, but how many small networks are out there struggling to make ends meet because all their resources are going on managing unprofitable advisers?
Networks need to realise that, while providing the adviser with an established platform to trade from, they must work on giving their advisers an edge over competitors through innovation and development. Equally, advisers must realise that to achieve this level of advancement, the network needs to be profitable, so beating them into submission over rates isn’t to everyone’s benefit.
With a changing landscape ahead, we’re facing buy to lets becoming more complex and banks trying to snuffle away our best ‘vanilla’ clients. In this new scenario, the representation of reputable networks and the buying power they bring certainly make them a vital part of our industry. After all, how much sway would we have as a band of 13,000 sole traders? However, we do need to realise this comes at a cost. If you can rationalise that price with the returns received, many of which may be undetectable, then you need to bite the bullet and opt for a network best suited to your style of trading – and one with the resources to meet the changing demands we currently face.
The mortgage market and brokers have had a good 2016 and with 2017 being forecast at the same level then any growth must be generated by firms rather than the market.
Networks looking to increase numbers to fulfil their own growth aims are going to have to deliver an attractive package to their brokers and any caught sleeping will see their numbers drop quickly. The networks that have over the last few years provided a safe structure, but have been far too restrictive on the entrepreneurial side need to review how they operate.
The closed house of systems and sourcing deserves to blown wide open, as the rise of tech savvy brokers is here. The networks that say ‘here is your system and we know it works because it hasn’t changed since 2006’ are a red flag. If you can’t source second, further advance and remortgage side-by-side you are wasting your time, not to mention the compliance threat. We need fit for purpose tech – the best network to do this will have brokers beating down their door.
The DA vs AR conversation takes another turn as the Senior Manager’s Regime comes in, but most DA brokers are comfortable with the responsibility so it isn’t a game changer. However, the networks that shows a DA that they can deliver the desired growth faster and with more support, as well as lowering the risk, might have an attractive case.
The last piece is exit, some brokers that have weathered the bad times and are now looking at a settled period might begin to think about how to maximise the value of their firm. Networks need to have this in mind and those that can support their brokers through this will be attractive to both the exiter and entrant – also boosting network retention.