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Network consolidation and why it’s unlikely to be finished – Clifford

by: Rob Clifford, chief executive of Stonebridge
  • 22/09/2023
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Network consolidation and why it’s unlikely to be finished – Clifford
Anticipating the future trajectory of any segment of the financial services sector can be an intricate challenge.

However, a few years back when I reflected on network developments, I held a strong belief that consolidation was highly likely, and there would be a trend toward amalgamation in the years ahead, particularly as regulatory requirements grew and as member firms revisited the benefits. Some networks appear short of capital, and some continue to reduce in size due to attrition or lack of recruitment. 

You might argue that such a market progression offered inherent advantages from an appointed representative (AR) perspective – particularly if those networks were entirely focused on the sectors they specialise in.  

Consolidation has been a recurrent theme over the past few years across financial services markets, with the most recent example being Tenet’s decision to close its network with its wealth advice firms being offered a move to Openwork and TenetLime mortgage brokers recommended a move to Primis. But as noted, this shouldn’t surprise us – indeed, it does feel like the long-standing pattern of activity. 

  

Change is always happening 

Looking back to 2015, Stonebridge and Mortgage Advice Bureau collaborated closely with Legal and General during its exit from direct activity as a principal in the network space, facilitating the transition of its AR firms to our two respective propositions. Similarly, in 2021, we engineered a streamlined pathway for 75 firms, at the time with another leading network owned by a life company, to make a shift to Stonebridge resulting from a change of strategy at their prior network. 

And just last year, we announced our substantial investment in Connect with over 250 AR advisers becoming part of the wider Mortgage and Surveying Services (MSS) group in order for Connect ARs and Stonebridge ARs to further enhance their strong propositions to their respective members. 

So, this latest move is part of a long line of network consolidation of various sorts, and we may well see more in the coming months, which should obviously be a consideration for any AR firm when they decide on their network partner. 

 

The strategy behind consolidation 

The bigger question is around why these deals occur, and what it means for the AR firms who are transferring? It’s imperative they deliberate on whether this transition aligns with their firm’s best interests, putting to one side the interests of the divesting entity or the acquiring network. 

Over the past year,we’ve welcomed on board a significant number of AR firms from Tenet, and amongst the reasons they gave for the move, was the focus we have specifically on the mortgage and protection sectors. If you are a firm fully committed to mortgage and directly related advice, you should expect that commitment from your network. 

 

In tune with adviser needs 

It is also pertinent to mention that AR firm owners tell us they prefer networks with independent ownership and push back against a corporate-owned group running the network as part of a conglomerate of other businesses.  

Or if the ownership of a network is in some way, shape or form in the hands of product providers – such as listed companies with an understandable focus on the demands of often impatient shareholders – both strategy and operational delivery can sometimes feel at odds with the member firms’ expectations. Unsurprisingly, there’s a wariness about this which we get to hear about when firms move networks and ask us to be their new principal. 

Privately-owned networks like Stonebridge and HLP, for example, which tend not to have a raft of external shareholders all with their own agendas, wants, and needs can typically react quickly to the needs of their AR firms. They pursue strategies that are fervently aligned with the growth trajectory of both the AR firms and the network business. 

Furthermore, it is prudent — especially for firms making a transition to new networks — to conduct a comprehensive evaluation of the proposition, encompassing costs, opportunities, compliance support, and technology. All might be quite different to what AR firms have become accustomed to, and what they need. 

AR firms should always be assessing the benefits of being with their chosen network, but particularly when they are being ushered into a new one by a failing or exiting network. What is certain in my opinion is that ARs will continue to challenge networks to deliver regulatory safety and tangible support, and further network consolidation is inevitable. 

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