Sometimes these have been because cash flow has caught up with them – earnings not being sufficient to cover the infrastructure they have built.
In other cases, it is firms getting tripped up by an external event – regulator action, or perhaps a massive increase in a PI bill.
Of course, there are networks that have survived, but I still occasionally hear a criticism of networks that make a profit – that criticism being that the profit is being made at the expense of the member firms.
It’s perhaps a bit of a British thing, to question profit – and its perhaps understandable given the fall out from the banking crisis that these things are questioned more.
I think it is essential that network members have a long hard look at the value for money that their network membership represents – but I don’t think anyone should begrudge a network from making a profit.
Profit puts a network into a better place. It can provide reserves, so that external events can be weathered and the network does not get blown off course. It can provide investment in new systems or services to take the business forward.
It gives the owner an incentive to continue to be in business – to continue to pay fees and regulatory costs, and to pay the commissions to the member firms. I am sure you can work out the flip sides of each of these for a network that doesn’t make a profit.
So if you are looking to move networks, or to join a network, you ought to ask yourself if you’d really like to be a member of a network that does not make a profit.
Duncan Crocker is managing director at Legal & General Network
