Whether you join a network or become a tied agent there are many choices to make as an appointed representative. Nick Kirwan explains
To ensure an early discount on applications for the authorised principal (AP) route, advisers should have already submitted their forms to the Financial Services Authority (FSA). Therefore, it is likely most of those remaining are at least considering the appointed representative (AR) route.
It is important to remember that while the FSA's regulation for protection and general insurance will change the way we work, regulation generally is not a new concept in financial services.
Those with memories long enough will recall the significant amount of consolidation that followed investment regulation in the 1980s. This was because IFAs soon realised that they could reduce operating costs and achieve greater bargaining power by joining forces under the new regime. From informal deals to share resources, to signing up to a network, intermediaries across the board were finding strength in numbers.
Extra incentives
Similarly with protection, it is likely that advisers will have recognised the many potential benefits of making strategic alliances, which will help them to make the most of the regulated environment. Many industry commentators are already predicting a much more consolidated protection market in 2005 and beyond.
The extent to which businesses form alliances will depend very much on the individual needs of their clients. Taking the AR route could be a lot less burdensome for smaller advisers who would find the financial commitments of regulation difficult to sustain. However, there are still choices to be made and advisers should give careful consideration when joining an AP.
The first step is to decide whether to form a partnership with a product provider and become a tied agent or join a network. Many IFAs may find the tied agent environment a little restrictive. IFAs will be used to looking through product literature to get the right deal for each client and becoming a tied agent would mean that in future they would only have access to one provider's products. This shift in focus could lead to clients switching to another adviser, since the perception could be that the advice given will not be as impartial as it was previously.
However depolarisation will have an impact on exactly what tied agents can offer under regulation, since providers will be able to 'gap fill'. This means that if they don't have a product to meet a specific client need then they can arrange for another provider's product to be made available. The extent to which providers will supplement and extend their own product ranges through gap filling remains to be seen, but this will certainly allow tied agents to cover a wider range of their clients' financial planning needs.
In addition, advisers might find that there are extra incentives available for those willing to put all their eggs in one basket. By becoming tied agents, compliance and other regulatory requirements are looked after by the provider. Agents tied to a provider with a strong brand identity could also benefit from the 'halo effect' of a close association with a company with a good reputation.
Of course the reverse is also true, so becoming a tied agent to a provider with a poor claims history for example, may have an adverse effect on business. This could also be true for a network whose reputation may have been tarnished by the poor practice of one member.
However, the overall lack of flexibility and choice for the adviser and their clients might well prove too difficult for some to manage, in which case the network option will be more attractive.
The number of networks and network members has been growing in recent years as more advisers recognise the benefits of a united front.
The greatest attraction for advisers to join a network under the regulated regime is that they are part of a bigger company and that they have the opportunity to offer the client a choice of products. It allows the adviser more scope to find a plan that exactly meets the client's needs. Training and development is also regularly offered to network members, which will be valuable to those needing to comply with new regulatory requirements.
Networks very often secure more attractive commission terms than individual IFAs. This is because of the collective influence of a group of advisers coupled with the volume of business they can generate.
All these benefits do of course come at a price and if advisers aren't used to paying a fee they may find the cost a little steep. The acid test here should be whether or not the network fees justify the enhanced commission terms and the reduced costs of complying with regulation en masse, rather than carrying the financial burden alone. VAT may also be applicable to fees in the future, which would further push up the price of joining a network.
Streamlining
In general, advisers often find the support systems within a network very valuable. This is something that is likely to become more relevant with the arrival of the new regulatory requirements next year.
The benefits of using the technology available to help comply with regulatory change have been well documented. Quotations, applications, literature and compliance manuals are just some of the features which could be accessed and maintained online to help streamline processes in the future. If advisers opt to become part of a network, it's likely they will be set up with the latest technology to help them, since networks tend to invest a lot of time and money in ensuring that they have the best systems in place to meet their clients' needs.
Tied agents would benefit from the support of their chosen provider who should supply various tools to help them with their compliance needs. However, tied agents would not have the luxury of benefiting from the experience of their fellow advisers. Those in networks could share knowledge and pick up tips from their network partners.
They can however benefit from being associated with a strong brand. There may also be opportunities for tied agents to piggyback the provider's marketing and PR vehicles, although it's likely they will have a number of ARs to deal with on an individual basis, which may make this less feasible.
Advisers who are part of a network will undoubtedly have access to a strong marketing strategy, led by the network itself. Members can make use of literature and marketing techniques developed by the network. It is also likely there will be a network-wide advertising and PR function, which will raise their profile generally. As a tied agent, it's likely the provider will concentrate more on promoting their brand and the products, than ensuring each individual AR is getting a share of the PR. Therefore tied agents would rely more heavily on their own resources for this type of activity.
Whether joining a network or becoming an AR of a provider, advisers should assess their long-term sustainability - are they financially strong enough to still exist several years from now?
It's important for an adviser to select a network or provider that can give access to all the products required for their clients. For example, if a network or provider can only offer mortgages and protection and an adviser also needs to be able to sell investment products, they will have to look elsewhere. Those joining a network should also check the terms before joining, for example, if an adviser leaves the network are they allowed to retain ownership of their clients?
Advisers who decide on the network route have more decisions to make in terms of the choice of products they wish to provide for their clients. Some networks are independent and some are multi-tie, while others offer the option of which type of membership an adviser would like to adopt.
As the name suggests, independent networks provide access to the whole market, so advisers can recommend any provider to their client. This route would be most attractive for IFAs whose clients like the fact that they are completely independent. It also means that advisers can be confident that no matter how specific a client's needs might be, they should be able to search all provider possibilities and find a suitable solution.
Suitable solutions
Multi-tie networks will arrange for a number of providers to join their panel. Advisers will then be allowed to choose products from any of the providers on the panel. This may seem like a less attractive option, but it is likely that these networks will have put a lot of work into ensuring that all the major product providers are available on the panel.
Most intermediaries would want to be able to meet the vast majority of their clients' financial needs, however this will depend almost entirely on what type of service is demanded by the clients.
The trends following investment regulation suggest it is likely that the majority will take shelter under the umbrella of a network. Regardless of which option is most favoured, intermediaries who choose to become ARs are likely to enjoy the support of their networks or APs, which should make it simpler and less costly to comply with the regulatory changes that are on the horizon.
Nick Kirwan is head of protection proposition development & marketing at Abbey for Intermediaries
