Adviser
Community
The Independent Resource for the Financial Adviser Community.
This is an organisation or business if you like that provides sourcing, system and compliance resources for their members who are known as AR’s. They are usually funded principally by a monthly “broker fee” payment from the AR, retention of insurance commissions/proc fees or more generally a mixture of the two.
Appointed Representative Status (AR)
On joining a network the broker becomes an appointed representative. As such the network becomes responsible for the brokers compliance regulation. Critically however the relationship should always be one where the AR is in the driving seat. Regulation governs both the network and the AR but within these confines, the AR has the freedom to leave the network for another at any time.
The term registered individual applies to an adviser who is working for a master brokerage or IFA. The terminology applied to the RI might differ between organisations calling the RI an associate or partner, but basically the regulated relationship is that of a principal and an RI. Clues to this are the RI will present themselves to clients as a financial adviser of ABC ltd, their business card will say this as will all the paperwork they present. In most but not all cases the clients will remain the responsibility of the principal if the RI moves on.
Only really an option for larger firms due to the costs involved (we would suggest at least £50,000 +). Directly Authorised could be suitable for businesses who need full access to insurance providers, well as lenders. If you sell a product which is unusual or deemed too niche for a network providing you either have the necessary compliance skills or can hire in compliance advice. One word of warning here would be that compliance firms will often quote a very small charge for their basic service. However you should remember this does not cover PI, covers only a small number of file checks per year, will not cover regular compliance visits and does not include PI cover
Compliance to the FSA’s regulatory framework is one of the key areas of support covered by a network. Having said this, the amount and more importantly style of compliance provided by a network varies dramatically. Although a major part of this is now handled electronically, there are massive differences in the systems used. A good system will reduced the need for double entry of data as much as possible while only requiring the minimum information for compliance requirements.
Base commission levels will vary between networks however this is only one part of the picture in comparing networks. For example the amount of retention kept from the commissions will also vary. Network (A) for example could pay 175% on a policy whereas network (B) might pay 185%. This may seem a simple comparison but (A) might take a retention of 7% with (B) taking 9%. Added to which retention levels usually vary with business levels making the situation even more confused.
Procuration fees are sometimes described as being paid out to AR’s without any retention. However this is not necessarily as attractive as it seems since the proc fees obtained by networks can vary according to the deal they strike with the lender so a proc fee minus 10% off one network might actually generate more income than another which is paid in full.
This is the main source of income for most networks and refers to the amount they keep from proc fees and commissions. In an ideal world this would leave a simple calculation to determine which network was offering the best deal, however in reality you also need to take into account the gross amount of proc fees and commissions as well as the banding levels (the levels at which retention levels reduce) as well as support, compliance and how the network character fits with your business.
As you can see from the previous paragraph determining the right network for a business is anything but straightforward. We routinely hear of networks failing to mention their minimum retention levels, or swearing that cumbersome buggy software is actually a slick program which will virtually run your business for you. In fact it’s a truism that given meetings with BDM’s from 3 different networks most brokers will end up joining the network whose BDM is the best salesman. Maybe not the best way to plan a business.
Network contracts are a very important aspect of joining a network and if you are at all unsure about any of the terminology or clauses contained in it you should refer it to a solicitor for a professional opinion before signing. Do not however be surprised if the majority of the conditions of the contract seem to favour the network. The network and all it’s AR’s rely on this contract for protection from claw back, fraud, negligence and plain stupidity.
For advisers dealing in investments and pensions there are IFA networks. These enable IFA’s to write all types of business but are generally not suitable for mortgage brokers who do not write investment or pension business as compliance regimes can be a bit strict and costs are usually higher to reflect the higher compliance and administration requirements of IFA’s.
Suitable for both mortgage brokers and insurance agents, mortgage networks specialise in compliance and products associated with both businesses. Compliance levels tend to be lower than for IFA networks reflecting the lower risks in comparison to investment products. Good networks will also offer marketing support and generally assist in building up your business. As always the overall fit of a network to your business is more important than any individual aspect.
Whilst looking over a networks contract, prospective AR’s should pay particular attention to any termination clauses. Remember these clauses will govern how easy or otherwise it is to leave the network and if there is likely to be any costs incurred in the process. It may seem a bit paranoid at the start of a relationship but your business might be very successful or change its direction forcing you to leave or alternately difficult trading conditions and low levels of business may have the same effect. It may of course be thar you stay with a network for 20 years until you retire but in either case it is better to know where you stand before you need to take action.
Credit problems are not necessarily a block to joining a network. It depends upon
the network in question, how big the problem is and how the bad debts were incurred.
Whatever you do however you should never keep quiet about credit problems since
non-
Although it is certainly possible to run a mortgage broking business on a limited panel of lenders it does make it a lot harder to find the right product for your client. All of the networks we deal with allow brokers whole of market access to lenders.
Competent Adviser Status (CAS)
Like most professions, academic qualifications alone do not prepare you to carry out work as a mortgage broker. In addition, it is vital that the broker can conduct interviews, asking the right questions, source products and complete all of the associated paperwork compliantly and to a high standard.
Introducers can be a valuable source of work for many brokers. It is necessary however to make sure that those introducers are genuine and that the leads they give you are of a high quality. Certainly you should be wary of any new introducers who want to supply the required proof of earnings or bank statements without you actually meeting or at least talking to the clients.
Introducing Investment and Pensions Business
When looking for additional income streams you should never overlook the possibility of introducing investment or pension business to a trusted colleague or suitable organisation. Do make sure you check on the service your clients receive however as you do not want to risk your relationship with your clients. Also, make sure you get a “no cross selling” agreement signed by whoever you pass the work to.
As an AR with a network, your clients should always be owned by you. If you are an RI however the situation is not always cut and dried. If you are to sign an agreement to take up a self employed position with an appointed representative or a directly authorised broker or IFA, make sure that your clients, which is to say the clients you find stay as your clients if you leave.
Insurance claw back or the threat of it can cause problems when joining or changing
networks since with many networks being reluctant to nuovate paid commission because
of the risk of claw back. It is understandable that brokers with good persistency
levels on insurance sales can resent any implication that they would re-
A much bandied about phrase by networks. Business support is without doubt one of the most neglected areas when choosing a network. Understandably perhaps since all networks say they give it, some are brilliant at it, some not so brilliant and some absolutely abysmal. The reason that all networks all say they provide it is that it can be the vital spark that takes a business to another level or helps it through tough times.
Yet time and time again, we see brokers missing out on the chance to build their overall business by 20% or more a year in order to gain 8% on an insurance commission or save 5% on costs. Don’t get me wrong, costs are very important and come directly off your top line but what is more important is your net profit. Your business should be making as much money as possible for you and the only way to achieve this is through business development.
Not something most people including myself are very happy with and definitely not a term which immediately comes to mind when considering joining a network, but your quest will become much easier and your business more profitable if you consider your “needs” rather than your “likes” from the outset and maybe write yourself a short list. In no particular order, financial stability, a strong but not overly fussy compliance system, high commission payments, good support in growing your business may be some of your needs. Whereas you might like full market access to insurers when you never really use more the 5, a paper based compliance system in what is becoming a digital world, full access to equity release products when you did 1 equity release mortgage last year and 2 the year before or the ability with its associated costs to conduct pension and investment business when last year this business came to less than £10,000.
There may be items on the second list which are actually needs if you are about to remodel your business based on something new, but you should always be realistic about it, and not let your “would like” list get in the way of a move where you could potentially be earning 20% more in insurance commission or get increased business support which will help you to explore new products and increase sales substantially.
The list below is explains terms used in Mortgage Networks and IFA networks as well as the wider financial services community. The explanations also show how these points might affect you or your business and in some cases important issues you might not have considered. Just click on the term below you wish to check out or to browse, scroll down the page.
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