- Sesame response to FSA Retail Conduct Risk Outlook in relation to the network model
Sesame has responded to the FSA’s first Retail Conduct Risk Outlook report, which has highlighted the financial challenges facing some adviser networks.
Managing Director Nick Kelly is urging business owners to safeguard their livelihoods by satisfying themselves that their existing network is stable and capable of providing high quality support in the run-up to – and beyond – RDR. He says: “Advisers need to be aware of the warning signs and satisfy themselves on issues such as financial security, depth of resource, clarity in strategy and regulatory integrity.
“Whilst the regulator recognises that a number of networks are under considerable strain, others are in better shape. Before any more firms fail and withdraw from the market altogether – leaving their advisers high and dry – it is essential that practice principals have confidence in the ongoing viability of their network.”
Nick Kelly highlights five key indicators of the health of a network:
- Financial strength: Can the network demonstrate a track record of profitability and strong financial governance?
- Capital resources: Going beyond capital adequacy as mandated by the regulator, does the network have liquid assets to commit to the business long term?
- Ongoing Investment: Are funds being made available to enhance the infrastructure and service to network members, in turn helping them create value in their own businesses?
- Management expertise: Is there an experienced and committed senior management team, providing continuity and a long-term vision?
- Support of a strong parent: Is there a clear strategic intent to help the business succeed?
Kelly suggests that there are unfortunately too few networks that can tick all of these boxes. He continues: “The impact on advisers and their businesses can be terminal when their network itself fails and the regulator is providing a stark warning that it expects more networks to struggle with the transition to the post RDR world.”
Nick Kelly also pointed out that when it comes to the financial and regulatory pressures on the advice profession, it would be wrong to simply single out networks. He says: “We regularly hear news of directly regulated advice firms that have also gone out of business, however the ripple effect of failing networks understandably draws attention.
“Regardless of whether a firm is directly authorised by the FSA or an appointed representative in a network, key issues such as risk, governance, value realisation and regulatory interpretation should not be underestimated.
“Strong networks will continue to deliver value in all of these important areas – and more besides. A network with the financial strength to invest in people and systems will continue to help its members run profitable and compliant businesses over the long term.”