Distribution of wealth

David Ryder, head of proposition at Paradigm Consulting, explores what recent closures in the distribution space can tell us about the current mortgage market, and whether it could be time for some to consider striking out on their own as an independent adviser.

Related topics:  Blogs,  Mortgages
David Ryder | Paradigm Consulting
5th July 2024
David Ryder Paradigm
"With rising staff costs and running costs, we have an almost perfect storm where perhaps only the sturdiest, or the most flexible, will survive."

As Jimmy Greaves used to say, “It’s a funny old game,”, and that has certainly been the case recently in the financial services distribution space.

As far as most of us can remember financial services distribution has always been a happy town of networks, national advice businesses, support service providers, mortgage clubs, consultancy practices and the like.

All have co-existed side by side, each providing a home for advisers, albeit in different guises (i.e.) as appointed representatives (AR) or directly authorised (DA), offering restricted or whole of market advice, with some specialising in certain areas. However, there is change in the air and not everyone is smiling.

In recent weeks we have, sadly, seen Tenet Group and three of its subsidiaries placed into administration. This has also impacted Tenet’s mortgage club and compliance support offerings which have had to stop trading.

Of course, prior to this, Tenet had closed its network of ARs with advisers moving to either the independent offering of 2Plan or the restricted environment of Openwork. This disturbance has impacted a number of financial services practices, as well as resulting in a number of job losses within Tenet.

In addition, news recently broke regarding Your Mortgage Decisions, a mortgage brokerage which had been under pressure to reduce fees in light of Consumer Duty, with Lloyds Banking Group and Santander threatening to remove the firm from panel. The firm recently went into administration.

Now, most recently, we see FinTel swooping to purchase support service provider, threesixty services. It is too early to say what the impact of this move may be but perhaps these recent waves in the distribution space tell us a few things.

Firstly, whether we like it or not, regulation is starting to bite. More rigorous requirements around how principal firms oversee their ARs, coupled with rising costs resulting from increased regulation (for example, think of the cost and time impact of Consumer Duty) are making network owners ask themselves serious questions about the ongoing sustainability of their models.

Secondly, often the ownership of these organisations involves significant provider investment and, with return on investment to shareholders being negatively impacted, in the cold light of day serious decisions are having to be made.

If we then consider the overall economic environment everyone is operating under, with rising staff costs and running costs, we have an almost perfect storm where perhaps only the sturdiest, or the most flexible, will survive.

Of course, at the centre of all of this are staff, advisers and clients. Recent events have been completely outside of their control and yet they are the people impacted the most. Long-standing businesses are suddenly finding their foundations being rocked, livelihoods are being put at risk and clients are being left out in the cold.

Recent election propaganda has talked about change and finding stability; statements that seem quite appropriate right now in the financial services distribution space. Therefore, if you are an AR and concerned about rising fees and costs, could this be the time to consider striking out on your own as an independent adviser in a way and at a time where you control the narrative?

I have spoken before about the satisfaction that can be derived from having autonomy and total control over your firm’s destiny. Indeed, with the close support of a trusted consultancy or service provider, you can confidently expand your proposition, be on the front foot in delivering a complete life cycle of support to your clients and reach into the generations that follow them.

With expert support you can build true value in your business and develop succession and/or exit strategies, with support being on hand to match you with likeminded firms. Surely this is a better scenario than finding yourself in a no-man’s land as a result of actions taken that are completely out of your hands?

If you are an already established DA firm, could there be greater appeal in working alongside a more nimble, independent compliance consultancy where the often seen ‘off the shelf’ support from some larger suppliers is replaced by bespoke solutions and a much more personal interaction?

Of course, you may opt to hunker down and see if the storm passes. However, whatever your current thinking or the questions you may be asking yourself, there is no hiding from the fact the ‘distribution of wealth’ is changing and maybe it’s time to get ahead of the game to ensure your business continues to grow and thrive in the way that you want that to happen.

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