Local IFA v "Specialist" v Network

dgbshifnal

I have been through 95 of the 200+ pages of all the related threads.
Some excellent info (especially Dunstonh), but still confused over certain issues.
I am resigned to using an IFA in order to get the best option for my annuity pot;
I think I now undestand that the IFA just gets commission from the provider, and that this doesn't reduce my income options.
However, not clear on the concept of networks. Are these small/medium firms of IFAs working together informally?
I have inferred that these network IFAs are quite likely to get as good as/better annuity quote than eg Annuity Direct, who say that they do not transact business other than annuities and are therefore specialists who will get the best rate.
Is this true?
In real life, I would go to at least three IFAs to compare what they offered, but in IFA world, having decided on the better one, I would have to pay a fee to the other two, just for getting comparable information.
(I am a cynic!)

dunstonh

However, not clear on the concept of networks. Are these small/medium firms of IFAs working together informally?

Networks are basically support companies for IFAs. Without a network you have to have your own compliance officer, be responsible for a lot more admin and take on a greater responsibility for knowing the rules. For a lot of smaller IFA firms, doing all that would cost a lot of money so they can buy network services where you pay the network to take on that responsibility leaving you to get on with what you are good at.

Some firms prefer to be directly authorised and not use a network and have staff all in house to handle it. Neither method is necessarily better than the other. However, the FSA have kept a closer eye on networks over the years and been quite hard on them at times for failings. Nowadays, the FSA has a much more positive view of networks and they appear to believe that IFAs attached to networks or those that use network services (whilst still being directly authorised) are generally more compliant than those that do not. The FSA has proposed that those IFAs using network or support services from an approved and authorised body will get some form of regulatory dividend whereas those that do not will be placed under greater scrutiny.

There has been a mindset that if you are directly authorised that you are under the radar as the FSA arent going to come out and visit you and you have no network coming out to audit you so you can just keep everything in house. If you go back 20 years, you will find the majority of directly authorised firms have never had a visit or an audit. However, that is coming to an end as the FSA has stated that over the next 3 years it intends to visit/interview around 1/3rd of directly authorised firms.

Different networks also have different models. My network for example is not at all intrusive. I get a visit once a year for the firm, once for me and another for my mortgage adviser. They also pick a sample of cases to review. There are also quarterly compulsary tests to sit. Apart from that, I am left alone to run my business how I want. I can use what software I like, how I write reports and give advice as long as it meets the compliance standards. Other networks impose more controls over their members and insist on certain things which can interfere with their running. They may not allow certain software packages to be used or insist on using their own one. Some go as far to be run almost salesforce style where the IFA may have a trading name but they are forced to do everything the network says as if the network was an employer.

I know IFAs that use different networks to me and one of them uses a network that is quite frankly a disgrace. Its historically been a mortgage network and that side is fine but it has a small number of IFAs now and they just dont have a clue about investment business. And i really do mean that. They still believe non taxpayers can claim back the tax on dividends and CAT standard still exists for invesments and worst of all, the IFAs on that network have to recommend funds on the basis of past performance and not that of future potential.

I have inferred that these network IFAs are quite likely to get as good as/better annuity quote than eg Annuity Direct, who say that they do not transact business other than annuities and are therefore specialists who will get the best rate.

For the consumer, the main benefit of networks is that they can usually get the best terms. Sometimes thats in commission (which benefits the adviser not the consumer unless rebated). Sometimes thats in premiums or charges. i.e. Lower life assurance premiums, lower annual management charges or higher allocations. In general, the bigger the network, the better the terms. Although no doubt there are some skilled negotiators in some of the smaller ones which has allowed them to punch above their weight.

In real life, I would go to at least three IFAs to compare what they offered, but in IFA world, having decided on the better one, I would have to pay a fee to the other two, just for getting comparable information.

First meeting is free and you can tell the IFA that you are just interested in figures at this stage. Be honest with them and tell them you are shopping around. That is important. I recently had a case where I didnt know other IFAs were being used and none of us now can give advice because each IFA has only got part of the info from each of his plans because each letter of authority requesting data has been superceded by another IFA. None of us can get everything we need yet had we known other IFAs were involved we could have worked it differently. This may apply to you as you would expect the IFA to write to your exisiting provider(s) to get information and forms.

dgbshifnal

Dunstonh,

Thank you for such a detailed response. As I have said before, you stand tall in the pantheon of IFAs.

Particulary useful is your final piece of advice that, despite my cynicism, it is possible to shop around at the initial stage.

Retired_I.F.A.

An IFA can be a sole trader in which case it's possible he has not set up an agency with every company although doing so is no real problem.

He may be effectively an agent of another IFA in which case he might not be able to agree fees if he works on a percentage of the commission but there again he might.

He could be an internet type execution only prop submitter.

He could be any of the above who in turn is a member of a network.

Network members usually get the backing of a decent research department and their combined buying power can sometimes get them better commission terms but that enhancement is usually very small and almost never amounts to the networks charge on the IFA's commission.

So really it should not matter which you buy an annuity through as long as they all give you the best market rate. It's the commission / fee that will vary and at 1%-1.4% usually it does not equate to a great deal in which case I'd say avoid the execution only route as the loss of any comeback is not worth the slight extra.

Besides which, look at drawdown, imo annuities are history.


EDIT... Typed the above without seeing Dunstonh's reply which gives a more up to date and comprehensive answer than myself. He types bloody quick too !