Do some research before joining a network, says Matthew Dyer

Many small intermediaries do not have the time, or indeed the inclination, to wade through hundreds of pages of FSA consultation papers. Many will be convinced that, having seen or indeed been though regulation of the life market, that a network solution could be their only way forward.

Is the only way for small intermediaries to survive FSA regulation to join a network?

There are several newly-established firms in the market that are definitely promoting a 'yes' to this question. While on the surface these options may seem very attractive, with promises of streamlined approaches, standard audit forms and an umbrella from those dreaded FSA auditors, perhaps a look-before-you-leap practice should be adopted.

As the rules stand at the moment (PS159), if a firm were to be an appointed representative of a network (assuming the network appoints on an exclusive basis) some or all of the following would apply:

  • The products you are able to sell would be restricted to those offered by the network
  • The quote systems used may be dictated by the network
  • The training you and your staff must undergo will be structured (and charged for) by the network
  • The network will need to audit on a regular basis, perhaps twice a year. An FSA audit may only take place every two to three years, depending, for example, on the type of organisation and products sold
  • Networks are likely to take a tougher audit stance as they cannot risk their FSA status
  • A mistake by another firm in the network, or by the network itself could result in FSA penalties which may affect your firm
  • Information requirements, such as accounts and complaints, will be the same under a network as under FSA.
  • So who pays for a tougher audit regime, the lack of individual identity, the loss of choice of products and systems and the risk that the network could make a mistake? You do. Training, audits and systems do not come cheap. Payment may be in the form of an override, direct fees or other methods.

    So what is the advice to a small intermediary firm? Simple, educate yourself. Read the FSA's consultation papers. Listen to your product providers, software houses and industry bodies, but be aware that each has its own agenda. Speak to other organisations and ask them what they are thinking of doing. Speak to the networks and ask them difficult questions.

    Networks will no doubt have their place as we move into a fully-regulated market No doubt they will provide many benefits for a good number of firms, so don't dismiss this as an option, but until you know all the facts, don't think it's your only option.

    Matthew Dyer is managing director of the Insurance Training Consortium