For years the network propaganda machines have always played down the fact that the clients (or client files) of member firms are actually ultimately owned by the network itself. Although this fact is always conveniently remembered when a member firm tries to leave the network, suddenly the files are required to be returned!
Member firms are never any more that ARs. But as the FSA starts to enforce the TCF regime there are several potential problems for networks as a result of this over-riding agency issue.
Historically, all networks have seen a turnover of membership, for whatever reason. With this turnover, through death of the proprietor, merger, retirement or resignation, comes an increasing amount of unallocated commissions which are received by the network and ultimately retained by the network because they cannot be allocated to a specific member firm.
Effectively these are transactional customers “lost” in the system. Where does the TCF liability stand? With the original provider of the product? The current servicing agent? Or the body that is currently getting commission? And what TCF obligation is there, now and going forward? How are the networks going to justify the money that they are being paid in respect of these clients? When they may not even be able to trace the client let alone justify their remuneration. Are they going to tell the insurance companies that they don’t want to be paid these considerable amounts of money?
Secondly, the network will be the main body that the FSA is interested in from a TCF perspective, yet within the network there will be a myriad of member firms all treating their customers differently, and all with totally different systems in place. The problem with TCF is that it will be very difficult to apply in a unified fashion across all member firms, because member firms are each very different, and deal in different markets.
The only solution to this problem for the network is to legislate to the lowest common denominator, thus putting an extra burden on the already efficient network members. I am personally of the opinion that the FSA should treat each member firm as an individual firm for TCF compliance purposes, with individual visits & assessments.
Finally, what about the member firm who has a legacy of small, transactional customers mixed in amongst their client base? For these firms leaving the network could be a very effective way of TCF liability dumping, leaving the network with the clients that are unprofitable and unserviceable whilst taking with them the profitable clients. You never know, as TCF starts to bite, it may be the member firms that are the quickest at remembering who actually owns the clients!
Adrian Shandley is managing director at Premier Wealth Management
The views expressed in this blog are the individual's own and not necessarily those of the company he represents.